Starting Out

Hello All,

I've been a long-time lurker and reader, but decided to create a username to be more active and also to ask specific advice on this situation.

I've made the decision recently to go out on my own as a sole practitioner with aspirations to eventually hire staff and grow a practice. I'm a tax CPA with 5 years experience for background.

My question, which relates to timing, is this:

I will have roughly 2 years living expenses saved up for the start-up phase by May/June. Would it be crazy/unwise for me to quit my full time position then, take 2 weeks to one month off, then hit it hard with business development? I already have a few clients on the side but I know this is going to be a slow time of the year for tax....I imagine I'd be reeling in mostly bookkeeping work during this time of year.

Or....should I grind it out and leave in November? This would give me an additional 3-4 months living expenses saved up (plus I'd have 5-6 months less of "burn" for the year because I'd be employed). I would take roughly a month off and then hit it hard with marketing, both passive and active. This seems a smarter move to me as I'll be going solo right as busy season is ramping up. The main con is that my current position is soul sucking, and the idea of working any more time than necessary depresses me.

Knowing what you know, what would you do in my position? I plan to offer tax compliance, tax consulting, and bookkeeping/general accounting services.

Thanks for your time!

Welcome to this board. I did not give up my day job when I first entered this business. Starting out from nothing can be a daunting challenge especially if you need a reliable paycheck to feed the family!

You could perhaps cut back your hours if you can in your day job ( I stopped doing any overtime and needed that to keep my health insurance).

I have always advised my friends to dip the toe first before jumping in. Good luck

Welcome! Depending on your family situation, two years of living expenses can be consumed quickly if unexpected things come up. So I'd be careful about planning for the nominal case. As ATSMAN says, it's probably better to starting building a client base while the income is coming in. Can you transition to part-time hours with your current employer and use the extra hours to develop your new client base? It would be nice to have at least 50% of your desired pipeline in backlog (i.e. committed to be customers) before you cut the cord completely.

I would build my side practice to about 75 1040's and 10 Biz returns before I even thought about quitting.

I know guys that bill out 70K and they have a full time job. I find that a bit much BUT if you can get to about 30 to 50K on the side, you will be successful. If you can't get there on the side, you need to ask yourself if you can get there full time.

Also, why do bookkeeping? I would strongly recommend that you market yourself as a true pro. No sales tax, bookkeeping or payroll.

Welcome to our board! Since you are a CPA, I believe you should avoid bookkeeping. I'm not a CPA or an EA but I do bookkeeping, but unfortunately, I tend to attract small guys who dump almost a whole year at once and are just as slow as paying.

Bless you Cathy. I stopped taking any new bookkeeping or payroll clients. If you are a one person shop with part time help during tax season it is extremely challenging to do that and prepare tax returns.

I completely agree a CPA should market them selves as an expert in Taxation!

A lot of good stuff in here... Thanks all for your time and advice!

ATSMAN & chris -- I'm a single guy so there's no family obligation yet. I'm conservatively estimating at 2 years. If I cut to the bone the reserve goes to 28 months.

I've been working on the side picking up clients outside of my W-2 -- and I picked up another one today! The current firm I work with would most likely not let me going part time, especially if they found out I was building my own practice on the side. I have a non-compete and that's a terminable offense. I tread lightly... I like the idea of a clean break and the clarity of conscience from not sneaking around.

Southparkcpa & Cathystaxes -- you have a good point. My billing rate will be much lower for bookkeeping than tax compliance and it's not my wheelhouse. I was thinking I should offer bookkeeping too as a bread and butter service to carry me in the off months. But... I do like the idea of cutting that out and focusing on higher value services. Would you recommend connecting with one or two good bookkeepers in town and see if they would be open to a synergistic relationship? That could be beneficial.

Bless you Cathy. I stopped taking any new bookkeeping or payroll clients. If you are a one person shop with part time help during tax season it is extremely challenging to do that and prepare tax returns.

I completely agree a CPA should market them selves as an expert in Taxation!

Thank you! I stopped doing payroll because I was tired of clients who employed people with MULTIPLE garnishments for child support and then had the nerve to complain when I charged extra for them. Plus he thought nothing of calling in his payroll Thursday evening or Friday morning for Friday pickup. He would also call in W4 info and got upset because I refused to accept info that way. Now he pays ADP twice the amount I charged and payroll has be be processed a couple of days prior. Plus they take out all withholdings and employer portion from his checking account on a weekly basis! Poor baby!

A lot of good stuff in here... Thanks all for your time and advice!

ATSMAN & chris -- I'm a single guy so there's no family obligation yet. I'm conservatively estimating at 2 years. If I cut to the bone the reserve goes to 28 months.

I've been working on the side picking up clients outside of my W-2 -- and I picked up another one today! The current firm I work with would most likely not let me going part time, especially if they found out I was building my own practice on the side. I have a non-compete and that's a terminable offense. I tread lightly... I like the idea of a clean break and the clarity of conscience from not sneaking around.

Southparkcpa & Cathystaxes -- you have a good point. My billing rate will be much lower for bookkeeping than tax compliance and it's not my wheelhouse. I was thinking I should offer bookkeeping too as a bread and butter service to carry me in the off months. But... I do like the idea of cutting that out and focusing on higher value services. Would you recommend connecting with one or two good bookkeepers in town and see if they would be open to a synergistic relationship? That could be beneficial.

It doesn't hurt to network with some bookkeeping clients but if they do taxes, you may end up losing the tax business to them.

I have a non-compete and that's a terminable offense

And what will happen when you leave and compete?

Good point Cathy. There would have to be a great deal of trust if they also did tax compliance. Ideally they would be a non CPA/EA that wouldn't prepare.

sjrcpa -- the language specifically deals with:

-stealing firm clients
-stealing firm employees
-working on the side

Getting my own clients when I'm independent is fine and unenforceable. They can't prevent me from making a living.

Good for you.

Good point Cathy. There would have to be a great deal of trust if they also did tax compliance. Ideally they would be a non CPA/EA that wouldn't prepare.

sjrcpa -- the language specifically deals with:

-stealing firm clients
-stealing firm employees
-working on the side

Getting my own clients when I'm independent is fine and unenforceable. They can't prevent me from making a living.

Totally ridiculous.... I can't see an employer enforcing the working on the side part. Any firm that would ask you to sign that is not a good place to work in my view. The other 2 are legit.

They can't prevent me from making a living.

True, but they can prevent you from making a living after leaving if you're in competition with them within a certain radius of their office for a certain period of time following employment, if there has been an agreement to that measure, depending on the state.

Totally ridiculous.... I can't see an employer enforcing the working on the side part. Any firm that would ask you to sign that is not a good place to work in my view. The other 2 are legit.

Depending on the type of firm, an employee moonlighting is effectively stealing firm clients. For a Big 4 firm, or even your firm, an employee could start a side practice and not really be in competition, but that's not true of all firms.

They can't prevent me from making a living.

True, but they can prevent you from making a living after leaving if you're in competition with them within a certain radius of their office for a certain period of time following employment, if there has been an agreement to that measure, depending on the state.

Totally ridiculous.... I can't see an employer enforcing the working on the side part. Any firm that would ask you to sign that is not a good place to work in my view. The other 2 are legit.

Depending on the type of firm, an employee moonlighting is effectively stealing firm clients. For a Big 4 firm, or even your firm, an employee could start a side practice and not really be in competition, but that's not true of all firms.

Non competes have been held out to be almost not enforceable in an employment setting. If you take a client thats different but I would not be afraid to do side work on the quiet.

Good point Cathy. There would have to be a great deal of trust if they also did tax compliance. Ideally they would be a non CPA/EA that wouldn't prepare.

sjrcpa -- the language specifically deals with:

-stealing firm clients
-stealing firm employees
-working on the side

Getting my own clients when I'm independent is fine and unenforceable. They can't prevent me from making a living.

Totally ridiculous.... I can't see an employer enforcing the working on the side part. Any firm that would ask you to sign that is not a good place to work in my view. The other 2 are legit.

Doesn't H&R Blockhead have the no working on the side clause for their employees? I remember when I took their class in 2005, they had it.

Non competes have been held out to be almost not enforceable in an employment setting. If you take a client thats different but I would not be afraid to do side work on the quiet.

In California, sure. But this is very state-dependent, and the OP should probably consult with someone informed about the law in his state.

Non competes have been held out to be almost not enforceable in an employment setting. If you take a client thats different but I would not be afraid to do side work on the quiet.

In California, sure. But this is very state-dependent, and the OP should probably consult with someone informed about the law in his state.

You gotta break a few eggs to make an omelette. I am simply saying I would be aggressive here... I NEVER worked for a firm that would truly stop me from doing a few returns on the side. When I worked at a BIG firm I hid it from them as I felt they would view it as me not wanting to be a partner but short of that, most ambitious CPA's do it. I would do it and let them take me to court. I would NEVER steal a client or anything that might be frowned upon in that manner.

Your non-compete states you can't work on the side, thus you are leery of staying at work while starting your own business. Yet you are currently working on the side, thus in violation of the non-compete. How leery of that situation can you be if you've already been immersing yourself in that situation? How much business are you going to pick up in the off season? If not much, why not just stay working and keep violating your non-compete as you have been?

Your non-compete states you can't work on the side, thus you are leery of staying at work while starting your own business. Yet you are currently working on the side, thus in violation of the non-compete. How leery of that situation can you be if you've already been immersing yourself in that situation? How much business are you going to pick up in the off season? If not much, why not just stay working and keep violating your non-compete as you have been?

Love your user name.... Slippery pencil. I almost SPAT out my coffee.