Start Your Own Firm
Ten tips for the entrepreneur in you.
| EXECUTIVE SUMMARY | |
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| ROBERT B. SCOTT, Jr., CPA, is a professor of management at the Gabelli School of Business at Roger Williams University in Bristol, Rhode Island. He is a longtime practice strategy and growth consultant to CPA firms around the country. His e-mail address is rbs@alpha.rwu.edu . |
re you tired of working for someone who can’t operate a pencil sharpener let alone run a CPA firm? You want to be your own boss and do it right? It’s tempting, but hanging out that shingle takes preparation as well as moxie.
There are thousands of CPAs whose entrepreneurial spirit compels them to put professional experience on the line and open a practice of their own. They come from all corners of the profession—the Big Five, regional or small accounting firms, government, academia and business and industry. Most are seasoned enough to know that starting any business is risky.
The financial aspects of starting a practice are important, but so are several intangibles. Evaluate your market savvy, networks and service niches as carefully as you would a business plan and budget. They cannot substitute for technical skill, integrity, tenacity or hard work, but attention to these areas can help you avoid common start-up mistakes, develop business skills and improve your chances for success.
If you are planning to establish your own CPA firm, take the following steps ahead of time to ensure that you start off on the right foot.
1. WORK IN A SMALL PRACTICE FIRST
A small practice is not a miniature large practice. Most of the thousands of CPAs who leave large accounting firms every year to start their own practices are ill-equipped to manage a small firm. CPAs who work for large firms may get little experience working closely with small business clients. And small firms do not have in-house industry specialists or research departments to help check the work.
Pay your dues. Take a job with a small firm. Learn that side of the profession, sharpen your skills, and carry your weight in the small practice environment. Satisfy clients and develop new business for your employer. In a few years you’ll have a better idea of what it takes to start your own firm. Public accounting can be a tough business, so don’t be surprised if you change your mind along the way. A lot of good people have.
2. SELL 1,000 HOURS OF NEW BUSINESS BEFORE YOU LEAVE
The key survival skill in public practice is selling professional services face-to-face, a facet of public accounting many CPAs in large firms and in private industry never experience. Until you have sold services successfully, chances are you don’t know how, won’t be able to learn or won’t like it.
Learn to sell while you are drawing a paycheck. One thousand hours of annual billable time can barely support you, a small office, a part-time secretary and an intern to help during tax season. If you can’t sell 1,000 hours with the resources and reputation of an established firm behind you, you probably will fail to do so on your own.
3. START SMALL
A friend of mine has a placard in his office that reads: Happiness is positive cash flow. If more money comes in than goes out, your firm can survive.
Resist the temptation to rent expensive office space and fill it with pricey furniture. Your first-year, out-of-pocket overhead should be as close to zero as your ingenuity can make it. Be creative. Work out of your home; barter a few hours of service every week for space in another practitioner’s office; set up an office in one of your clients’ buildings in a quid pro quo for work.
Don’t mistake image for reputation. Reputation based on competence and integrity is important to current and prospective clients; image and style are much less so. In fact, many successful practices have grown from humble beginnings. Low overhead permits a fledgling practice to survive long enough to attract a clientele—and it can be a key to success. Clients want a prudent professional to handle their affairs, and they will understand the need to start small.
4. GROW SLOWLY
Rapid growth can destroy a new practice. The wisest way to grow a professional practice is to control it rather than be a slave to it. A sole practitioner starting out enjoys no economies of scale and relatively few technical resources. Experience, skill, wisdom, character and personality are your primary resources. They are formidable—but only when properly applied.
Choose clients for whom you can become a special resource. Most CPA firms will prepare financials and tax returns, perform an audit of a small or midsize company and explain the importance of a budget. Your special mix of skills and style must add value to your clients’ businesses.
Most important, supply your clients with the level of service they want from a more personal business relationship. Differentiate yourself from the fast-growing firms that lose clients because of frequent staff turnover and high fees. Good practice development is the art of adding quality, one client at a time.
5. SELL YOURSELF FIRST
If clients believe in you, they will believe in the value of your services and the wisdom of your advice, and competitors will be less likely to steal them away.
Clients will not believe in you unless you are sincere and you can convey your sincerity to them. They want a professional relationship with the real you. Trying to be someone you are not, or making your firm out to be something it is not, can sabotage your efforts.
The happiest, most successful practitioners I have met are people whose personal values serve as a professional compass. The unhappiest, least successful CPAs I know are people who bury their true character and personality behind a faade. Being yourself and developing your practice in your own unique way can increase your chance of long-term success.
6. SPECIALIZE
Most practitioners will tell you they don’t do write-up work. Everyone wants to provide high-level accounting, tax and consulting—they consider write-up undignified.
One of my favorite personalities in the profession is known as the “write-up king.” He believes that essential, everyday services can be profitable if they are performed efficiently. To start his firm he purchased computers, hired a few accounting students and concentrated on compilations. He earns several hundred thousand dollars a year, runs his own business and pays cash for his Cadillacs.
CPAs today specialize in business plans, assurance services and financing. Some work only with insurance agencies, small credit unions, doctors, dentists, restaurants, commercial fishermen and farmers. Some provide financial planning or limited client services only, while others just review CPA practices.
Decide first the areas you would like to pursue, then see whether a market for them exists in your region. If you specialize, you may be able to lure more prospective clients to your door.
7. LEARN FROM PEERS
Consider practicing in association with other local CPA firms. Meet the practitioners and professionals in your area to develop a network of referral sources. Don’t miss your state CPA society’s local chapter meetings, and attend other community assemblies such as Lion’s Club meetings to see how you can set up a variety of subcontracting and joint venture arrangements. That way you can create a business contact with a competent, professional team of CPAs who can help in a wide variety of circumstances.
Another great advantage to working in association with other firms is that it adds referral sources to your network. You will benefit from the mutual trust and respect you gain from your association of firms. If you have chosen a specialty, you can ally with CPA firms that offer specialty services different from yours and thus provide your clients with a one-stop-shopping network.
8. ADD STAFF EARLY
As soon as you can, hire administrative staff to perform day-to-day recordkeeping and office management activities. Some jobs are clerical in nature and do not warrant a professional’s fee. The practitioner typically performs functions worth $100 to $1,000 per hour. Give yourself more time to review, manage and market your practice.
Management consultants remind managing partners that when they’re working, they’re not selling; and when they’re selling, they’re not working. You must find time for both. If you spend your time on basic administrative work, you’ll never build a high-profit practice.
9. FINE-TUNE YOUR PRACTICE
According to Pareto’s law, a small percentage of items or services can account for most of the value of an entity. This principle, also known as the 20/80 rule, has been used for decades by industrial engineers and management analysts. Apply this rule to your clients to determine which you should keep and which you should drop.
After you have been practicing for about a year, you will start to see that relatively few clients generate most of your revenue. Conversely, a small percentage of your clients take up most of your staff’s time.
Keep score by setting up a client-by-client contribution margin. Take a client’s total fees and subtract the direct-service costs, such as staff time. A client who generates revenue that is 1 1/2 times what it costs to service the engagement, especially a large client, may be worth keeping and developing. If you continue to be unable to recover1 1/2 times costs, you should consider ending the relationship. Many accountants work too hard for far less compensation than they deserve because they keep clients who simply aren’t worth it.
10. GIVE CLIENTS TLC
Clients will be loyal to you if you prove you sincerely want to understand their businesses and help them meet their goals. Some CPAs who want only to be seen as professional may be so restrained that they come across as cold, clinical or uninterested. Break out of the mold and loosen up with your clients.
The most spectacular successes I know of have been firms started by CPAs who developed close relationships with their clients, to whom they often were business advisers as well as friends. As their clients became more successful, so did they.
If you are incapable of such relationships, you’re less likely to succeed in a solo practice. You have to have an inherent love for your job to achieve success. When you do, caring for your clients is second nature.
WINNING PERSONALITY
It may surprise you that so much of my advice centers on personality and building relationships. Don’t let it. World-class companies are run by world-class personalities. The successful businesspeople covered in Fortune and Forbes, such as GE’s Jack Welch and Hewlett-Packard’s Carly Fiorina, have achieved success in part because they have personality, charisma and a natural ability to work well with others.
To build your own practice, you must have similar leadership qualities. After all, public practice is a service profession. You have to have the technical skills to be the best in your niche or specialty, but first you have to get clients in the door—and for the start-up that means a lot of personal marketing. Don’t be intimidated. The chances are good that if you are driven to own your own firm, you will love working with clients, too. That’s good, because relationship building is what it’s all about.
| CASE STUDY Sweat Equity for Success | |
| In 1991, on his 33rd birthday, Ralph Evangelista started his own practice. He had worked for eight years for two separate local CPA firms in New Jersey, and he felt ready to develop his own successful practice. He was driven to be his own boss and to start his own firm, though he understood starting a company could be very risky. He and his wife Marylee, a full-time CPA at another local firm, agreed that—because they had not yet started a family—it was an ideal time to give independence a try. In the beginning, Evangelista worked from home—at his kitchen table to be precise. He was confident his firm would grow because his public accounting experience had given him extensive one-on-one contact with clients. He was extremely good at networking, developing referrals and building strong business relationships. His very first clients included a liquor store, construction company, gift shop, chiropractor and an attorney. Some of these clients had come with him when he left his full-time job. He began to generate income and decided to move the practice out of the house to give it a more professional appearance. To save money, Evangelista struck a deal with another local CPA who wanted to share some office space. Evangelista’s firm grossed $40,000 the first year. Half of the revenue came from new clients and half from smaller per diem assignments from his wife’s firm. It was a hard year, and he was tired, frustrated and disappointed. To add salt to the wound, one client complained he charged too much for his services. As with most small firms, Evangelista experienced some busy periods and some frustratingly slow periods. To see just how well he was doing, he began to aggregate his income over a rolling 12-month period. He determined that his firm was actually growing at a rate of 25% to 40%. This provided him with an important infusion of energy and confidence. His clients were staying with him, and he realized that although his new firm would not enjoy overnight success it would be successful. He settled in for the long haul. By the end of 1993 his annual revenue was approximately $60,000. He was engaging more clients and reducing his per diem work. He was even starting to build a litigation support services niche. Nonetheless, the biggest challenge of starting a new practice remained—Evangelista needed to expand his client base, and he was willing to work hard to do it. He participated in investment and insurance firm seminars. He organized seminars with other professionals. He advertised in newspapers and the Yellow Pages. He even printed ads for his firm on the back of supermarket cash register tapes. Evangelista hired an experienced CPA to help him during the 1993 tax season. He also hired an experienced administrative assistant full-time. By the end of the year, he relocated to a small but upscale office where he shared a receptionist and conference room with a well-established law firm. Over the next four years, Evangelista developed relationships with attorneys in the neighboring firm and elsewhere who began to refer clients to him. He found other new engagements through his satisfied clients’ word-of-mouth marketing. His revenues tripled from 1993 levels and he needed a new office to accommodate his firm’s new growth. In September 1997 the firm moved into its first completely independent office. Clients and office neighbors were invited to a well-attended open house that gave Evangelista the opportunity to show off his success. Evangelista’s firm now enjoys a comfortable six-figure revenue that has been increasing 25% annually. In 1999 Evangelista hired his first full-time entry-level staff professional and reorganized the administrative side of the business. Evangelista’s journey from the kitchen table to successful practice has been a long one, but it is far from over. He continues to deal with many of the challenges he experienced when he started out: adding staff and clientele while maintaining quality; remaining both competitive and profitable; and retaining his best clients. He is a happy man, doing exactly what he has always wanted to do—successfully. —Robert B. Scott, Jr. |
