The Secret To Offering Profitable Payroll Services

1 The Secret To Offering Profitable Payroll Services By Robert L. Wolff, Jr. Fresh Eyes, Inc. August 2004 2 Table of Contents Accountants And Client Payroll A Love Hate Relationship 3 7 Reasons to Take Another Look at Client Payroll 4 Getting Past Your Skepticism About Client Payroll Myth 1: Payroll Is Not Profitable 5 Myth 2: Payroll Takes Too Much Time 7 Myth 3: Clients Don t Want The Service 10 Myth 4: The Internet Is Not Secure 11 The Bottom Line: Client Payroll = Profit Is No Longer an Oxymoron 12 Appendix Online Payroll Services Profit Model 14 Author s Biography 15 3 Accountants and Client Payroll A Love-Hate Relationship Payroll = Profit. Yeah, right, you say, I ve heard that before.

2 You re not alone. According to a 2003 NFO study, last year only 11% of accountants did client payrolls. The rest either referred their clients to a Payroll service bureau or had clients do Payroll themselves. Payroll Methods For Million Businesses With Less Than 20 EmployeesaPayroll Service15%Accountants Do It All11%Accountants File Forms Only23% Payroll Handled 100% By Business47%Other4% Source: Small Business NFO Panel, 2003, n=545 a small business data cited from Census Bureau data, 2000 Why have accountants shunned client Payroll ? Various surveys report many reasons, including that Payroll is not Profitable , that it takes too much time, and that clients do not want the service. But, whether you love or hate Payroll , your clients need, want and expect you to be involved. They want you to fix Payroll problems when they or a Payroll service bureau makes mistakes.

3 They want you to file the proper form to make the problem go away, and to contest the IRS penalty or, at least, cut it substantially. After decades of saying I don't do Payroll , accountants are starting to open up to the idea of Offering Payroll Services . Look around. Client Payroll Services among accounting firms are growing. Why? Because with the advent of online Payroll Services , Payroll can finally be fast, easy and Profitable . Still skeptical? Read Reasons to Take Another Look at Client Payroll Skepticism is important in the accounting profession. Reasonableness, logic, proof, and so on, are central to an accountant s training and experience. Why should be echoing through your mind, Why should I consider adding client Payroll to my practice? Here are 7 reasons: 1. Most Trusted Advisor. Most clients expect a full-service relationship.

4 Put another way, clients want their accountants to be their part-time CFO, taking care of their company s accounting and financial needs, including Payroll . A survey commissioned by the National Payment Corporation (and supported by other research) illustrates the situation. The top reasons clients want to hand off Payroll to their accountants are: 90% of respondents gave one or more reasons Reason Response Percentage Tax laws and/or potential tax problems 36% No staff to do Payroll or capable of doing Payroll 36% Trust and personal relationship 31% Accountants already have my financial data 26% Source: National Payment Corporation By fulfilling your role as part-time CFO, you enable your small business clients to focus on growing their companies, marketing their products and Services , and managing their employees.

5 They do not need to worry about joining the 1 in 3 business owners who paid an average of $1,300 in IRS penalties in 2002. 2. Stronger And Longer Lasting Client Relationships. Besides making clients happier with personalized service from their trusted advisor, adding Payroll Services protects long term client relationships and revenue streams. The more you do, the less likely you are to lose clients to low-ball or other aggressive marketing efforts. Simply put: More Services = More Loyal Client = Lower Risk of a Lost Client 3. Commitment. No one cares about your clients the way you do. You are their most trusted advisor because you personally care about their success. By providing Payroll Services , you dramatically lower the risk of distractions from the IRS and state revenue agencies. Equally important, you reduce the potential impact on your firm s revenues that invariably result from having to fix problems caused by clients out of ignorance; time pressures; or simple sloppiness.

6 Even better, you avoid having to unravel problems caused by the Payroll service bureau s inattention or hiccups. Dodging the Payroll pain bullet results in a win for your firm and a win for your client. 4. More Services . Payroll Services open the door to providing additional professional Services such as write-up and financial analysis, tax preparation, software consulting, financial 5planning, and so on. These Services strengthen client ties while also adding new revenue streams. In short, it is a win-win. 5. Competitive Advantage and Differentiation. As part-time CFO providing a complete range of Services to your clients, you gain a competitive advantage and differentiate your Services from substitutes and other firms. Satisfied, happy clients generate positive word-of-mouth and give referrals; some will be champions who proactively recommend your firm.

7 6. Reality Check. Many clients are not ready for do-it-yourself, and traditional Payroll service bureaus are too expensive. 7. Profitable Revenue Stream. Payroll Services are an additional Profitable revenue stream for your firm. With the tools and technologies available to you today, you ll be surprised at your return on investment on Payroll . This white paper demonstrates that fact in further detail. Keep reading.. Getting Past Your Skepticism About Client Payroll Myth 1: Payroll Is Not Profitable Research conducted by Evans Research Associates in 2000 concluded that the #1 reason professional accountants do not wish to provide client Payroll Services is low profitability/not Profitable (31% of responses). This is not surprising. High operating costs have squeezed the profit out of Payroll until now. According to the Evans Research study, 6 percent of professionals point to high operating costs, such as direct deposit setup and processing fees, and software updates, as the reasons they don t do client payrolls.

8 In addition, there is the up-front investment in Payroll software, federal and state e-file/e-pay systems, hardware, security, internal and client procedure establishment, and staff and process management. What are the annual Payroll operating costs for an in-house, multi-client Payroll solution, not including direct Payroll staff time? Depending on the complexity of payrolls and other factors, a straw poll of accountants puts annual costs at $3,500 to $25,000 for one to 50 Payroll clients. Can you generate sufficient revenue to make a reasonable profit with this kind of cost structure? One key factor is how much you charge clients. Common strategies include traditional cost+ profit pricing, value-based pricing and market-based pricing. Practically speaking, market conditions and other factors often limit accounting firm Payroll fees to 50% to 85% of what traditional Payroll Services , such as ADP and Paychex, charge for comparable Services .

9 6 For a small business with 20 employees and 26 paydays in a year, Payroll service fees are: Company Annual Fee Fee Per Month ADP $3,030 $253 Paychex $2,782 $232 PayCycle Payroll Plus $792 $66 Source: Vendor websites Knowing your costs, can you compete at these prices and make the profit you want? Think outside the box for a moment. Payroll is rarely the sole service provided to clients, but one of many that cements relationships. You may think that you need to be satisfied with a lower profit margin because of Payroll s value to the overall client relationship.

10 Do you really have to compromise on profit margin? No, you don't. For many (if not most) of your small business clients, Intuit Complete Payroll , Paychex and ADP s Services are an expensive overkill. But what about PayCycle? The PayCycle Payroll Plus Retail Service is the least expensive of the group. PayCycle targets small businesses with 20 or fewer employees. $66 per client per month is tough to beat. But PayCycle can beat it! The PayCycle Wholesale Program for Accounting Professionals offers an all-inclusive, monthly flat-price wholesale Payroll service. It costs just $ per client per month for the first five employees, and $ per month for each additional employee over five. Its features are identical to the PayCycle Payroll Plus Retail Service noted above. Flat, monthly, all-inclusive fee means exactly that.