If you have kicked around the idea of starting your own accounting practice and think you are ready, then this article is for you.
To avoid many of the pitfalls and risk associated with starting a new business, here are some things that you should be asking yourself and considering.
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 “rain maker?
- How will I differentiate my services and earn higher fees?
Owning a 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.
Most accountants start an accounting practice using the following entry strategies:
- Starting from scratch – Starting 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. You should also be fluent with QuickBooks, which is how many small businesses manage their bookkeeping function.
- Part-time practices – Many accountants start picking up clients on the side as a part-time practice. This lowers the risk and enables them to assess whether they might enjoy starting a full-time practice.
- Finding a partner – 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. We seldom recommend this approach.
- Buying a practice – This entry approach sounds easier than the other options but has 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.
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 business
- Target audience that you are serving
- Services that you will offer
- How you will better service 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
Before making this leap, it is important to honestly assess if you are prepared to make this transition financially and emotionally. New businesses require sweat equity so this move has to be at the right time in your life. Nearly all 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.
Accounting Practice Marketing and Development
This is the area that most 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.
In today’s world, hanging out your own shingle is not enough to build a business and the number of referrals will be inadequate to achieve your revenue goals. Quite frankly, most referrals will come from your own clients so a new practitioner can not count on many referrals.
To quickly learn how to market, price, sell and service accounting services, we highly recommend that you enroll in a practice development program. 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.
The cost of starting an accounting 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 generally 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 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 home town 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.
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). Also, the secondary market for used office equipment is worth considering as well (e.g., Craigslist.org, etc.). If you have a bigger budget and want to buy brand new office supplies and furniture, why not get high quality office desks? Your future employees will definitely thank you for them!
With the introduction of cloud computing, many new accounting firms are considering SaaS and hosted solutions. 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. For accounting firms that are starting with limited capital or doing it on the side part-time, another consideration is the pay per return option from many tax software providers.
The goal is to keep your headcount to a minimum. At the onset, the owner usually does it all and adds employees only when necessary. Usually, the first new hires are part-time and/or per diem.
Hugh Duffy is co-founder and Chief Marketing Officer for Build Your Firm, a leading practice development firm dedicated to the accounting industry. Build Your Firm works with small accounting firms providing accounting marketing, practice management and CPA website development services. Hugh has twenty five years of marketing experience and holds an MBA degree in Marketing from the University of Rochester. Hugh can be reached at 888-999-9800 x151.