Starting An Accounting Firm

By Hugh Duffy

If you have kicked around the idea of hanging out your shingle long enough and it’s time to get serious, then we can help. Every month, we work with many new and developing CPA firms helping them with the process. To avoid many of the pitfalls, here are some things that you should be asking yourself and pulling together before you start an accounting firm.

Self-Assessment

Before you hand in your resignation, here are some questions to ask yourself:

• Do you have the experience to process the accounting needs of small businesses and individuals on your own?
• Do you have the drive and motivation to succeed on your own?
• Do you have support from your spouse and family?
• Do you have the capital to get started and operate the accounting firm for one year?
• Do you know how to market your services and be the “rain maker?
• How will you differentiate your services and earn higher fees?

Owning your own CPA firm business can be very rewarding. The process requires planning, hard work, perseverance, and investment. If you can weather the start-up and early development phase, the transition can be wonderful.

Entry Strategy

Most Accountants and CPAs start an accounting practice using a combination of:

• Starting from scratch – Starting an accounting firm from ground zero allows you to begin without any legacy issues like old pricing, old software, and past-client service issues. To effectively market your services and price properly, you should enroll in a practice marketing and development program to learn marketing, pricing, selling and practice management.
• Part-time practices - Many accountants start picking up clients on the side as a part-time practice. This lowers their risk and enables them to assess whether they might enjoy starting a full-time accounting practice.
• Finding a partner – Some CPAs start off with an accounting peer. This can help expand the services of the firm so you can cast a wider net. This generally requires chemistry and compromise. While the start-up expenses are shared, so are the revenues.
• Buying a CPA practice – This entry approach sounds easier than the other options but has challenges as well. First, the process takes quite a bit of time. There are more buyers than sellers so the seller can be very picky and will generally prefer to sell to an existing accounting practitioner. Secondly, this is the most expensive option in an absolute cost and a cost-per-client basis. Third, the attrition rate is generally higher than you project.
  
  

Develop a Business Plan

Like any business initiative, you need to develop a written business plan. A comprehensive business plan should include:

• Goals for your accounting business
• Target audience that you are serving
• Accounting and CPA services that you will offer
• How you will better service your target audience
• Your accounting experience and skills
• Business structure (LLC, S-Corp, C-Corp, etc.)
• Capital requirements and sources
• How to market your new accounting services
• Pricing strategy
• Office, equipment, software and staffing requirements
• Projected costs and revenues – start-up, monthly costs, and budgets
  
  

Financial Considerations

Before making this leap, it is important to honestly assess if you are prepared to make this transition financially, emotionally, and commitment wise. New businesses require sweat equity so this move has to be at the right time in your life. Nearly all accounting firm practices are cash flow negative during the start-up and development phase so you need to have cash on-hand to cover household expenses and retain insurance coverage.

CPA Practice Marketing and Development

This is the area that many CPA practitioners need the most assistance because up until this point, they have not been trained on marketing, selling, pricing and practice management. In college and working as an apprentice for a public accounting firm, the emphasis is on performing the accounting work, not marketing and prospecting for it. While the accounting firm partners have been trained and developed over time, the worker bees are seldom exposed to this aspect of accounting practice development.

In today’s world, hanging out your own CPA shingle is not enough to build an accounting business, and the number of referrals that you get will not be enough to achieve your revenue goals. Quite frankly, most of your referrals will come from your own clients so a new accountant cannot count on many referrals.

To quickly learn how to market, price, and sell accounting services, we highly recommend that you enroll in a practice development program. For a small investment, you can quickly learn how to become a “rain maker” and how to start developing your CPA practice. Don’t be penny wise and pound foolish in this area.

Start-up Costs

The cost of starting a CPA practice depends on your revenue goals, entry strategy, and geographic area. As you might expect, the start-up costs to generate $150,000 of new business will cost more than $50,000. Also, an office in a large city near an office park complex will cost more than an office in a bedroom community or home-based.

To determine your CPA firm start-up costs, start first with your revenue goals. This will help you evaluate your office location decision. In other words, can you achieve your revenue goals with your office located in the city, nearby town or from a home-based office? Yes, home-based offices are cheaper but will negatively affect your revenues as well. Secondly, make sure your accounting office is in a location with enough businesses to support your revenue goals. While it might be nice to set-up shop in your home town and keep your commute to a minimum, the location of your accounting office is critical to the type and number of accounting clients that you will acquire.

Many professional service businesses are using shared office space. Within a commercial building, you can rent private office space but also use a shared reception area and staff, shared conference facilities, phone systems, internet connections and more. This provides you with the ability to present an image that is appropriate to bring clients into your office. If the other tenants provide financial services and/or law, this may also provide you with an occasional new accounting client.

Equipment and Office Supplies

The office equipment and supply needs will be partially driven by your office space decisions. In many cases, a shared office arrangement will enable you to cut some corners on telephone equipment, office furniture, and office equipment (copiers, fax, file cabinets).

Staffing

The goal is to keep your headcount to a minimum. Your accounting firm staffing requirements will be driven by how quickly your office ramps up and your office location decision. For example, many shared office arrangements provide phone answering services which can improve your productivity and eliminate the need for an administrative person. At the onset, the CPA usually does it all and adds employees only when necessary. Usually, the first new hires are part-time and/or per diem.

Conclusion

Written by Hugh Duffy,
Chief Marketing Officer for Build Your Firm (www.buildyourfirm.com)
Copyright 2008 Build Your Firm, Inc.