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Why price does not equal cost

By Sean M. Hugo, CPA

Many business owners mistakenly view the price paid for a service as the cost of the service.  The cost of the service runs much deeper than just the price paid.  

Let me give you an example of what I am talking about.  We meet with a business owner recently who we will call Bill.  Bill was not happy with the service his CPA was providing and was considering making a switch.  Bill did not feel the CPA was providing much needed financial and tax advice.  Bill said he was paying around $6,000 to the CPA for the services she was providing.  After discussing Bill's businesses we were able to make recommendations to save Bill around $25,000 in taxes.  In addition there was a real estate transaction that took place where with some creative tax planning capital gain rates of 15% could have been paid instead of Bill's marginal rate of 35%.  

We quoted a price of $18,000 per year for our services.  Bill brought up the fact that his current CPA was "only" charging him $6,000.  We explained to Bill the other CPA's services were actually costing him $31,000 a year (the $6,000 paid to the CPA and the $25,000 in additional taxes).  Professional services are much like anything else you get what you pay for.  

Had Bill been using our service he would have paid us $18,000 which would only cost him $11,700 after tax.  Bill would actually make $13,300 by using our service.  Bill would have realized tax savings of $25,000, which is dollar for dollar as there would be no taxes paid on the savings, less our after tax fee of $11,700.  

The moral of the story is you can't look at only the price paid for a service in determining if it is a good deal you have to look at the total cost.  We believe a good CPA firm can more than pay for themselves.  Our goal as a firm is to save our clients more money in taxes than they pay us in fees.  So how much is your CPA really costing you?