Sam O’Connor has some advice on how you can take advantage of changes to the tax regime to boost your profitability.
With Making Tax Digital for Income Tax (MTD IT) on the horizon, we’ve been exploring what it means for accountants and their practices.
At Coconut, we believe there is a huge opportunity for accountants to benefit from MTD IT, and we’re focused on building a platform that makes SA103S clients not just easier to manage but higher margin.
Estimates are in the region of one million or more new sole trader clients in the market looking for an accountant, equating to a revenue opportunity of hundreds of millions for the industry.
Not only will there be more sole traders to service, but the quarterly reporting cycle will create an opportunity to move to a monthly pricing model, resulting in more stable income.
So, how do you capture your share of this market opportunity? And more importantly, how can you turn this into margin for your practice?
1. Charge more for your service
It’s easy to think that competing on price is the right way to go to win more clients, but what I see suggests something different.
The reason for this is psychological, known as ‘value attribution’. Humans value cheaper things less than more expensive things. A famous example was shared in a book called Influence, by psychologist Robert Cialdini (worth a read if you have some time). There was a lady who owned a jewellery shop who wasn’t able to sell her turquoise pieces, despite trying very hard with different displays. She left a note for her assistant to discount it by 50%. The assistant misread it and doubled the price. The pieces sold out that day.
Increasing prices is usually counter intuitive, but often the right thing to do. It shows we value what we do and increases the perceived value to the client.
This is especially true when it comes to the impending imposition of MTD. With increasing frequency of reporting, and increasing work levels, making sure you’re making a good enough margin from sole traders will allow you to service them well. Happy clients make life easier and creates more work through referral.
2. Invest a little in a standardised process
Accountants that are winning in the sole trader market have a really slick process to cut out unnecessary work. Investing a little in the process has a compounding effect on margins, because it scales to many clients.
A few areas to think about when it comes to standardisation are:
- Onboarding: Getting a client set up quickly with the tools you want them to use helps to seal the deal and provide a great first impression. With the Coconut app, it takes a matter of minutes for your client to create an account, but means you have access to the information you need from the very start.
- Data gathering and bookkeeping: Open Banking has really helped this process because many apps, from invoicing to receipt capture, can now connect to bank accounts, something that was only ever really seen before through cloud accounting. With Coconut, once your clients have connected their bank accounts and credit cards to the app you can see and sort all of their data in real time through the Portal.
- Filing: With filing software such as Taxfiler it’s simple to manage sole traders filing requirements en masse. Coconut has a Standard Number Formatting (SNF) download, which means you can simply copy and paste the summary over to your preferred filing software in a few clicks and submit.
3. Try to become famous for a subsegment
Another way to increase margins and reduce customer acquisition costs is to become famous for a specific customer segment. You don’t need to have a face for TV or be a whizz on social media to do this. In fact, the truth is much more mundane.
By finding a client segment that you like, such as construction subcontractors, online sellers or even influencers, you can become embedded in their networks by simply doing a great job. All you need to do is tell them that you want more clients like them, and they will no doubt tell their peers about you.
Becoming famous for a subsegment doesn’t only help with growth, but also helps you minimise costs because your process can improve over time. You can build the right tools to service that specific customer segment well. And you can even start increasing your prices if you’re the go-to for a specific segment, particularly if you’re reaching full capacity.
The opportunity with MTD IT is huge, and we’re excited about supporting accountants in realising as much margin as possible through this change. April 2023 might feel some time away, but now is the time to get your sole trader clients organised.
• Sam O’Connor, CEO, Coconut