Starting an accounting practice can become one of the most rewarding things in life if you plan your entry properly, have a healthy do-it-yourself mentality, willingness to learn on the job and enjoy working with people. The accounting industry is more diverse than most people realize. There are so many opportunities to create a practice that it boggles the mind. And for the right individuals, the rewards of self-employment, economic enrichment and gratification from helping prospective clients is why they do it. Relative to other industries, starting an accounting practice is relatively low risk, if you have prepared yourself adequately, and requires low upfront investment. In the long run, the business model is excellent and selling an accounting practice when you want to exit the industry is very easy. Quite frankly, the business model is phenomenal and the need for accountants gets stronger each year with ever growing legislation. Here are the key things for starting an accounting practice:
- Prepare yourself adequately before jumping in. Before starting your own accounting practice, I recommend that you obtain at least 1-3 years of public accounting firm experience. The typical person has 5-15 years of accounting and tax experience before hanging out their own shingle. This is typically a combination of private and public experience. However, we’ve also seen several practitioners who start with just a couple years of experience and make up for their lack of experience with a healthier drive to learn on their own and run their own business.
As a rule of thumb, acquire 80-90% of what you need to know while working for someone else’s practice (aka – working as an apprentice) and then jump in. Don’t expect to know over 90%. Even accountants who have owned a practice for many years learn new things on the job.
- Entry Strategy – Most aspiring entrepreneurs are afraid of failure. Accountants are no different. Most accountants are thrifty and risk averse so their desired entry strategy is buying someone else’s accounting practice because it appears to be less risky. Unfortunately, this is a fallacy and is the most expensive way of entering the accounting industry.
The accounting firms that are listed on the market for sale are the seller’s retirement nest egg so they want to sell to the most “qualified” buyer, both financially and experience wise. If the accounting practice they built is highly desirable, a larger CPA Firm will quickly gobble it up for cash. In our experience, it is far cheaper to acquire new clients organically using a proven marketing system.
- Determine the type of accounting practice you want to develop. Just like any new business, your goal is to develop something that is unique and sustainable. By creating a unique twist on a need in the market, you can compete on something other than price and location.
The accounting industry is ripe with niche opportunities and emerging needs that are currently underserved, or often ignored. The goal is to identify what is unique within your experience base, evaluate what parts of your local market that are underserved, and determine if you can command a premium price for it. From our vantage point, the goal is to obtain higher pricing for superior “perceived” value.
- Location is more important than most accountants realize. By all means, you don’t need expensive retail office space for your new practice but securing space in a location which is close to many small businesses is imperative for attracting the right type of clients. Often, many new practitioners will select an office location near their residential home for a shorter commute which is typically the wrong decision. The reasons for selecting a residential home (e.g., good school system, low crime, etc.) are very different than selecting an accounting firm location (e.g., abundance of small businesses, high population density, close to university/major hospital/business incubator/enterprise zones).
- Learn how to market yourself. All new business owners need to learn how to use marketing for lead generation. The accounting industry is no different. In fact, it’s pretty simple if you are willing to invest a little into education and learn from the experts. In some cases, the marketing and lead generation can be outsourced.
- Learn how to price your services and overcome objections. Even though this sounds basic, you’d be surprised how many new accounting practitioners struggle at this. Learn how to identify good from bad prospects, what types of services are more desirable, how to properly price your services, and how to overcome objections. Do not try to learn this on the fly.
In working with thousands of accounting firms, we’ve developed a short list of common mistakes that you will hopefully avoid. Mistakes to Avoid
- Acquire an existing practice as your entry strategy. This is an expensive history lesson. In a couple cases, I’ve even seen it bankrupt a few accountants because they purchase the practice with an SBA loan, attrition is higher than projected, and cash flow does not adequately cover loan payments. In some cases, the seller re-enters the market and poaches some of old clients. Yes, this happens more often than you would think…
- Adopt the same approach as your former employer. As a new firm, you have the opportunity to start over with a clean sheet of paper and have no legacy issues. Use it to your advantage. New firms can better capitalize on cloud tax software, paperless environments, modern pricing approaches, modern marketing and virtual office practices. For example, most new practices tend to avoid audits and reviews, use SaaS tax software, store documents in the cloud (avoid buying servers), and service clients virtually (e.g., very few in person appointments) after the initial in-person consultation.
- Avoid traditional write-up and payroll services. Most new practices learn to embrace QuickBooks and use it proactively to attract new business clients. Although QuickBooks is not the best software program, it has become the industry standard and gradually, Intuit will make QuickBooks Online a better cloud solution.
- Avoid accounting services that are one-time only oriented. As a business owner, your goal will be to obtain predictable, recurring revenues (e.g., think cable or cell phone subscriptions). Avoid hourly fees, time clocks, and one-time charges. Package what you do into monthly payments and ongoing type service packages.
- Avoid outbound marketing techniques. Decades ago, outbound marketing techniques like cold calling, door knocking, and fax marketing used to work. Today, it’s viewed as spam, seldom works and yields lower fees. Learn how to use inbound marketing and a consultative approach.
- Don’t expect lots of new business from friends and family.
- Don’t be cheap on marketing and lead generation. To get your new practice off the ground, it will take a lot more marketing effort than you realize. Most new practitioners fail to do enough in the first year which results in a shortfall of revenue (and a cash crunch later).
We wish you the best of luck and enjoyment in the development of your new business venture.
Hugh Duffy is the Co-Founder and Chief Marketing Officer of Build Your Firm, a website development and marketing company for accounting firms. With more than 30 years of marketing experience, he has been coaching accountants on how to improve their marketing and make more money from their accounting practice since 2003. Hugh takes great pride in the impact his coaching has on the practices and lives of his clients.