Hanging your shingle
How to start your own firm
Zack Ryan, CPA, Value Forward Advisory | August/September 2022 Footnote
Editor's note: Updated July 28, 2022
Have you ever thought of running your own shop? Do you have an entrepreneurial spirit? Does the thought of risk not scare you? Then making this move can be awesome.
When I first thought of going it alone, I was not sure where to start. I started with a couple of internet searches and turned to a book, published by the AICPA, aptly titled, “On Your Own: A Guide to Starting Your Own CPA Practice.” It is a step-by-step guide to starting an accounting firm. That was a great read and a great start on my journey.
A little history
There are more than 46,000 public accounting firms in the U.S., comprising hundreds of thousands of accountants, according to Accounting Today. However, the 500th largest firm only has about 20 professionals. Thus, one can see firms get small quickly. Further, more than 40,000 of those firms are sole proprietors or one-owner firms. So, the typical accounting firm has very few people and, in most cases, one person.
Why is this important? Well, for starters, it shows that our profession has always been entrepreneurial. These firms are born out of other firms, people leaving, employees striking out on their own and so forth. When you look at the age demographics of firm owners — the baby boomer generation compared to Generation X — they are heavily weighted toward people older than 56 years old, the CPA Journal reports. Partners older than 50 are 71% of the industry. It is very common today to see solo practitioners selling or closing, as well as 20-person firms merging into larger firms constantly.
The retiring practitioners and mergers have created an opportunity for unprecedented growth. Why? Look at the type of clients. When a 20-person firm merges into a 200-person firm, that firm likely does not want every client. Each firm and client have unique needs and values. It is a great opportunity to obtain some of the clients that do not fit into the larger firm model.
According to Accounting Today, more than half of firms will likely see a 5% or greater growth this year, with 10% of those firms expecting to have a 23% increase in clients. With so much growth, fewer providers and an increase in demand, this is your time.
Prepare, plan, execute
Failing to plan is planning to fail. The old advice holds true. When you go out on your own, you need to determine your model. Many years ago, firms could offer many general services, but in the past 20 years, too much has changed. You can no longer be all things to all people. No one person can know all the tax law changes and accounting standard changes that have happened within just the past few years. Lawyers usually specialize, and it should be no different for accountants. Write up a 20–40-page business plan that lays out what and how you are going to do it. Have someone read it over, then work your plan and stick to it.
You will need to budget your time and decide how many charge hours you want to work each year. Making a budget for the type of work I want has been my biggest challenge. I set out to limit my work week to an absolute maximum of 45 hours and I wanted October to be busier than March. An even year may be unheard of for someone in public accounting, but I am trying; going on spring break someplace warm is a wildly rewarding experience.
Balancing your time goes hand in hand with the type of clients you work with, so be picky. While 1040 tax work is an easy sell, it comes with a price: your time during winter. Advisory is a common word in the industry today. I look at that as the continued advice you are giving to clients all year. This is the value you provide to clients. There will always be compliance work, but how you complement the compliance work with other services is the roadmap to a healthy work-life balance.
To niche or not to niche
The best advice I received was to be picky about who you take on as clients. I set a plan to only work with certain businesses with certain revenues. I picked areas I liked working and I make sure I like the owner. If you are going to be self-employed, you may as well enjoy it; you’re the boss, after all. Too often accountants put up with abusive people. There’s no need for that. You need to create your vision.
So, what is your niche? It need not be so specific that you only do solo practice dentists with Form 1040 Schedule C’s. You can decide what’s in line with your work and goals. The small businesses I work with have a need for me all year. Meeting with clients more often allows you an opportunity to fix their problems sooner and push work out of “busy season.”
Think of a client that you’ve worked extensively with during March, answering all their questions and doing the cleanup of their books and tax return. Now imagine if you did the cleanup and training in the summer, tax planning in the fall, tax return in the winter and had a recap client meeting in the spring. You’ll work with the client the same number of hours in both cases, but when it’s spread over the year it adds better value to the client because they have more timely information and constant advice.
Tech, for tech’s sake
The only thing you can never get back is time. You can always make more money but cannot make more time. “What is the best use of my time right now?” should always be forefront in your mind. There are a lot of apps out there for accountants. I would design your tech venture around your written plan.
There are numerous timesheet apps. The ones I like best are the project management apps. By being paperless, you won’t have files all over the floor to remind you what you must do. So, picking good software is critical. I recommend picking a tax software for quality and not price. The tax software is like an employee to you and does a lot of the work. Just remember to not go overboard, because there are tons of apps that may look cool and fun but may not be needed for you to accomplish your vision.
Fees, fees, set them fees
Fixed fee or value billing is a small camp but growing in numbers. I am of the mind to charge fixed fees. Hourly billing implies every hour is worth the same to a client. However, we know tax hours will draw a higher premium than, say, data entry. At a small firm, work in March has more value than July. Upfront pricing ensures the client will not be surprised. It also allows the accountant to determine the scope of the engagement. The price can be changed if the client asks to change the scope.
Accountants are one of the most trusted professionals that companies employ, so get paid for your knowledge, experience and value. I have seen fees all over the board. There is not one right price. That’s the beauty of fixed fees; the client can say no and look elsewhere. There will always be clients out there, so make sure you have the ones that want to pay you.
Marketing and sales
Yes, the topics most accountants prefer to avoid. When you are on your own, you are the owner and worker and it is easy to get buried in the work and ignore the management of your firm. Working on your firm is more important than working in your firm. To do that, you must network with your clients, peers and other professionals. I look at marketing as the way you promote your brand. I look at sales as how you promote your work. If you do a good job marketing, you do not need to do much on the sales side of the equation.
I remember a story from a broker in the early 2000s. Every new broker was still reading the newspaper and cold-calling people for business. This broker would cut out the news article and laminate it. He would then mail it with a letter congratulating the job change for the executive. He was wildly successful landing business. Why? He talked about the client’s success. He did not spend the whole time talking about himself. When clients need help, they want you to listen. I try to talk less than 20% of the time. The client wants you to help them, so you need to listen.
Go start it
The goal of a business is to provide a quality product or service. The profit is the result of that hard work. So go do what you like, and the money will follow. There is such a high demand for accounting work that one need not buy out a retiring partner. If you do buy a firm, do a lot of due diligence. Avoid a fixed price and push for payment based on retention. You may prefer if it is seller-financed as well. You may have just a few clients to start, and the rest will come from your hard work and networking.
Getting started is easier than you think. It took me a day to get everything set up, from buying a laptop and monitors to subscribing to a dozen online tech services. The AICPA book has examples and a checklist in it. Better firms are better for the industry, so if you want to go make your mark, this is your time.
Zack Ryan, CPA and director at Value Forward Advisory, is a problem solver based in Saint Paul. He has more than 20 years of experience in public accounting. He loves talking about the accounting industry and firm management. You may reach him at 651-333-6140.