Should I Focus on Individual Clients, Small Businesses, or Both?

One of the first big decisions you’ll face when starting a tax service business is whether to focus on individual clients, small businesses, or both. Each type of client has unique needs, benefits, and challenges. Deciding which group to target depends on your skills, interests, and business goals. Here’s an overview to help you make the right choice for your tax service business.

Working with Individual Clients

Focusing on individual tax clients is a common path for tax professionals, especially those just starting out. The needs of individuals are generally simpler compared to businesses, but they can still be varied based on their personal financial situations.

Pros of Working with Individual Clients:

• High Volume During Tax Season: Individuals generally need tax preparation services once a year, which means you’ll see a surge of work during tax season. If you focus on marketing your services leading up to tax season, you can attract a lot of clients at once.
• Simplicity for New Tax Preparers: Individual tax returns tend to be less complex than business returns, especially for clients with straightforward W-2 income. If you’re new to tax preparation, this may be a good starting point.
• Repeat Business: Once you do a good job for an individual, they’re likely to come back to you year after year. Many tax professionals build long-term relationships with individual clients.
• Referrals: Satisfied individuals often refer family, friends, and co-workers to their tax preparer, creating a natural source of growth for your business.

Challenges of Working with Individual Clients:

• Seasonality: Most individuals only need tax preparation services once a year, which means a huge spike in work during tax season, followed by slower months. To generate consistent income, you may need to expand your service offerings to include financial planning or tax advice outside of tax season.
• Lower Fees: Individual clients typically pay less than business clients because their tax needs are less complex. You’ll need to handle more clients to generate substantial revenue.

Working with Small Business Clients

Small businesses have more complex tax needs, but they also offer opportunities for year-round work and higher fees. If you have a strong understanding of business taxes and a knack for financial management, working with business clients can be highly rewarding.

Pros of Working with Small Business Clients:

• Year-Round Work: Unlike individual clients, small businesses often need ongoing services such as quarterly tax filings, payroll processing, bookkeeping, and tax planning. This provides a more consistent income stream throughout the year.
• Higher Fees: Because business tax returns are more complex, you can charge higher fees for your services. Small businesses also tend to value the expertise you provide, which can lead to long-term engagements.
• Diverse Services: In addition to tax preparation, small business clients may need help with bookkeeping, business entity selection, financial planning, and audit support. Offering a full suite of services can increase your revenue and strengthen client relationships.
• Business Growth Opportunities: Small businesses often grow, and as they expand, their financial needs become more complex. This gives you an opportunity to grow with your clients and offer additional services as their operations scale.

Challenges of Working with Small Business Clients:

• Complexity: Business tax returns, especially for S-Corps, LLCs, and partnerships, are more complicated than individual returns. You need to be well-versed in business tax law, accounting practices, and industry-specific tax rules.
• Higher Expectations: Small business owners typically expect more from their tax professional. They may want ongoing tax planning, financial advice, and support with managing their financial records. This can require more time and effort compared to individual clients.
• More Frequent Deadlines: Businesses often need help filing quarterly estimated taxes, payroll taxes, and other state or local tax filings, which means more frequent deadlines and potential stress.

Working with Both Individual Clients and Small Businesses

Many tax professionals choose to work with both individual clients and small businesses, which can diversify their revenue streams and keep them busy year-round.

Pros of Serving Both Client Types:

• Balanced Workload: Serving both individuals and businesses can help balance the workload. During tax season, individual clients bring in a high volume of work, while small business clients provide steady work throughout the year.
• Increased Revenue Potential: Offering services to both individuals and businesses allows you to capture a wider market. Business clients might also refer their employees to you for personal tax services, and individual clients who start businesses may return to you for help with business tax filings.
• Cross-Selling Opportunities: If you’re working with small business owners, they might also need help with their personal taxes. Similarly, individual clients who are self-employed or start side businesses can benefit from your business tax expertise.
• Skill Development: By working with both types of clients, you’ll develop a broader range of skills and become more versatile as a tax professional. This can help you stand out in the marketplace.

Challenges of Serving Both Client Types:

• Time Management: Juggling the needs of both individuals and small businesses can be demanding. You’ll need to manage your time carefully to meet deadlines, especially during busy tax season.
• Complexity: Handling both individual and business tax filings means you’ll need to stay up to date on tax laws and requirements for both client types, which can be more challenging than focusing on just one area.

Conclusion: Which Should You Choose?

The decision between focusing on individual clients, small businesses, or both depends on your skills, experience, and business goals.

• If you’re just starting out and want to keep things simple, individual clients might be the best focus. It allows you to build your skills and reputation while handling a high volume of simpler returns.
• If you’re looking for higher fees, ongoing work, and a more sophisticated client base, focusing on small businessescan be more profitable, but it also requires more expertise.
• Serving both can offer the best of both worlds, providing a more diversified income stream and the opportunity to grow your skillset.

Ultimately, it comes down to your personal preference and long-term vision for your business. You can always start with one type of client and expand into the other as your business grows!