• Firms

    When Is the Right Time to Start Your Own Accounting Firm?

    By | February 12, 2015

    Every once in awhile we like to discuss the prospect of accounting firm startups. That is, which of you will be the ones to strike out on your own or with a co-founder to build your own firm from scratch.
     
    When we’ve discussed starting a new accounting firm in the past, many people admit that it’s not for them, that they got into accounting for the job security. 
     
    It's February, so you may be looking around, growing restless, watching your firms struggle with technology, get bogged down by bureaucracy and generally just suck at being a good place to work. Sure, you could look for a new job post-busy season but if your frustration runs deeper than a crappy raise or working long hours for the man, you shouldn’t dismiss the idea of running your own firm.
     
    But there are lots of questions around starting up an accounting firm, chief among them — WHEN?
     
    Experience is an important factor in building your professional knowledge but you can always say, “I need more experience before I go out on my own.” 
     
    Maybe that’s as few 5 years or maybe it’s as many as 10 or more. Or does it matter? If you’re really itching to start your own firm, will you ever truly be comfortable with your experience level? Should you just jump in and figure it out?
     
    If you’ve already made the leap, how much experience did you have? For those thinking about hanging the shingle, how do you feel about the issue? 
     
    • FartDude

      I knew a senior who left to start his own firm. I haven’t talked to the guy since he quit, but a good 10+ years later, he seems to be going strong.
      I would think that the key factor in starting your own firm is to know that you’ll have enough clients lined up and enough cash in the bank to survive the start up phase.

    • jizzmane2

      Jizzmane and Company L.L.L.P has a nice ring to it

      • iamthelolrus

        What’s the third L stand for?

        • FormerBig4

          Limited liability limited partnership.

        • jizzmane2
          • The Horniest Partner

            that lmgtfy is choice..can I do that for two girls one cup?

    • cpanum31

      About fifty years ago is probably the best answer.
      The business sector, small business, that the starting practice accountant depends on to grow as been slowly disappearing, and apparently extinct in many areas.

      Then there is the concurrent increase in the number of accountants over the last half century. One fellow explained it simply as to succeed you had to steal other people’s clients. It seems a popular work in California.

      Other places are, I realize, quite different.

    • The Horniest Partner

      I think it is much harder to do it today’s environment than 20+ years ago. I cant point to any stats but could be due to the shrinking CPA numbers and the price to employ good talent. It seems so many war vets via GI bill and then baby boomers went into accounting and started their own firms in the 60-80s and the trend is now selling out to bigger firms. Also the older partners when I was starting in public accounting were pure generalist who could do an audit-review of a small biness, corp taxes and have a stable of 1040 clients. CPAs today are more specialised as the business world has become more complex.

      • Point and Clique

        I was fortunate to work under a partner like that starting out. Got used to having all kinds of things in the toolbox, as he variously did and had me do compilations, reviews, audits, and tax returns from 1040s to 990s, PLUS bookkeeping. He was completely old-style with this client-first attitude; except for legal matters, he’d always hit the regs and try to meet whatever oddball demand a client may have to go the extra mile. Then the firm got acquired and the message became “we do X, Y, and Z, and if you don’t like it, tough”, and that office consequently lost a third of its client base.

        • The Horniest Partner

          same background here…I remember in a matter of a couple weeks as a ignorant staffer I did a review, 1120s + S+L returns, a bunch of 1040s, an ex-pat return and to top it off a fuggin gift tax return. Those war vet founding partners sold out to a bigger firm and I bet we had 50%+ client losses in a few years.

          • Management Assertion

            And where do those “lost” clients go? To someone who opens up his own practice. The small practices will always have this flexibility advantage over large firms, thus they will always have a market.

            • Point and Clique

              Hah, the downside being that you get boxes of receipts more often than not as your PBCs for a while.

      • FartDude

        ok, what happened to Chippendale Chris Farley?
        Your entire personality has suddenly changed.

        • The Horniest Partner

          I am not reinventing myself – same ole’ HP, just testing some new looks. Maybe GC will do a survey to pick tHP’s new avatar.
          You no like dis one?

          • FartDude

            As of now, no.
            Maybe it will grow on me?

          • Guest

            anyone else? Chris Farley or new pic

    • Management Assertion

      ¡Qué interesante!

      • DepecheMode

        bastante!

    • Chris

      It’s time when you have sufficient capital to start the practice..however if I had said capital I wouldn’t blow it on a fucking accounting firm..I’d do something else with my life

    • Jack

      1. You can buy a firm from a retiring owner – need cash for at least part of buy-out.
      2. You can leave the firm you are with and take clients – your non-compete kicks in and you need a pile of cash to buy them, usually 1 – 1.5 times fees, IF they don’t file against you to quit soliciting their clients.
      3. You can leave where you are and not take clients, hang up your shingle and wait for clients to come to you – need pile of money to live on until you get enough clients.

    • jasonmblumer

      Or cower in the corner beside your cube and eat your tuna sandwich during your 45 lunch break while the partner passes you by in his new BMW.

      • Guešt

        Go fly a kite

        • jasonmblumer

          I will. I have time to fly kites now. : )

      • FartDude

        So, start your own firm? Like you did?
        Oh. Wait. You didn’t. You inherited your daddy’s firm.

        • jasonmblumer

          Scared?

          • FartDude

            riiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiight.
            idiot.

            • jasonmblumer

              But you didn’t answer the question. Are you scared to start your own firm?

          • N.E.R.D.

            Weakest comeback ever.

          • dadsmayor

            Good one…? Inheriting =! starting your own firm

    • Midtier Mope

      I went into public in 2008 working for a national, non-big 4 firm. I stayed for 3 years and left to work for a large local firm (8 partners, 90 total employees, no public clients) and now I’ve worked out a deal to purchase a small tax practice this fall.

      I don’t plan on becoming wealthy from this venture, but I realize that I just don’t care to be a company man anymore. I have had enough of the billable requirements, semi-annual performance evaluations, and just having to constantly make the choice of either stroking wang or eating shit.

      On a side-note, I have always opted for the shit eating, but even after 7 years in public I still can’t do it with a smile on my face.

      The purchase agreement is fair and I believe I can retain most of the existing clients because the retiring owner/shareholder is up there in years and his clients have communicated to me that they have been hoping he’d find a replacement to carry on his practice.

      Anyway in the interest of avoiding a bunch of tl;dr’s, I am excited, hopeful, nervous, but really ready to run my flag up the pole and see who will salute it.

      • The Horniest Partner

        Good for you. A tax guy at my first firm went out on his own in the early-mid 90s and I meet with him occasionally. He now has two offices and is the still the sole-owner although he has an income partner. Talked to about merging but he pretty much says the financial benefits of being the sole owner are nice – he’s swimming in money. I bet he’s making $750K+ a year and this with a client base of very small to medium sized clients. Anyway here you go:

        • Midtier Mope

          Honestly, I’m hoping to gross about $400k first year, and pocket about $160k before covering the note payments on the purchase.

          I probably wouldn’t attempt this without having an established practice up and running.

          Even if I fail and wind up broke, it’s still better than the alternative of staying at a firm where my only joy is holding a giant deuce until my favorite partner goes to the bathroom to brush his teeth.

    • When should you start? Not sure there’s one answer to this, but I think it’s important to recognize ‘being an accountant’ and ‘being a business owner’ are two different things, and being prepared for that is important. All entrepreneurs generally have a sense they can do it better, but I don’t think you can overestimate the amount of energy it’ll take to do it better — inertia is what keeps the current environment where it is. Having a basic business model and plan, financial model and plan, along with some savings, also helps. 😉

    • CpaCat

      I did it after 2 years in public accounting + some time in industry. I took no clients with me. I started with one client – a friend who wanted me to do their tax return. I had to scrabble and scrape for work. I accepted pretty much anything that came along, including low level bookkeeping. I managed to earn the equivalent of my weekly salary in that first week – but most people didn’t pay me until a couple of weeks later. I think I actually received all of $90 that week.

      Almost everyone I picked up ended up becoming a repeat customer (bookkeeping turned into tax return, tax return turned into bookkeeping). For a long time, lining up work was a one day at a time deal, but I did work most days.

      I started in February, figuring that was the best time to start building a client base – but I knew I probably wouldn’t match my previous annual salary. My goal was to reach my former salary level in year 2 (which I did – barely – and not if you factor in loss of benefits). It got a lot easier after that, and I was gradually able to increase my hourly billing and focus on more lucrative work.

      Start-up costs were about $8,000 (I didn’t have rent). I projected $6,000 and it turned out I forgot a few things that I took for granted at my former firm. You definitely need savings – but not an extravagant amount. Most people have a lot of excess expenditures that they can live without if they just take some time to analyze their budget.

      My advice would be to carve down your budget first and save two year’s worth of personal expenses (if you’re on a single income), or carve down so that you’re living on your spouse’s income. Then save about $10,000 for start-up costs. Then suck up any CPA pride you have about your billable rate – because time you’re not working is worth $0 (actually, I didn’t accept jobs for under $20/hour, so guess I valued my time at $20).

    • Derrick Rose

      anyone who wants to start up their own firm has not seen the administrative burdens and the quirks of complex tax returns. bookkeeping, etc.

    • I had that same mentality where I thought I needed X number of years of experience before I went out on my own. After about 8 years of work experience (4 in Big 4 and 4 in Industry) I finally decided to go out on my own.

      It. Was. Hard.

      I made every mistake at least once and plenty of them multiple times. I lost money. I lost clients and I almost lost my house.

      I sank several thousands of dollars not to mention losing out on a steady paycheck from a 9-5.

      I didn’t sleep much and I gained weight.

      And yet, I wouldn’t trade it for anything else.

      I learned a ton about myself and the kinds of sacrifices I could do in order to pull through. I can honestly say that starting my own business from scratch, growing it, and eventually selling it taught me more than any MBA out there could (and it probably cost me about the same).

      First off, you have to determine if you really want to be an entrepreneur or you just hate your job.

      Everyone says they want to start their own business. That’s because no one wants to have a boss. Although not having a boss has its benefits,
      the buck stops with you.

      As a business owner you only eat what you kill. On top of that, if you’re just starting off you’ll have to find the prospect, turn them into a client, and then start doing what they’re paying you to do.

      As an employee, if the system is down or the client is dragging their feet with the PBC request, you still get paid. No need to worry about where your money is coming from. Making payroll is the partner’s problem.

      So which one appeals to you?

      Second, no matter how much or little experience you have, clients hire you not for your knowledge but to take care of the problem for them. Most clients could care less what rules or code regulation applies to their situation. They want to make sure that they don’t have to worry about it whether it’s taxes or their bookkeeping.

      If it still sounds appealing, let me tell you some insights that will be useful.

      My advice for you is to:

      1.Build up your practice before you leave

      Dip your toes in the water before you go out on your own. Not only will
      you already know if you can stomach entrepreneurship but you will also have a list of recurring clients before you quit your full-time job.

      This will reduce some of the stress that comes with having a reduced income and it will also allow you to think clearer. When you’re not making
      any money and you have living expenses to pay, desperation kicks in and it
      prevents you from making smart choices.

      Worst of all, clients can smell desperation and they will either A. Not want to do business with you or B. Want to lowball you since they know you’ll do it for pennies on the dollar.

      Yes I know a lot of the Big 4 “prohibit” you from having another job outside of the firm, but as long as there isn’t some sort of conflict of interest thing going on, what they don’t know won’t hurt them.

      2.Learn how to sell

      The difference between an accountant and an owner of an accounting
      firm is that the owner knows how to sell. You can be the smartest CPA with a perfect passing score with tons of experience. All that isn’t worth a
      nickel cut in half if you can’t make the sale.

      I’ve seen it time and time again where the business owner bitches and complains that his clients are too stupid to see the quality and value that their firm brings. The real problem is that you don’t know how
      to show them that.

      Like Mark Cuban says “The ABC’s of Selling: Always Be Closing”

      3.Don’t scrape the bottom of the barrel for clients

      You have to learn how to put a price tag on your head. Coming from
      public you’re used to having someone charge for your work and throw you some scraps summarized in a W2 at the end of the year.

      You will be tempted to do a bunch of free work because “you know. You’re just starting off. Once they know the quality of my work they’ll hire me for bigger projects”. That’s a big mistake right there.

      First off, people won’t take you or your work seriously if you’re giving it to them for free. I can’t tell you how many times I spent 2-3 hours on a “free consultation” that ended up with the client walking away with all their questions answered and me holding some false hope that they’ll hire
      me only to never hear from them again.

      They’re only free to the client. Any time you spend not producing money, is
      time you’re not getting money for. Definitely not what I consider free.

      4.Reduce your initial expenses

      No. You don’t need an office because you’ll spend most of your time visiting clients at theirs. No you don’t need a brand new cell phone. You can use Google Voice as a business number. And forget about a
      fancy new website.

      The clients you get will be because of the value you’ve shown them (see #2 above). I have yet to hear from a client tell me that they hired me because they liked my website.
      First focus on the revenue producing activities. Completing a tax return? That makes money so do that. Creating your FB page? Unless it’s
      bringing in quality clients, don’t bother.

      If you can prove that something will make you money or help you increase the rate you’ll get money, then go for it. Otherwise cut it out of your
      budget. Once you start bringing in bags of cash you can splurge on anything you want.

      One final thought:

      Everyone likes to “play business” and focus on dumbass tasks like designing a logo, figuring out what the perfect name will be and how to cram Big4CPA as a twitter handle.
      Truth is, none of those activities make you money. If it’s not making money, it’s not worth your time.

      I have heard before that you’re not a real business owner until you’ve made that first sale.

      I say you’re not a real business owner until you’ve been paid for that first sale. Selling, delivering expectations, and getting paid is what makes you a real business owner.

      Good luck!

    • Just did it last month. I bought half of a practice from another CPA who wants to scale back. I am sharing the office costs and office staff with him. So far so good, although I haven’t done any billing yet.