Why a Service Bureau is The Best Business in the Tax Industry? | Service Bureau Accelerator Podcast E10

by | Oct 9, 2023

If you’re considering starting a business in the tax industry, you’ll want to tune in to this episode of The Service Bureau Accelerator Podcast. Baldeep, Ross and Tia provide a compelling case for why building a service bureau offers the greatest opportunity for recurring revenue and long-term success. They compare and contrast service bureaus to other common models like tax prep, resolution, bookkeeping, and planning, highlighting the advantages of minimal overhead and built-in continuity. Whether you’re new to the tax industry or a seasoned veteran, you’re sure to come away with fresh perspectives and actionable strategies to launch and grow your own profitable service bureau after listening.

Other subjects covered on the show:

  • Breaking down the different revenue models in the tax industry such as tax preparation, tax resolution, bookkeeping, tax planning, etc.
  • Pros and cons of different models – service bureaus have better residual income without more staff needed.
  • Higher customer lifetime value working with businesses rather than consumers.
  • Easy recurring revenue each year as clients renew software subscriptions.
  • Many successful 6-figure service bureaus are run by just one person.
  • Low risk and minimal liability compared to other models.
  • No continuing education or licensing is required to operate a service bureau.
  • The importance of having industry knowledge versus trying to teach outsiders everything.
  • Flexibility to grow service bureau through different strategies like training programs.
  • Mutually aligned interests with customers – their growth equals your revenue growth.

[00:00:00] Baldeep: Welcome everyone to episode number 10 of the Service Bureau Accelerator podcast, we got, Uncle Ross here, Tia, the tax goddess as well. And today we’re going to talk about why a service bureau is the best business in the tax industry, best business model in the tax industry. Coming from my background in the tax industry and the tax office world.

[00:00:30] And I think seeing all the other models out there having done some years ago we could definitely dive into a lot of reasons why the service bureaus, the best model, but let’s break down. I guess we’ll start off by breaking down. What are the different, Okay. Revenue models in this industry, cause there’s a lot.

[00:00:48] Tia: There’s a lot.

[00:00:48] Baldeep: We can talk about a couple of them or mention a couple of them and then maybe do some like pros and cons. Right. But yeah, so let’s, I guess anybody want to kick it off with some of the different models in the [00:01:00] industry.

[00:01:00] Tia: I’ve seen an amendment model where people just do amendments.

[00:01:06] Baldeep: Right? Okay. People just say, Hey, did your tax prepare fuck up? Let’s see if we can find you extra money. So that’s one model.

[00:01:13] Tia: Yeah.

[00:01:15] Ross: That’s an interesting model. We we were looking at that a while ago with someone, but there’s a lot of cons on that one, actually. A lot of cons on that business model tax resolution, of course. Tax preparation.

[00:01:26] Baldeep: Then we see a tax preparation, tax resolution, bookkeeping, tax planning. There’s just a lot.

[00:01:32] Ross: Even credit repair. There’s a lot of like ancillary. Yeah. Like ancillary business models, I guess that all kind of tie in within like the same kind of customers that you would have within the tax industry.

[00:01:42] Baldeep: Bookkeeping. Yeah, I think with you know, we can look let’s look at.

[00:01:45] Ross: Guys, what about software sales service bureau?

[00:01:48] Tia: Oh, yeah.

[00:01:49] Ross: Oh yeah. And that one.

[00:01:50] Baldeep: Well, that’s the one we’re going to talk about why it’s this title of the episode is why it’s the best.

[00:01:54] Ross: Yeah.

[00:01:55] Baldeep: So we’re obviously going to talk about that. But let’s like, like, look, I see a lot of [00:02:00] like ads and stuff where people say, Hey, learn to become like a tax planner.

[00:02:04] And, you know, yes, granted. There is good high ticket revenue in planning and resolution, right? I’ll kind of use those hand in hand in those big tax resolution firms out there, they make millions of dollars, right? But they also have millions of dollars in budget to market those types of products and services, but yeah, tax planning could be very lucrative a very lucrative business model along with resolution.

[00:02:28] The one reason why, I think that service comparing to like tax planning. The reason why I like the service bureau model better than a tax planning model is there’s just way more residual on the service bureau model without any of the fucking work, right? With tax planning, once you sign, all right, there’s the work involved in signing up a client.

[00:02:50] That’s regardless in any model, right? You got to sign up a client, got them onboarded. Whatever that scenario is in any of the models, but the amount of service work involved in like a [00:03:00] planning or resolution client is you’re sitting there and that’s a client that’s paying you out of pocket. And you have to fulfill on whatever service promise you made, right?

[00:03:11] And this usually requires hours of work where with service bureaus, the service bureau model, it’s set up a bunch of offices, set your fees, wherever those are. I think we have other episodes or we’ll talk about the fees and how those work and another time. And there’s really not much else after that.

[00:03:31] Once they’re due every year, they come back, they keep using your software. You’re making. If they grow, you make more money, right? You’re still making consistent money and it’s just kind of snowballs. There’s a better residual, I feel on the service bureau side, because all the work you do year one and you sign up a bunch of clients, you know, year 2, so you do the same amount of work and you sign up a bunch of clients.

[00:03:52] Maybe you lose a couple, but now you have year one, year two, and then say year three, you’re getting residual on every single one [00:04:00] of those clients as you, and it’s snowballs, right? I think this year going into this year, there’s gonna be a lot of people in the third year with our program that are really going to see a huge surge.

[00:04:12] In their revenue and their profit, because ultimately that huge surge didn’t require them hiring a shit ton of staff to help do all that work because the work was done every single year, as long as they’re retaining, they don’t need a massive, huge payroll to get themselves out of doing that work.

[00:04:31] Ross: Yeah because there really isn’t on the backend, really, like there’s a bit of support. There’s a bit of service, but unlike, like, when you comparing with like tax plan or something where you actually have to do work every single year, that doesn’t exist. It’s once they’re set up in the software, as long as you’re able to retain them with training or whatever, the software rolls over, you just re enroll them and you’re done.

[00:04:51] Like the workload to facilitate, to support that client is pretty much non existent.

[00:04:57] Tia: Yeah, I think also, [00:05:00] yeah if we’re talking about as far as retention, tax preparation compared to the service Bureau definitely has a longer retention because you’re dealing with business to business versus business to consumer. I think that’s a huge thing that people kind of overlook.

[00:05:16] I would rather work with 100 businesses than 3000 consumers.

[00:05:24] Ross: Yeah, for sure. Yeah. You’re the, also the other thing too, is like the the customer value is much higher when you’re working with a business versus working directly with a customer, right? A customer may be worth 3, $400 every season for their tax return, but a service as a service bureau, if you get an office set up in your office or an office, sorry, an office set up on your software, that could be worth thousands of dollars to your business.

[00:05:47] So the actual case value, right? The actual customer value is much higher when you’re doing B2B work versus business to consumer B2C.

[00:05:55] Baldeep: And it’s definitely something that kind of piles on top of each other at the convention we had, [00:06:00] we showed examples of some of our clients on our service bureau, cool, this client an email a year worth $3,000 a year, right? This client, an email a year worth 2000.

[00:06:12] Ross: 4,000, whatever.

[00:06:13] Baldeep: 4, 000, right? And it just stacks on top of each other because those clients require very minimal service,

[00:06:19] Ross: Yeah. The hardest part of being a service bureau, by hardest, I mean like where the most amount of work comes in is acquiring the customer. Once you’ve acquired the customer the work just like drops off the cliff as far as how much work you have to put in to that customer.

[00:06:33] Whereas it’s almost opposite in pretty much every other business that we’ve mentioned. Yeah, there’s still the same amount of work to acquire the customer, but now that you’ve got the customer, the work continues to increase to actually service and provide your product or service to that customer. So the Service Bureau model is, and sometimes it never ends.

[00:06:52] Everyone doing getting ready for extensions coming up in October, you know, that, you know, have fun with that.

[00:06:58] Baldeep: Yeah, and even let’s like the [00:07:00] bookkeeping side, like that’s another kind of model that has a residual, but that still requires work every single month, weekly, monthly, however you guys do it. Right. But it could be something that snowballs into something bigger, but it’s just going to be more staff, because more clients you have, the more staff you need to service the clients.

[00:07:18] With Service Bureau, you could. You could have one virtual assistant and 150, 200 clients, like you don’t need a lot of people. So what that means is you have your profit just increases exponentially every year because you’re snowballing your revenue, but you don’t have a huge office overhead, all this stuff. So I just think it’s much more lucrative.

[00:07:42] I think that’s why we feel. It’s probably the best business in the industry.

[00:07:46] Tia: What do you mean? Don’t.

[00:07:46] Ross: I was gonna say, what was that, Tia?

[00:07:48] Tia: Was probably going to say the same thing I was going to say. Don’t we have like several six figure service bureaus that are ran just by one person?

[00:07:56] Baldeep: Yeah. A lot.

[00:07:57] Ross: Yeah. Multiple six figures, and it’s just one person. [00:08:00] Yeah. Now we keep chirping at them. Like, Hey, get a team . Like, ’cause you can, you could probably grow faster or at least have more time freedom with a team. And that’s really what it offers you. Having a team like it, there’s definitely benefits to that.

[00:08:12] But what I was actually gonna say was like personally, I think the service bureau model is one of the best models in just in business in general, because you are essentially what’s called like what’s called a value added reseller. You don’t have to develop a product, right? You don’t have to deal with software development, all the changes to the tax code, all that kind of crap.

[00:08:31] You don’t have to deal with that because you’re not the software developer. You’re just a reseller. You’re just reselling it to people in the industry. So you don’t have all the technical, you know, the nonsense that goes on with developing like a SaaS company, a software as a service company, you don’t have to deal with any of that.

[00:08:46] You know, it’s very quick to launch and go to the industry. Everyone that you’re selling to already has your product, right? Like the thing is, it’s like, it’s a captive market. People already have and need tax software. You know, people in the industry, [00:09:00] right? They already are using it, they already need it. So it’s a very easy sale. All you have to do is get in front and show why you’re better, offer more value, we’ve talked about this in a lot of episodes and convert that sale. That’s really it.

[00:09:13] There’s not a whole lot of extra stuff. You don’t have to convince someone that, Hey, they need tax software. Instead of doing everything freehand, it’s like, no, everyone uses software. And if they don’t use software, guess what? Not your customer move on to the next person, but there’s so many benefits. And the other thing too, is that you’re mutually aligned with your customers because ultimately, at the end of the day, as a service Bureau, most of your revenue should come from bank product volume, right?

[00:09:38] And as long as you’re working with those customers, if you can help them grow their business, if you can help them increase the bank product volume that they’re producing. Well, you help them grow their business. You help them generate more revenue. They’re probably going to stay with you forever. Cause they’re like, Oh, Tia gave me all these strategies.

[00:09:53] Now I’m actually growing my tax preparation business. I’m so much more successful. And the more they succeed, the more revenue you [00:10:00] make as well as a service bureau. So it’s like the best of all of these different worlds. Like you don’t have to really develop a product. Cause it’s already there for you.

[00:10:08] People are already using your product or a variation of your product. So you just need to kind of flip them over onto yours. And then the better they succeed, the more revenue you make. So you’re mutually aligned with your customers and their goals. So it like, it just checks so many boxes. And this was really huge for me because previously like Baldeep, myself and Jameson, we used to have a marketing agency.

[00:10:28] And while that was fun, it was great. Our goals were not mutually aligned, right? Whether our clients succeeded or not, it’s like, look, you paid us the retainer. We’re doing the work, whether you choose to implement our process, whether you choose to follow our training, whether you choose to implement the program or not, you know, ultimately didn’t really make a massive impact on our business.

[00:10:49] Now. Sure. If we got them to be successful, we would be able to keep them on a longer kind of monthly retainer. But we did a lot of seasonality stuff and it was like, this is the one time payment you’re in, no matter [00:11:00] what, we’ve already collected the amount of money, whether you do it or not, is it’s totally up to you.

[00:11:03] And now it’s really shifted. Whereas as a coach and like working with people and train them, I’m a lot more motivated because I know that we will mutually benefit from someone’s overall growth. So that’s my kind of take on just like, not even just service bureau within the tax industry, but just out of so many different business models, it’s such a great business models to be in and just in general business.

[00:11:25] Tia: Yeah.

[00:11:25] Baldeep: Yeah, and then, you know, go ahead, Tia..

[00:11:31] Tia: No, I was just saying that I forgot. Oh, I was saying low risk.

[00:11:37] Ross: So retention.

[00:11:38] Tia: No, low risk. I’m going to say low risk. Low risk business especially for me, low risk.

[00:11:44] Baldeep: Like, minimal liability.

[00:11:46] Tia: Minimal liability and like paperwork.

[00:11:49] Ross: Yeah.

[00:11:50] Tia: Two page, compared to all of the other ones, yeah, two pages, little liability.[00:12:00]

[00:12:00] Baldeep: Yeah, I think you know, we’re talking at the convention about you know, different business models and why service bureau is, you know, if you’re joined for a reason, you want it to be here for a reason. One of the things that a lot of businesses struggle with outside of this industry, outside of this model is, you can sell low ticket, you can sell mid ticket, you sell high ticket, you could sell super high ticket, right?

[00:12:20] 20,000, whatever the, that price range is, but it’s always, well, how do I get my next sale? How do I get my next sale? What a lot of businesses always look for is what’s that continuity, right? What’s that continuity that I’m going to get somebody stick, right? In the SaaS world, it’s, Oh, okay, cool. I need, say, I sell my SaaS program and then I’m going to get some continuity on the monthly subscription, right?

[00:12:43] That’s what people try to build. And the service bureau model has that built in continuity has everything you need from on the front end. You can take somebody from a low ticket offer to a mid or high ticket or get them right in on the high ticket. But it always comes in with built in continuity, which a lot of [00:13:00] businesses don’t have and if you really take advantage of it, you can make a shit ton of money on building that whole ecosystem with very minimal staff, not being so worried about sales every single year, because if you’re consistently bringing in conversations and sales, it just snowballs on top of each other.

[00:13:20] Then we’ve kind of repeated that multiple times on this call, because I think that’s the most the most beneficial part of this model. Right?

[00:13:30] Ross: Yeah. You could, yeah, and to break that down, even in like simple, just kind of like numbers as an example, if you bring on, say you set up, I’m just going to say like 20 people in your first year, you set 20 people up on your software as a service bureau. Well, those 20 people are worth X amount on just like the upfront sale.

[00:13:48] Maybe you saw like a, I’m just gonna use a thousand bucks again for easy math, $1000 license. Cool. You sold 20 people, you made 20 grand upfront, but on the backend, on the service bureau fees and the add on fees and everything that you make as a service [00:14:00] bureau, those 20 people could be worth an additional 20 grand just on the residual, on the backend bank product volume.

[00:14:08] Now let’s go to year two, you do the same amount of sales. Again, you sell another 20 people, you make another 20 grand up front, but now you have those original 20 people from year one, plus the people from year two. Now you’re making an extra 40 grand on the backend. So you made 60 grand that year, and it just continues to snowball like that.

[00:14:25] You can keep bringing in the same amount of people year over year. But your actual backend money just continues to grow as you keep bringing more people in. And so that’s where it’s like you get to a point where you might not even need to sell any more new people in. You can just keep managing your existing customers.

[00:14:40] I mean, we recommend always selling, always onboarding, always acquiring new customers, but it gets to the point where really, if you wanted to, you could just pump the brakes on that and just work, just service the existing clients that you have and just help them grow. And you’re just going to consistently generate that backend money without really having to do any upfront sales or do anything, just manage your [00:15:00] customers and that’s it. And management is extremely low as far as your work or work required.

[00:15:05] Baldeep: Yeah. And especially if.

[00:15:05] Tia: Use required, zero.

[00:15:08] Baldeep: And especially if you love your customers end up growing. You benefit on that as well. Yeah. No. Cause you say no continuing ed.

[00:15:15] Tia: Zero zilch.

[00:15:18] Baldeep: Yeah. I think a lot of people overlook that, like, you don’t need any licensing. You don’t need an even, you don’t need any of that stuff to sell software.

[00:15:26] Tia: I think we’ve actually had people from other industries come into software.

[00:15:34] Baldeep: Yeah, there’s, I think there’s like a couple the challenge with that. We’ve talked about it. Should we just kind of open it up outside of the industry? The challenge with that is now there’s an extra hurdle to overcome. The extra hurdle is you have no industry knowledge, right? You don’t need to have tax knowledge, but you need to have some industry knowledge, right?

[00:15:55] Ross: I have zero tax knowledge. I’ll be completely transparent, zero tax knowledge. But guess [00:16:00] what? I have a lot of industry knowledge. Like a lot of industry knowledge, mostly learned.

[00:16:03] Tia: I like that difference.

[00:16:07] Ross: What I didn’t say anything

[00:16:10] Baldeep: So industry knowledge is important, right? Like what’s a bank product. All right. How did these things work? What are, what’s the dynamics? What’s the hierarchies? Like there’s just so much things that people need to learn. Even just about the service bureau side, if you have no fundamental industry knowledge it’s not impossible.

[00:16:25] Don’t get me wrong.

[00:16:26] Ross: Like what’s a bank product.

[00:16:28] Baldeep: Yeah. It’s not impossible to learn, but it’s just an extra hurdle, right? It’s an extra hill to climb.

[00:16:34] Ross: And yeah, and this is actually a really good point as well to bring up because as a service bureau actually, I mean, really with any businesses, you do want to get clear about like, who is the right fit for your program just because you have someone in front of you who is interested in what you have doesn’t mean you should sell them on it.

[00:16:51] We have that all the time. We have conversations come up where we have some people coming into our webinars. We don’t really know how they saw it. Maybe someone mentioned it or something, but [00:17:00] they’re not in the industry. They’re like, Oh, but I just, you know, I’m good at business and I like to sell and it looks like a great model.

[00:17:04] It’s like, well, yeah, it is. But if we go through a couple of basic questions with them, this is what our sales rep they’re trained to do. If we go through a handful of questions and they answer them the wrong way, We just wrap up that conversation. We’re like, Hey, you’re not a good fit for our program. And that’s just how we do it is because it’s like, look, we not understand that the industry knowledge is not there. For you to get to where you need to be to really be successful in this. I mean, it can be doable, right? Baldeep, you mentioned that, like, it definitely can be learned.

[00:17:30] Baldeep: We’re just not going to be one to do it.

[00:17:31] Ross: It’s just, we don’t, yeah, we’re not going to be the fucking ones that do it. We’re looking to work with people that fit XYZ model because we don’t want to have to support someone who’s like, can someone tell me about a bank product? What’s a service bank? Like, no, we’re not going to have those conversations.

[00:17:45] You should already know that shit. We don’t want to train you that on that stuff. We want to work with people who already have that industry knowledge and then really teach you the fundamentals of being a service bureau so that all those pieces of the puzzle kind of click together at once. And we don’t have to teach you from [00:18:00] ground zero.

[00:18:01] Baldeep: Yeah, I think we see that a lot. Go ahead, Tia.

[00:18:04] Tia: And also, in addition to that as a, however, even though that those are people that we don’t bring on as a service Bureau. Those could potentially be people that you target, like, there may be bookkeepers that don’t know about. You know, a service bill model or tax planners that don’t know about a service bill model, but you have a working knowledge of all of those industry or high overview.

[00:18:29] That’s something, those are people that you can target for your software sales if you’re interested.

[00:18:33] Baldeep: Yeah, I mean, when those people come through our stuff, we sometimes actually just give them to our service bureaus. Hey, wait, maybe you just need to kind of get your feet wet in the industry on this side of the industry, right? Go with this person, go with that person. They’ll be able to set you up on software and kind of show you the ropes there.

[00:18:49] But yeah, we’ll get a lot of people that come in through our webinars that it’s just not, look, it’s not a fit. Like Ross said, right? Like we’re not here to show you what a bank [00:19:00] product is like, if you don’t know it’s not that we can’t show you all that stuff. It’s just, it takes so much extra time. It adds way more extra support.

[00:19:07] Ross: We’re lazy. We’d like to have a streamlined business. We want to work with the right people and as everyone should in your business, know who you want to work with. And this comes down to like, we’ve talked about this a lot of just like.

[00:19:17] Getting really good at selling one thing on one program and having, like, knowing who you’re supposed to work with, because if you try to make custom shit or you bring in the wrong people, they’re going to cause support headaches for you and it’s not worth it in your business that is going to really bottleneck you and it’s not gonna allow you to be nimble and really grow and scale as fast as possible.

[00:19:33] So understand, like, look, saying no to someone is very empowering as well as the business owner being like. No, you’re not a good fit for my business. Oh, please. But I think I could do so well, doesn’t matter. Like you are not a right fit for my program. I’m going to go in and move to the next person.

[00:19:49] And it’s really powerful when you can get to that stage in the business. Now, obviously when you’re starting out, you’re probably going to say yes to wrong people and you’re going to learn, even though we’re telling you now, [00:20:00] we tell you the training. You’re going to make mistakes, but that’s a part of business, right?

[00:20:03] That’s part with everything in life is you’re going to have to make those mistakes to really learn it and internalize it.

[00:20:07] Oh, there was one other thing that I wanted to mention about as well with the service Bureau, this was it. The other reason why service Bureau is one of the best business models to be in is because there are thousands of different ways that you can grow a service bureau, right? You don’t have to just sell software directly. You know, you mentioned like, you know, creating a program to for like bookkeepers, right? To show them how to be a service bureau or show them how to do tax preparation, right?

[00:20:32] There’s so many ways that you can go about growing your service bureau. Which in essence is just getting people to use your software and process bank products. Like that’s literally what we’re talking about. We’re talking about growing a service bureau. It’s getting people to use your software to do bank product returns.

[00:20:47] That’s how you grow your service bureau. So how do you go about doing that? You could sell directly into the market. You could just sell software. You could put together a whole training program. A lot of people, if you’re listening to this, you’ve probably seen people promoting tax academies or like business in a box [00:21:00] programs.

[00:21:00] You could do that. You could go after brand new people who have never done a tax return in their life. But are interested in the industry and create an academy program where you teach brand new people how to actually get started, how to actually do tax returns. Now there’s a lot of work required in that, but guess what?

[00:21:16] You can also sell it for a very high ticket because it’s like a biz op program. And ultimately at the end of the day, that biz op program, that tax academy that you’re selling people is just a top of funnel. It’s just a process to get people to use your software because it’s, guess what’s included with your tax academy.

[00:21:33] You get free software too. So now you can actually operate the business, right? So, you can come up with so many different strategies to actually get people in to give you money for a product, for a program. And a part of it is the software for them to use to do returns. So there’s so many different ways that you can go to market and you can grow your service bureau.

[00:21:51] That’s a really other cool thing about it is that a lot of other industries like tax resolution, well, okay, you’re like, you’re offering tax resolution at the end of the [00:22:00] day there’s not really a whole lot that you can add onto that in like in other value or other kind of offers. But with the service bureau model, there’s so many different ways you can approach the market of getting people to use your software That it allows a lot of flexibility and allows you to be able to be unique and really kind of separate yourself from other people.

[00:22:18] Baldeep: Right. Even pay insurance agents, non standard insurance agents. Here’s how to add tax prep to your insurance, to your book of business.

[00:22:26] Ross: To your firm. Yeah, exactly.

[00:22:27] Tia: Hey, credit repair companies.

[00:22:29] Ross: Exactly like there’s so many ways that you can go about and growing that’s another great aspect of it.

[00:22:35] Baldeep: Yeah. Cool. I think we beat that one down on why it’s best business model.

[00:22:39] Ross: I love it

[00:22:40] Tia: We can keep going.

[00:22:41] Ross: Yeah, I have this joke with like some of my friends like, if everything shut down tomorrow, I would just go and start another service bureau. Like it was like zero tomorrow. It’s like, well, I’m just going to go start a service bureau. Cause it’s like, it’s the easiest, it’s the best business to be in by far.

[00:22:56] Baldeep: Awesome. Well, sounds good. Let’s go ahead and wrap it up. [00:23:00] Have a good rest of your day guys.