Thinking of Starting Your Own Accounting Practice?| |
For many accountants and CPAs, the idea of starting their own business is a common dream. Starting your own accounting practice means you get to work for yourself, set your own schedule, have flexibility and better work/life balance, and run a practice on your own terms. Not to mention, it means you get to be your own boss! Owning your own practice can be an extremely rewarding and profitable endeavor.
However, making the jump to self-employment can also be scary as you venture into the unknown. To avoid many of the pitfalls and risk associated with starting a new business, here are some things that you should be considering.
You don't want to jump the gun when starting your own business. Prep-work and planning are key to successfully making the move. Before you hand in your resignation, here are some questions to ask yourself:
- Do I have the experience to process the needs of small businesses and individuals on my own?
- Do I have the drive and motivation to succeed on my own?
- Do I have support from my spouse and family?
- Do I have the capital to get started and operate for one year?
- Do I know how to market accounting/tax services and be the "rainmaker?
- How will I differentiate my services and earn higher fees?
Asking these questions of self-assessment will help you determine if now is the right time to start your accounting practice. And, if the answer to some of these questions is less than adequate, then you may want to consider looking into what needs to be done to improve these areas before making the jump.
If everything does check-out, however, you can move on to the next step which is thinking about how to establish your practice. The process requires planning, hard work, perseverance, and investment. If you can weather the startup and early development phase, the transition can not only be exciting but extremely fruitful.
Choosing an Entry Strategy
There are a few ways to start your own accounting practice and each has their own set of pros and cons. In general, most CPAs start an accounting practice using one of the following four entry strategies:
1. Starting an accounting practice from scratch – Starting from scratch might seem too risky to some but if you take a step back and look at it, the benefits could outweigh your initial skepticism. Starting from scratch is less expensive than buying an existing practice. Not to mention, you're not taking on an existing practice with ongoing administrative burdens, clients you didn't choose and who aren't loyal to you. Starting from scratch allows you to build the practice YOU want to run and get clients who want to work with YOU.
If starting from scratch, we suggest you enroll in a practice marketing and development program to learn marketing, pricing, selling and practice management, so that you can effectively market your services and price properly. You should also be fluent with QuickBooks, which is how many small businesses manage their bookkeeping functions.
2. Buying an existing accounting practice – Many prospective buyers have a false sense of security associated with buying another person's practice. As discussed above, this entry approach may sound easier than the other options but has many challenges as well. First, the process takes quite a bit of time because there are more buyers than sellers. This enables the seller to be very picky and will generally prefer selling to an existing practitioner. Second, this is the most expensive option. Third, the attrition rate is generally higher than you project. And, lastly, you're acquiring a practice and clients who don't necessarily run the way you prefer.
Building Vs. Buying: Deciding can be difficult. Hear what real accountants and CPAs who have done both have to say:
3. Part-time practices - Many accountants start picking up clients on the side as a part-time practice. This lowers the initial risks and enables them to assess whether they might enjoy starting a full-time practice. While the time investment at the onset is a little more, as you're essentially working two jobs, it gives you the chance to get your feet wet and gain some insights and experience.
4. Finding a partner – Some accountants decide that getting a partner is the best way to start their accounting practice. The benefits of having a partner means that you can expand the services of the firm so you can cast a wider net. It also means you'll share startup expenses. However, it also means you'll be sharing revenues and need to find the right person to start your practice with. This requires chemistry and compromise. We seldom recommend this approach because finding the right person can be difficult for the long-term.
Develop a Business Plan
Just like with any business initiative, you need to develop a written business plan for your new accounting practice. A comprehensive business plan should include:
- Goals for your new accounting business
- The target audience that you are serving
- Accounting and tax services that you will offer
- How you will better serve your target audience
- Your 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, tax 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. You don't want to rush this stage. A strong business plan can make the transition smoother and better prepare you for success. New businesses require sweat equity so this move has to be at the right time in your life not just financially but also emotionally.
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 far 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 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. Second, make sure your office is in a location with enough businesses to support your revenue goals. While it might be nice to set-up shop in your hometown and keep your commute to a minimum, the location of your office is critical to the type and number of clients that you will acquire.
Many new accounting firms are using shared office space. Within a commercial building, you can rent private office space but also use a shared reception area and administrative 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 client.
It's also important to remember that nearly all practices are cash flow negative during the start-up and development phase. Make sure you're ready and have cash on hand to cover household expenses and retain insurance coverage during this transitional time.
Equipment and Office Supplies
The office equipment and supply needs can vary wildly. It will be partially driven by your office space decisions. There are many options to consider.
Sharing an office can be an arrangement that will enable you to cut some corners on telephone equipment, office furniture, and office equipment (copiers, fax, file cabinets). There are many co-working space options or offices for the rental inside of larger complexes to consider that can help you avoid having to commit to an entire office of your own.
If you do decide to opt for working at home, you'll want to make sure that you have a dedicated space at home to do this work. You'll also have to fund all the equipment. The other thing you'll want to consider is that you'll need a public business address to market yourself. If you're not comfortable using your home address, this might not be the right choice for you. Also, as mentioned previously, your home might not be in the ideal location to target and bring in new clients.
For basic equipment, don't forget about the the secondary market for used office equipment (e.g., Craigslist.org, etc.).
With the introduction of cloud computing, many new accounting firms are considering SaaS and hosted solutions like Thomson's Software-as-a-Service (Saas). These SaaS applications enable new firms to use more robust software applications and operate with higher levels of data security at a fixed monthly price.
The goal is to keep your headcount to a minimum. 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.
When you are ready to bring on staff, make sure you choose your employees carefully. They are integral to your success (or failure). Be picky and take the time to find the right people.
CPA Practice Marketing and Development
This is the area that most practitioners need the most assistance because up to this point, they have not been trained in 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. One of the biggest changes to starting your own practice is you're no longer just a CPA, you're also a marketer and CEO.
In today's world, just opening a business is not enough. We can't assume that simply using referrals and word of mouth will be adequate to achieve your revenue goals. Not to mention, most referrals will come from your own clients so a new practitioner cannot count on enough referrals to be successful. Instead, you need to have a marketing plan set up to get new leads in the door. This marketing plan doesn't just include getting new clients, but also how to effectively sell your services and price them.
To quickly learn how to market, price, sell, and service accounting services, we highly recommend that you enroll in a practice development program for accountants. These programs are designed to teach strong and successful systems for lead generation that will deliver a steady and ongoing flow of new clients. You'll also want a program that teaches you how to use a value pricing methodology that will allow you to increase your hourly realization and easily close clients. Essentially, you're looking for something to teach you the skills that weren't taught to you in accounting school. For a small investment, you can quickly learn how to start developing your practice. Don't be penny wise and pound foolish in this area. A practice development program can be the difference between a successful and profitable business and a business that closes its doors in the first 2 years.
Developing an Online Presence
In this day and age, your business will need a presence online. This doesn't mean you need to suddenly become a social media maven and website developer, but you do need to establish yourself online. More than 85% of consumers turn to the internet to find professional services like the ones you'll be offering. Creating a positive online reputation will drastically increase your new leads.
Firstly, you'll want to build an effective accounting website. A website that outlines your services and information about you and your practice will be your online business card. We suggest you hire a professional website developer to do build this site for you. While you may be tempted to take the DIY approach or have a friend build your site, there are some pitfalls in doing this. A professional will not only make sure your site will well-coded and looks great on desktops and mobile devices, but can also optimize your site with SEO so that it shows up in search engines when prospective clients are searching for the services you provide. Just like you suggest business owners hire an accountant to best handle their taxes and bookkeeping, it's best to hire a professional website development company to build your website.
Next, you'll want to take time to get online reviews. Getting clients to write testimonials for you online can do wonders for your online reputation and lead generation. Consumers read reviews before deciding if they are going to call an office. It helps prospective clients gain a level of trust and feel confident calling your office.
Get our FREE e-book: Critical Steps to for Starting a New Accounting Practice
Starting your own accounting practice can be a difficult task at the onset but when done correctly can turn into a hugely rewarding accomplishment. The key is to plan ahead and don't underestimate the time and work you need to put in at the start. If you can do this, you'll find yourself growing your own successful accounting practice!
If you're ready for the next step, download Critical Steps to for Starting a New Accounting Practice.
Hear what real CPAs have to say:
John Siebert, a CPA from Ohio, discusses how Build Your Firm's Outsourced Marketing Program helped him take a practice he had started and grow it into his dream business.