Fear of starting a practice.

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#1
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16-Apr-2018 10:33am
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Illinois
Brief background, I am the sole provider, married with 2 kids (ages 8 and 6) I have a CPA with 7 years accounting experience. My experience includes 2.5 years of small Business and Personal Tax (5 years ago) and 5 years of industry (Inventory, Real Estate). For that last 5 years I have done taxes for friends and family only. I recently found out that my current industry job will be eliminated in August due to our largest client going elsewhere. Deep down I have always wanted to open my own firm working with Small Businesses and delivering relevant business analytics, but I am scared. I am scared because I must provide not only an income but health insurance for my family. I have equivalent to a years’ worth of expenses (including Health Insurance) saved up.
I guess my questions are?
Am I crazy to think with the experience I have that it is enough to do this?
If you had fears, how did you face them when you started?

Again, thanks in advance.
 

#2
MWEA  
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I would be nervous as well even with a year of expenses lined up. It will be more about marketing and prospecting for new clients than technical knowledge being the hurdle at the beginning. It takes time for those efforts to work.
 

#3
CathysTaxes  
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Being the sole provider, I can understand your nervousness. When my husband started this small business, I had a well paying job with benefits, so it was a lot easier on him. For awhile, he supplemented his income with a part-time job.
Cathy
CathysTaxes
 

#4
ATSMAN  
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I was sort of in your position many years back with a young family to feed so after lot's of advice from family and friends I started small out of the house working on weekends and nights to start the business and slowly grow while holding a full time job to pay the bills. When i was comfortable that I could sustain, I took early retirement.

I can tell you first hand, unless you are exceptionally lucky, the first few years will be tough with cash flow due to the seasonal nature of tax return filing. You may need to supplement that with payroll, bookkeeping etc. and I realize that is way below your pay grade being a CPA with 7 yrs. experience. But when you are on your own and you have to put food on the table you will need to make difficult choices.
 

#5
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I have a friend who basically did the same thing. Said things were much slower than he anticipated the first couple of years, as far as getting clients. I would suggest looking for an older sole-practitioner that may be looking to retire soon. They may be looking for someone to sell to.
 

#6
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Are you currently in a managerial role in your current job? What is the job title of the person you report to? I'm asking to probe if part-time/contract controller would be an option.

Would your spouse be able to pick up some part-time work to help? As said by others in this thread, unless you're willing to buy out another practitioner, it's pretty tough to make one years' expenses stretch far enough when you're starting from nothing.
 

#7
zl28  
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I think the see-saw method is more prudent.

Start out working for someone 4 days week so you have steady income and do your own work 1 day/wk.

Then 3 days/2 days

And so forth.

Opening a business is a big deal to you; but not to the world.

Just b/c you are ready to open doors doesn't mean the rest of the world is going to come flocking in.

I dont' say this harshly, i say it realistically; i've seen many clients fall into this trap.

Plus...if you go 100% on your own too early, you are probably going to accept low ball price offers for work.

Whereas if you work for someone, you can stand firm on a reasonable price.

Also, try and develop a niche.

Lastly, tax season work is also seasonal - often.

And that;'s a problem as well.

Maybe buying a practice or assimilating into one and/or working for someone one else p/t and while you build your practice
is a good idea.

Going to take 5 years or more to get practice to a decent size in my opinion.
 

#8
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Illinois
Thank you to everyone for your comments and thoughts, to answer a few questions. I am currently a senior financial analyst in charge of COGS for a $400M rev channel. I have 3 to 4 months before the channel will be dissolved and will get approximately 6 weeks of severance and an additional 3 months of health Insurance paid for. I am definitely open to and will continue to look for a soon to be retiring CPA in my area.
I know that a few of you mentioned the part time route and I am taking that into to serious consideration. I know that I will do and work what ever is needed to support my family. I personally like the See-Saw method mentioned above. That would provide some family security while allowing me to grow.
 

#9
CrowCPA  
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New England
Don't try to be all things to all people. Several years ago I gave up doing financial statements and now just do taxes. It is difficult to keep up with both regulatory systems. You are younger, so perhaps it would be easier for you, but I'm done with the FASB.

Network with other business and professional people in your area. Join Rotary or something like that. Serve as treasurer of a local non-profit. I was the treasurer of the volunteer fire department and picked up clients from that population. Let other accountants in the area know that you are available to take their overflow. If you were not so far away I would send you the 20 or so people that I decline to see each year.

Developing a niche is good, but at first you have to take whatever comes along. And a niche can happen quite by accident. I have a large number of clients from the LGBT community. I never planned for that, but a couple of them came to me and I treated them with respect and dealt with their concerns. They told their friends and the rest is history.
 

#10
novacpa  
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I think you have to take a "hard look" at the area where you live - why you want to stay there; and consider moving. I see too many quality CPAs "crowed into the same area" fighting over a smaller and smaller patch of ground.
Likewise, I see many beneful areas that are under-served.
A big problem for "Public Accounting" is the mal-distribution of CPA/Tax Practitioners.
Ala, Beverly Hills - the posh suburbs of New York or Chicago or San Francisco or Pebble Beach, too many Practitioners.
I suggest you look at Houston,Texas or New Orleans or the Oil Corridor in between - if you developed an
"expertise" in Oil/Gas/Exploration - to small independent operators - think of the demand
you could develop for your services, and fees you could charge.
 

#11
ATSMAN  
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Supply and demand is a critical factor in any business. But I think what really happens is that in certain areas of the country the billable rate is significantly higher than the rest, for the same type of work based on demographics and income of the population and professionals tend to congregate there.

I can tell you this from personal experience because I still have a few clients who moved from MA to NYC and want me to prepare their returns because NYC rates are more than double of what I charged them!
 

#12
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Massachusetts
I have a question for you. Do you charge your family and friends the going rate ? 75% of the going rate or are you doing them for free? I know everyone wants to be in business for themselves but there are so many people that are better employees than business owners. If you can not bill your family and friends, then I would be afraid that you would not be able to bill your new clients.

You seem very young and will have plenty of time to start developing a practice over the years while at the same time gaining experience. I would suggest trying to land a full time job with benefits at a small or solo practice firm. Learn the ropes, see how they bill, develop relationships and I think after two or three years you would have a lot better feel for if you can make it on your own.
 

#13
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Massachusetts
I know you said you started at a small firm and already have a couple of years experience in that field but in my mind the first 5 years you (everyone) really have no idea what is happening. I am not sure anyone could absorb enough in the first two years. Now that you are older, I think another two years would be invaluable and you would have a much better awareness of things.
 

#14
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Illinois
Thank you BerkshireTemp for your questions and comments. I do charge my friends and family for there returns, but honestly at a lower rate than market. I do agree that two to three years would increase my chances. I am currently looking for a smaller firm that offers benefits and has a chance for ownership change in a couple years.
 

#15
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USA
Look for a retiring CPA as others have mentioned. I went from a tax manager at a regional firm to a sole practitioner. I found a local CPA that was looking to retire. I took over their book of business and paid them about 25% down, with the remaining sales proceeds paid as a percentage of collections for 3 years. During the first 3 years, I still made more money than my old job.

I have been able to grow the old client base since taking over. It would have been much harder for me to start with no clients. I really don't think I would have made it if I chose to go that route.
 

#16
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when i started my own in 2006, my old boss, a partner at a CPA firm, gave me a part time gig where i worked tuesday, thursday and saturday from Feb to May and some Sept and Oct. I did that for a year and when they no longer needed my help, another partner at the firm referred me to his cpa friend down the street....i did the part time gig for 4 years total until 2010 when i finally went on my own full time. Without the part-time gig, i probably would have struggled and i had no kids back then.

Talk to your old colleauges/boss, just network and see any opportunites open up but do the word out there. Good luck.
 

#17
CP Hay  
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NEW YORK (NY)
Keeping a P/T or even F/T job as you grow your practice is the way to go in my opinion, especially if you still have bills to pay. How has it turned out for you since?
 

#18
FLAcct  
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Florida
In addition to the money aspect of starting your own business, you will need to look at quality of life issues. How many hours do you work at your current job? If you have a normal 40 hour a week job and could get another one like that, that gives you a normal work/home life ratio which is very important when you have small children. Having your own tax practice does not do that. I hope you have read all the many posts on this site regarding the long hours we all work during the spring and fall tax seasons. There is also a lot of stress in this occupation. Are you used to that? Do you want that in your life?
 

#19
JAD  
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On the other hand...I don't know what the market is like in IL, but around here, I don't know anyone who is accepting new clients. We don't even know who to refer prospects to. Many retired during Covid. Many cut back, like me. There aren't enough CPA candidates coming up due to the 5-year rule, IMO. So if you are going to make the leap, this might be the best time to do it.

But....I don't see how you can build a practice and feed the family for those first years. So while this might be a great environment for starting out, I would look for another job and work evenings and weekends on your practice until it hits critical mass. Interface with other CPAs, especially the older ones getting near retirement. They are the most likely to refer to you or to work out an arrangement for the purchase of a practice. If you find someone you like who has a few years left, you have time to get to know the clients before he/she leaves, resulting in higher client retention when the time comes to buy the practice. Maybe there is a transition opportunity where working for that person for those few years will provide you with the income that you need.
 

#20
jon  
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minnesota
The 5 year rule may have had a small affect, but the profession has been going down for three plus decades. Over half of the profession in public accounting is over the age of 50. Has anyone looked in the want adds to see what is needed. I do think that it would/should be a good time to get into it. There will be a lot more getting out than in during the next 10-20 years.

The last local CPA firm I saw sold was to a spin off of a wealth management firm!!! Times have changed, the playing field is is different, but it is still profitable.
 

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