Many CPAs either don’t want to deal with cost segregation or think they can’t, and that’s understandable given how things were done in the past. However, offering cost segregation services doesn’t have to be overly complicated and new tools make it accessible to more CPAs.
In this article, we’ll get into the benefits of offering cost segregation to your clients and how to do more cost segregation studies with less complexity and time commitment.
The first reason for offering cost segregation studies is obvious: more income for your CPA firm. Cost segregation is an additional revenue stream on top of typical accounting services. According to a recent survey of CPAs that we conducted, the average firm was doing 28.5 cost segregation studies per year, at an average of $7,000 per study.
That’s about $200,000 per year in additional revenue. However, most of these firms are doing cost segregation studies in the traditional, labor-intensive way. If you take advantage of modern cost segregation software, you could easily scale beyond that.
Your clients come to you because they want to save money on their taxes. For investment property owners, one of the most powerful tax savings strategies is cost segregation. With it, they can claim depreciation expenses over a much shorter period, helping them push more tax savings earlier into the life of their property.
If you can do that for clients, you are sure to have higher client satisfaction, better retention, and maybe even more referrals.
More referrals from high-quality clients
Most investment property owners are going to be the types of clients you want. They’re well off, have lots of assets, and have a complicated enough tax situation that they will consistently need your help. It’s also likely that they’re connected with other investment property owners. If you can offer a premium service like cost segregation, not only will they be happy, but they are likely to refer you to their friends and colleagues.
If you can take on a higher volume of cost segregation studies and get them done quickly, you can become the “go-to” CPA for cost segregation studies in your area. Many small CPA firms rely heavily on referrals to drive new business, and this is a great strategy for getting high-quality referrals.
CPAs can leverage technology to do more than ever before
Despite the misconception, CPAs can conduct cost segregation studies for their clients without hiring engineers. Before technology made cost segregation more accessible, CPAs needed to team up with engineers to measure the entirety of a property and figure out what materials everything was made out of. They would then use that information to estimate costs for each of the property’s components, which the CPA would use to create the depreciable cost basis for the cost segregation study.
SegStream automates the majority of this process. All the CPA needs now is reasonable estimates for the building’s measurements and materials. They can enter that information into SegStream and it will automatically use RSMeans to look up cost estimates. Then, the software automatically buckets each of the property’s components into the proper depreciation period and calculates the depreciable tax basis.
What once took weeks to do can now be done in hours to days, depending on how long it takes you to come up with reasonable measurement and materials estimates for your client’s property.
Take on more clients and increase profit margins with Segstream
Based on our survey, the average profit margins on cost segregation studies for small to midsize CPA firms is 15-30% (not highly compelling). This is because of the high cost of working with engineers and spending endless hours doing manual calculations.
When CPAs switch to SegStream, the typical profit margin for cost segregation increases to around 85%. Without even taking on more studies, firms can significantly increase how much they’re making on cost segregation. However, because of how quickly studies can get done with SegStream, CPA firms can take on more cost-segregation clients. So not only are they increasing profit margins for studies, but they’re also able to take on more of them.
Once you start getting referrals from your network of investment property owners to do more cost segregation studies, you create a flywheel effect that kicks your firm into higher gear. You’ll have a new income stream that helps you grow and expand to many more clients.
Interested in cost segregation services to your clients? Schedule a free live demo and see how SegStream works.