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Transitioning from large firm to small firm or SP

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#1
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I'm a CPA with 5 years of tax prep/review experience. I predominantly work on business returns, and do extensive multi-state work. I also do a lot of training with the newer staff members.

I work for a large regional firm, and I'm burnt out. Although I continue to get promoted, my billable hour requirement continues to go up. I work on several large fiscal returns, so my deadlines never stop ... 4/15 ... 5/15 ... 6/15 ... 7/15 ... you get the idea. I have no downtime, and I also have young children that I do not get to see enough.

I've always had an admiration for small business owners, so I always saw myself working for smaller firm. I'd like to explore the option of moving to a smaller firm, or even going on my own as a sole practitioner.

For those of you who have done this, can you offer and advice or tips for making that transition?

Did it work out, was it worth it?
How did you start?
How did you grow your book?
Etc

Thank you!
 

#2
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First question...do you have a non-compete agreement? Clients often follow their CPAs, but if you have a non-complete, it poses hurdles. They can be difficult to enforce, but the legal costs and headaches are rarely worth the fight. I had a partner for a brief period that violated a non-compete with her prior employer and it cost me $9,000 in just defending my company's rights against a very intrusive subpoena. I quickly bought out my partner, for that reason and several others.

Second, do you have the means to acquire a small practice as a jump start?

I went from a small firm to private accounting, and the private accounting world (full of political BS, excessive hours, unrealistic expectations) burnt me out within not even 18 months. I have never been so miserable in my life as I was in that world. I resigned and started my own firm, though I had the ability to contact former clients since I did not have any agreements in place. Most of them came my way, others had established relationships with new accountants.
 

#3
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CornerstoneCPA wrote:First question...do you have a non-compete agreement? Clients often follow their CPAs, but if you have a non-complete, it poses hurdles. They can be difficult to enforce, but the legal costs and headaches are rarely worth the fight. I had a partner for a brief period that violated a non-compete with her prior employer and it cost me $9,000 in just defending my company's rights against a very intrusive subpoena. I quickly bought out my partner, for that reason and several others.


I do, but it is a minor one. I cant recruit other employees, and I can onyl take clients that I personally originated (which is not many)

CornerstoneCPA wrote:Second, do you have the means to acquire a small practice as a jump start?


Not much. I have small children that currently eat most of my disposable income. ;) The possibility of taking out a SBA loan has crossed my mind, but I really haven't looked into it seriously yet.

If I do go SP, it would mostly be starting from scratch.
 

#4
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Georgia
You'll most likely take a pay cut to go to a smaller firm. If you decide this route, ask what software they use. If everything is different, it'll be a pain to relearn software and processes. Not impossible, just a headache for a year or two.

As far as sole-practitioner, can you survive on your partner's income while you scale the business to profitability? Will it cover all living expenses? Can you get added to partner's health insurance?

I'd recommend a home office at first to keep overhead low while you scale. You may be able to "watch" the kids while partner picks up more hours at work. But you'll need to balance work/distraction in that scenario. Everyone in the family will need to be on board with this route if you pursue it.
 

#5
makbo  
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ThatTaxGuy wrote:
CornerstoneCPA wrote:First question...do you have a non-compete agreement?

I do, but it is a minor one. I cant recruit other employees, and I can onyl take clients that I personally originated (which is not many)

Non-compete and non-solicit are two distinct things. Recruiting employees and "taking" clients would be covered by non-solicit, not non-compete. Opening any business at all would be the topic of a non-compete. In some states, like CA, non-compete is not allowed -- you can't prevent a former associate from trying to earn a living.
 

#6
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makbo wrote:you can't prevent a former associate from trying to earn a living.


This. All prior firms I've worked for have had non-solicitation agreements. No non-competes.

Usually you can't solicit employees or clients of that firm in a set window after leaving. Usually a year or two.
 

#7
jon  
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So you got additional pay for having the non compete? That is the only way it is valid.

It is a big step, but you should interview with the small firms. Find out if your ability matches their needs, what is the work requirements, how much and when is the OT, CPE paid for by them and how much is the pay. You may decide it is not the right time to leave.

Good luck.
 

#8
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ManVsTax wrote:You'll most likely take a pay cut to go to a smaller firm. If you decide this route, ask what software they use. If everything is different, it'll be a pain to relearn software and processes. Not impossible, just a headache for a year or two.

As far as sole-practitioner, can you survive on your partner's income while you scale the business to profitability? Will it cover all living expenses? Can you get added to partner's health insurance?

I'd recommend a home office at first to keep overhead low while you scale. You may be able to "watch" the kids while partner picks up more hours at work. But you'll need to balance work/distraction in that scenario. Everyone in the family will need to be on board with this route if you pursue it.


We couldn't make it work purely on my partners income. She is a professional in a low growth field, so there is no ability to pick up extra hours. I realize the SP route isn't really feasible for me to start with. I'm going to have to work for someone else.
 

#9
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makbo wrote:
ThatTaxGuy wrote:
CornerstoneCPA wrote:First question...do you have a non-compete agreement?

I do, but it is a minor one. I cant recruit other employees, and I can onyl take clients that I personally originated (which is not many)

Non-compete and non-solicit are two distinct things. Recruiting employees and "taking" clients would be covered by non-solicit, not non-compete. Opening any business at all would be the topic of a non-compete. In some states, like CA, non-compete is not allowed -- you can't prevent a former associate from trying to earn a living.


I reviewed my new hire paperwork this weekend, and they call it a non-compete. There is nothing about working for myself or for others after leaving the firm. I think that is pretty standard around here.
 

#10
makbo  
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ThatTaxGuy wrote:I reviewed my new hire paperwork this weekend, and they call it a non-compete.

That may be, but all that matters is what the legal definition is under state law, not what some employer puts in a boilerplate employment agreement.
 

#11
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makbo wrote:
ThatTaxGuy wrote:I reviewed my new hire paperwork this weekend, and they call it a non-compete.

That may be, but all that matters is what the legal definition is under state law, not what some employer puts in a boilerplate employment agreement.


I've dealt with or have knowledge of a number of these. Lawyers in my state tend to label all agreements of this nature as "non-compete," also entailing provisions for non-solicitation. The courts here view it as substance and intent over form. The non-compete component is often thrown out since they do often preclude someone from earning a living in the area they live, whereas the non-solicitation provisions are more likely to be upheld as long as they are not too restrictive. You cannot prevent a client from following someone to another company (basically holding the client hostage), which can still fall under non-solicitation (theory being, prove you did not solicit them). Strict definition and strict compliance are often thrown out the window when a legal battle actually arises.

I find it ironic CPA firms still utilize these agreements, yet they are typically not used within law firms. Law firms tend to recognize/expect that each lawyer will take their book of clients with them if they leave, yet CPA firms think otherwise. Sometimes they win, sometimes they lose. My attitude is if you are a firm, and so concerned that you feel you need a non-compete/non-solicitation agreement for employees, you are conducting business and client relationships in a poor way. If an employee leaves, you should be operating in such a way that the client still chooses to stay with the firm rather than feeling a loyalty to a specific individual.
 

#12
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Our employment contracts have what is labeled a restrictve covenant. It essentially says if you leave you won’t take clients for 2 years. I doubt the firm would try to enforce any violations unless it was personal or there were real damages.

To the original poster. It is a good time to be a young CPA with tax skills. Lots of aging practitioners = opportunities abound for the up and comers. No need to work your life away, missing out on the best things in life. You may trade dollars for time but it’s the better deal imo.
 

#13
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Tax Me Up wrote:
To the original poster. It is a good time to be a young CPA with tax skills. Lots of aging practitioners = opportunities abound for the up and comers. No need to work your life away, missing out on the best things in life. You may trade dollars for time but it’s the better deal imo.


Agree, excellent time to be a young, ambitious CPA, including one that wants to be self-employed. The aging practitioners are becoming worn out and are retiring, some dying prematurely (as bad as it sounds, it is true) but hey, they worked 100+ hour weeks on end for 35+ years and gave up their lives and health for it. There will be an abundance of clients to scoop up over the coming years, though obviously some markets will be superior to others. And still, a continuing shortage of new accountants overall, and specifically, CPAs.

In my area, I believe there are just two CPAs under 40 that have their own practices. Most self-employed CPAs and those that are partners of the larger local or regional firms here are 55-70. I have no doubt some will allow themselves to die at their desks; others will want to live and enjoy life for a while, so retirement is in the near future. While a lot of the these practices will be sold to larger firms, not all clients want to work with large firms. Working in the available niche is where you find the balance between earning a nice income and still maintaining a life.
 

#14
Wiles  
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+1 to both Tax Me Up and Cornerstone.

Unless Congress does away with income taxes, the opportunities are tremendous for a young CPA with a good work ethic and good business demeanor. Sole practitioners all around are aging out.

Once your business mature, you are still going to work a lot of hours, but your profit will be 2-3x what you are making now. You will also be waking up at 3 am with an "Oh ****!" moment a little more often.
 

#15
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Wiles wrote:
Unless Congress does away with income taxes, the opportunities are tremendous for a young CPA with a good work ethic and good business demeanor. Sole practitioners all around are aging out.


Also, CPAs need to continue to move away from primarily being tax experts to being routinely involved in their clients' business and financial affairs. Still the number one complaint among a lot of people I meet; their CPAs do not stay involved throughout the year because they are too focused on tax. Only a little over 10% of my business is tax; the rest is from routine, controllership and/or advisory functions. My goal is to get up to only about 30% tax, never the 70-90% tax that exists among most of the smaller firms.
 

#16
Coddington  
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[quote="CornerstoneCPA"][quote="makbo"]
I find it ironic CPA firms still utilize these agreements, yet they are typically not used within law firms. Law firms tend to recognize/expect that each lawyer will take their book of clients with them if they leave, yet CPA firms think otherwise./quote]

That's because non-competes for lawyers are illegal.
-Brian
Tax accounting methods and credits consultant for hire.

http://www.coddingtontax.com
 

#17
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Coddington wrote:
That's because non-competes for lawyers are illegal.


:lol:

Realistically, they need to be illegal for all fields.
 

#18
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I did this myself 5 years ago. It is the best thing I ever did. I started with just few clients (friends) but i have a sales background and the first year I busted my hump networking. I attended every networking event that I could find and spoke to as many people that I could. I joined a BNI (networking group) and Local Chamber and my first year I made 1.5x what I was making working for a firm. I think my growth was the exception, not the norm. Most CPAs that I speak to take years and years to build their practice because they don't market themselves properly. Sending out a mailer and relying on referrals from existing clients is not going to cut it. You have to get out there in front of people and sell yourself.

I get so many calls from Financial Advisors now that are looking for a CPA to refer their clients to because theirs is retiring or no longer taking clients . If I could give you one piece of advice, I would proactively call advisors and introduce yourself. Tell them that you are building your business and would be happy to be a resource for them. They will call you periodically with a tax question that comes up in a client meeting but they will also send you referrals. I have one advisor currently that has sent me close to 50 referrals in the last few years.

The other thing you have to do is get a website and spend a little money on website SEO. I did that immediately after starting my practice and within 5 months I was on the 1st page of Google if someone in my area did a search for CPA or Tax Prep. My first tax season I was getting several inbound calls per week. Now during tax season, I get as many as 10 calls a day and I have to turn people away. If you start working on that stuff now you will be receiving inbound calls by February as it takes 3-4 months to see results.
 

#19
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Financial advisors are definitely a great source of referrals, but dang, I get tired of listening to them talk about the assets they manage. I have been networking with a lot of them and have gotten some tax work out of it.

BNI is also a great way to obtain business, but you better be able to adhere to their strict attendance requirements or you'll be booted. If you are like me and have clients in various areas that require travel, it makes it impossible to join because my schedule is unpredictable and I do have to travel enough that I cannot attend frequently enough. Thus, it is not worth risking my existing high-value clients to try to obtain referrals via BNI. But, I do know of a CPA that in maybe 6-7 years time grew from $0 to $600k+ revenue, much of which he attributes to BNI.
 

#20
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Thanks everyone for keeping this topic going. I've been inundated with work and haven't been keeping up with the board.

Swgordon, I really appreciate the advice and ideas.

At this point I haven't made a final decision, but there is a small office practitioner I have been talking to regaridng joining his firm. The farther into season I get the more I'm sure I will be joining him.

So, you will probably all see me around this forum looking for ideas on growing and improving a small practice!

Hope everyone is having a good season!
 

#21
novacpa  
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Also consider, "are you in the best place for a new CPA Practice" - I too have a Florida CPA license, but fees are so much better and abundant in larger mid-atlantic & northern cities - for me - Florida was a low pay State.
 

#22
deniz  
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I am a solo, one recent lesson that I learned is to focus on where you ad value, not just what you are capable of doing.

For instance, I am fairly deep in international, but take on domestic clients. I have a much more difficult time keeping domestic clients happy and my unique knowledge in international is useless to them. It's not that I can't do the work, it is just that I am a commodity in the domestic market, nothing special.
 


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