Revenue Is Not the Same as Profit: Tax Pros, Know What Your Business Is Actually Making

Tax season can make you feel rich.

Money is coming in.

Your calendar is full.

Clients are calling.

Returns are being prepared.

Your bank account may have more money flowing through it than at any other time of the year.

But there is one mistake tax business owners cannot afford to make:

Confusing revenue with profit.

A busy tax season does not automatically mean you have a profitable tax business.

Revenue Tells Only Part of the Story

Let's say your tax business generates $200,000 in revenue during the year.

That's an impressive number.

But how much did it cost your business to generate that $200,000?

Think about everything you may be paying for:

Tax software.

Payroll.

Contract labor.

Office rent.

Marketing and advertising.

Insurance.

Bank fees.

Merchant processing.

Technology.

Education and training.

Professional services.

Office supplies.

Software subscriptions.

Those expenses have to come out of the money your business generated.

What remains after your business expenses is much closer to the number that tells the real story.

Revenue may get people's attention. Profit helps keep your business alive.

Tax Season Can Create a False Sense of Security

Tax businesses have a unique challenge because so much revenue can arrive within a relatively short period.

January starts.

February gets busy.

March may get even busier.

Money is flowing through the business.

And when revenue is coming in every day, it is easy to believe the business is financially healthy.

Then tax season ends.

May comes.

Then June.

July.

August.

Revenue may slow dramatically, but many expenses continue.

Rent is still due.

Software subscriptions continue.

Insurance continues.

Payroll or contractor expenses may continue.

Marketing continues.

And the owner still has personal financial obligations.

This is why a tax business cannot be managed based solely on what is sitting in the bank account during filing season.

You have to manage your money with the entire year in mind.

Tax Pros Need to Know Their Numbers

You don't need to become an accountant to operate a successful tax business.

But you do need to understand the financial health of the company you're building.

At a minimum, you should be asking questions such as:

How much revenue did my business generate?

What were my total expenses?

How much did I spend on payroll and contractors?

What did I spend acquiring and retaining clients?

Which services generated the most revenue?

Which services actually generated profit?

Which expenses can be reduced or eliminated?

How much money did the business actually keep?

These are business-owner questions.

And if you want to grow from being a tax preparer into running a sustainable tax company, these questions matter.

Stop Measuring Success by How Busy You Are

Being busy can feel productive.

But busy and profitable are not always the same thing.

You can prepare 1,000 returns and have poor margins.

Another tax professional can prepare fewer returns, charge appropriately, manage expenses, operate efficiently, and finish the year with a healthier business.

That's why client count alone doesn't tell you whether your company is succeeding.

Neither does gross revenue.

You need to understand what it costs to operate your business.

Watch the Small Expenses Too

Large expenses are usually easy to identify.

It's the smaller recurring expenses that business owners sometimes overlook.

$49 here.

$99 there.

$199 for another platform.

Another monthly subscription.

Another automation tool.

Another app somebody told you that you needed.

Individually, those expenses may not seem significant.

Collectively, they can represent thousands of dollars every year.

Periodically review what your business is paying for.

Ask:

Do we use this?

Does it solve a real problem?

Does another platform we already pay for provide the same service?

Does this expense contribute to efficiency, revenue, compliance, or the client experience?

Every expense doesn't have to directly produce revenue, but every expense should have a purpose.

Build a Business for the Entire Year

Tax professionals also need to think beyond January through April.

Ask yourself:

What does my business look like during the other eight months?

The off-season can be used to strengthen your company.

Improve your systems.

Train your team.

Review your finances.

Follow up with clients.

Create year-round services.

Develop new revenue opportunities.

Improve your marketing.

Update your procedures.

Prepare for the next filing season.

A sustainable tax business isn't simply trying to survive until January comes back around.

It has a plan for the entire year.

Review Your Profit & Loss Statement

One of the best habits a business owner can develop is regularly reviewing the company's financial statements.

Don't wait until tax time.

Your Profit & Loss statement can help you see what's happening inside your business.

Look at your revenue.

Look at your expenses.

Compare periods.

Look for trends.

Ask questions when something doesn't make sense.

Your numbers should help you make decisions.

And if you don't understand what you're looking at, work with a qualified accounting or financial professional who can help you understand it.

Don't Just Build a Busy Tax Business

As tax professionals, we spend a lot of time helping our clients understand their finances and taxes.

We need to bring that same level of attention to our own businesses.

Don't let a successful filing season fool you into thinking everything is fine financially.

Look beyond the money coming in.

Look at what is going out.

And most importantly:

Look at what's left.

Because revenue is not the same as profit.

Build a profitable tax business—not just a busy tax season.

— Dr. Gwennetta WrightXpert Business Solution

For tax business education, resources, and professional development, visit Xpert Business Solution.

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