Increase 1040 Tax Prep Profitability with a high leverage staffing model

August 26, 2020


Processing 1040 tax returns is a collaborative effort that requires the expertise of every staff member who touches a return. Many CPA firms pass their 1040s through a similar, three-tiered staffing structure: staff preparers, then managers, then partners. Since the review work is generally performed by partners and managers who work at the highest billing rates, reducing review time has the greatest effect on the firm’s bottom line, even if it requires an increase in preparer time. Less time per-return on the reviewer level means that each partner can review the work of more managers, and each manager can review the work of more staff preparers. This is called a high-leverage staffing model.

SurePrep designed a bespoke tax workpaper system with this exact idea in mind: SPbinder. This award-winning software helps firms optimize cost efficiency with a high-leverage staffing model in two ways:

1) SPbinder equips preparers with tools to thoroughly document their work.

2) SPbinder gives reviewers the ability to quickly view the preparers' work and identify areas of the return that need a closer look while avoiding areas that don’t.

Combined, these advantages lead to a dramatic drop in reviewer time per return without sacrificing accuracy or quality. The end result? A higher 1040 profit margin.

Injecting leverage into your 1040 workflow

While the high-leverage staffing model might require extra time in the preparation phase, the resulting reduction of review time makes good financial sense. Let’s look at proof in numbers.

In the chalkboard image above, we detailed a tax return prepared by a three-person team: one partner, one manager, and one staff preparer. The tax return is billed at $1,200. The Hourly Cost is based on 80% billable hours (i.e., 1,664 hours per year). In our example, the preparer salary is $54,912 ($33 x 1,664), the manager salary is $108,160 (65 x 1,664), and the partner salary is $332,800 ($200 x 1,664).

Scenario 1: This firm uses a low-leverage staffing model. They are not using a tax workpaper system designed to reduce review time.

Scenario 2: This firm uses a high-leverage staffing model. They are using SPbinder.

In Scenario 2, we increased preparer time by 1 hour and decreased combined reviewer time by 1.25 hours (45 minutes of Manager time and 30 minutes of Partner time). While this dropped the Rate per Hour by 3%, it boosted the profit margin by a whopping 45%.

Of course, salaries, fees billed, and average hours vary by firm. That’s why we’ve created an easy-to-use calculator that runs the numbers for you. Simply input your firm’s unique data to see how much a higher leverage model could boost your profitability:

*Note: This is a downloadable, offline calculator. No one sees the values you enter but you.

Are your preparers still doing data entry?

You can further reduce preparer time by eliminating data entry with 1040SCAN. Our industry leading scan and populate software recognizes 4–7x as many tax documents as the competition. By automating data entry, you allow your preparers to concentrate on value-added work that contributes to your higher leverage model. All versions of 1040SCAN include SPbinder at no extra cost.

As partners, we’re probably reviewing 40% less of the 1040s because we can push the review level down to a supervisor or manager. And where I would usually spend 15, 20, 30 minutes looking at a return, now I’m spending 5 to 10.

– Brad Beasley, Partner, Beasley, Mitchell & Co.

SPbinder features that support a high-leverage model

SPbinder’s features emphasize standardization and digital trails so that reviewers can avoid redoing preparer work, hunting for source documents, or interpreting ambiguous annotations. There are too many features to list in one blog post, but we’ve highlighted some of the functionalities that play a key role in a high-leverage model. As you read through them, think of how they make a reviewer’s job easier:

  • Standardized tick marks, notes/annotations, and calculator tape can be applied directly to any file type (PDF, Word, Excel, Email). Notes can expand into threads, where commentary from different users is linear and easy to follow.
  • Users can create hyperlinked cross-references between documents—again, regardless of file type. This means referenced documents are only a click away.
  • All changes are tracked and stored in an easy-to-read change log that shows which users did what and when.
  • The option to enable up to four signoff levels means individual workpapers are validated by every hand that touches the return.
  • Our brand-new Reviewer Dashboard gives reviewers a big picture overview of taxpayer information without the need to open the binder.
  • Binders live securely in the cloud, so your team is always collaborating on the same document. You’ll never worry whether you have the “most recent file” and the team can collaborate from any location.
  • Leadsheets are such a powerful reviewer tool, we wrote an entire whitepaper on them (Maximize Review Efficiency with SPbinder’s Workpaper Leadsheets). Here are just three of their star features:
    • Leadsheets automatically generate hyperlinks between amounts and source documents. Reviewers can open the source documents in a split screen view with a single click.
    • Change alert icons appear next to any item that has changed since a reviewer’s last sign-off, so they never need to retrace their steps.
    • Variances between the binder data and the output of your firm’s tax software are automatically detected and highlighted for further investigation.

You’re not questioning where people got the information. We don’t have somebody sitting back here with their list trying to recognize what the form was and naming it. It would be 7-10 days in peak time for a return to get through review. Now we’re looking at 3 or 4.

– Cindy Bupp, EA, Manager, Huth Thompson LLP

To learn more about how companies use technology to reduce costs and increase margins in their 1040 tax practices, watch our webinar “A Statistical Analysis of Firms Who Leverage Technology to Increase 1040 Tax Prep Profitability”.

Final Words

Firms that don’t utilize a high-leverage staffing model are leaving money on the table. SPbinder is a bespoke workpaper system designed specifically for tax professionals with a high-leverage model in mind. By using this software to streamline the 1040 workflow, CPA firms can elevate the role of their junior staff and increase their profitability.

To speak with a SurePrep team member and find out whether SPbinder is right for your firm, please fill out our sales contact form.

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