As an accountant, would you rather be a dentist or a surgeon?
Did you ever hear the joke that begins: “A dentist, a brain surgeon and a CPA walk into a bar?”
I didn’t either. However, more and more CPAs need to decide if they want to run their practices like dental offices or neurosurgery practices. And there’s nothing funny about that.
You can do well with either approach — as long as you’re deliberate about which path you’re taking. It can’t be a haphazard approach.
Do you want to be a high-volume practice that does lots of repetitive work (like a dentist)? Or do you want to be a low-volume practice that solves complex cases and problems (like a surgeon)?
Two types of CPA firms
If you’re focusing mostly on tax returns, you’re the CPA equivalent of a dentist — serving lots and lots of patients doing routine cleanings and filling cavities. You’re not solving a complex problem (like reconstructions or oral surgery), and you’re getting paid appropriately.
Brain surgery is completely different. There are myriad complex issues, and surgeons are often tasked with preventing a patient from dying on the table. The diagnosis, treatment and follow-up are a lot more in-depth. Therefore, surgeons are highly compensated for their expertise.
Both are strong business models. I know plenty of dentists who make a very good living. They have simply figured out a way to streamline their practices and to get a high volume of patients in and out of their office every day. Their patients keep coming back every six months for routine maintenance. Most will give positive reviews online.
The same goes for tax prep. Get a lot of clients in and out of your office at the same time every year, get the returns in on time, and you can do very well for yourself. Just don’t complain to me about the long hours and all the “disorganized” clients who wait until the last minute to turn in the documents you need.
It turns out people don’t like going to their CPA any more than they like going to the dentist. Who knew?
There are many ways to make more money as a dentist if you’re highly motivated. You can buy practices. You can create systems and procedures. You can specialize in certain types of complex oral surgeries and reconstructions. You can become a marketing whiz within your niche of the dental profession.
Just realize that it’s a different kind of work because you’re solving different types of problems than high-volume practices do. The same goes for CPAs.
If I want my teeth cleaned (or tax return filed), that’s very different than if something bad happened to me and I don’t want to die. Who do you think is going to get paid better for solving these problems? Who is more likely to get sincere thank you notes and personal referrals?
That’s the difference between tax prep and advisory work.
You might have to do 500 tax returns (with some compliance work sprinkled in) to make the same amount of money as helping a single client prepare their business for sale and executing the transaction.
The further you go into brain surgery, the more opaque the answers get. By the same token, the further you get into complex financial advice, the less clear the future becomes and the more opaque your answers get. That’s why it’s so important to be a trusted thinking partner for your clients. Not every CPA is comfortable with this approach because the answers aren’t clearly codified in the Internal Revenue Code. There’s always the risk of your advice being wrong. That might be too much ambiguity for some (see my article 50 shades of (CPA) gray).
Balanced portfolio of services
It would be pretty unusual for a medical practice to provide dental hygiene and brain surgery all under the same roof. That’s one of the great things about being a CPA. You can have a balanced portfolio of services, and it’s OK to provide tax prep and advisory services within the same firm.
You start doing a client’s return and you realize there’s a bigger issue — and you end up getting a lucrative assignment for advisory work. You don’t see dentists saying, “Now that your teeth are nice and clean, let’s take a look inside your skull since you’re already here in my chair.” That’s preposterous.
By the same token, don’t fall victim to “scope creep” if you’re a CPA. Don’t feel pressured to do advisory work for free, just because you’re deep into prepping a tax return for a client. Those are completely separate services and should be billed accordingly. You must absolutely understand the difference — and so should your clients.
Each model has a completely different systems, processes, client onboarding procedures, fee structures and timelines. Make sure you’re clear about the distinction.
How do you decide which type of business you want?
The three components to consider are:
1. Cost: Are you providing a high-volume, low-cost service (i.e., dental hygiene) or a low-volume high-cost service (i.e., brain surgery?) Tax returns are like dental hygiene appointments — frequently recurring and relatively low cost. Helping a client sell their business is the financial equivalent of brain surgery. It could be a six-figure fee for something that takes months to complete and only happens once or twice in a client’s lifetime.
2. The types of problems you help clients solve: Why is brain surgery so much more expensive than routine teeth cleaning? Because the complexity of the problem is different. Having dirty teeth is an annoying problem. But unlike brain surgery, it’s not complicated to fix and it’s not life-threatening. The questions that you ask clients to help them solve are different too, depending on the complexity. That’s why the compensation is so different.
3. The risks associated with being wrong: If you mess up a routine teeth cleaning, it’s usually no big deal. You just have to go back and do it again. In contrast, if you mess up brain surgery, it could be life-threatening. As a CPA, as you start dealing with larger numbers and more complex problems, the issues can become larger.
Look at the three components above and ask yourself: “What kind of business do I want to run?”
There will be plenty of dentists and neurosurgeons 10 years from now. Technology is not going to replace them. People can’t do dentistry and brain surgery on themselves. Technology is actually going to facilitate better relationships between dentists/doctors and their patients.
It all comes down to deciding which business you want to be in. How much complexity are you willing to unpack for clients and how much ambiguity can you stomach? The great thing about being a CPA is you get to decide. Not many other professionals can say that. Think about that the next time you’re having a drink with your successful friends and colleagues.
What’s your take? I’d love to hear from you.