Transition from small firm to own firm?

Can anyone on the boards speak to their experience starting a practice of their own while working in a small firm?

The firm I'm working for right now has a moonlighting policy that states no other accounting work on the side, or you will be shown the door. So, unless I sneak around, I can't grow a client base while I'm still here. I don't have the capital to buy a firm from a retiring practitioner. I think I might be in a position to get into ownership here, but who knows how long that would take, and there's at least a ten year gap in ages of the existing partners, so it wouldn't be my practice, I would be someone's junior partner.

A few years ago, I had some tax clients at one firm, but I moved to another firm and focused on audits for a few years, and I had a nonsolicit with the first firm, so I left their clients be. Now I am at this firm, back in a tax role, and frustrated when I know I could be doing this work for myself. The biggest hurdle I see is that jump from a steady paycheck to struggling to get enough work to keep the lights on. Wife doesn't have a salary, so it's a pretty big hurdle.

That last sentence is a pretty important one. I parted ways with my former employer at the start of May and set up my own practice exactly one month later. Life is good. Really good. I would not ever, willingly, go back to working for someone else. I am lucky to have some advantages that you, apparently, do not:

1. My wife has a decent job with health benefits as good as it gets these days. In the past, we have scraped by on the level of income that she makes these days. We can do it again. She gave me permission to purchase a $30 attachment to my coffee roaster yesterday. (It will save us money in tax season by making roasting quicker and easier and will pay for itself by the end of next season.) In the past, I would have told her I was buying it, but that's it. Every financial decision we make is thoughtful, even down to the groceries.

2. My former employer knew up front that I had a handful of private clients (about a dozen at most) and was not concerned as long as I didn't compete with him for the same type. Having said that, the dozen clients is just a dent in what I need to make this business a success.

3. We are fortunate that equity in our home was considerable. We took an equity line so I could purchase a practice. My plan is to use a little more than half of it.

Had I not parted ways with my former employer, I think I would have had a hard time convincing my wife to do this. She is conservative in many ways. She came round to the idea very quickly and supported me when I turned down an interview the same week I opened my practice (but before I had signed anything to buy the clients I acquired). I also found it hard seek out clients whilst working for another firm. If one is receiving a salary, one has an obligation to devote time to that firm, which will eat into the time one can devote to building a business.

Here's a thought, though. Another EA here moved from NY to NC. She worked mornings at a large regional firm whilst she worked in the afternoons on retaining clients she had in NY and gaining new ones. Her selling point was that she was not interested in gaining the sort of clients that the big firm had, so they were happy to engage her on that basis.

It is not easy to get started and it will require your wife to buy in to the whole deal. As I discovered over several months, though, you will get a lot of support and helpful suggestions from others who do not know you but who want you to succeed.

You don't necessarily need a lot of capital to buy out a retiring practitioner. Get to know some of the older practitioners in your area, especially the smaller firms. When I purchased a firm, I paid nothing upfront. I paid 25% of the billings I collected (only on the collections from the clients I purchased) over a four year time period, up to $XXXX (purchase price).

I was fortunate in that my spouse worked and carried the health insurance. Maybe your wife could get a job for a few years until you could get up and running (but don't tell her I said that)!

If you are miserable at work and see no opportunity, quit! I did that once in my career early (wife had a baby so no second income). Took 2 weeks off and then started job hunting with gusto. Landed a new job in 3 months. While I was unemployed even though I had financial pressures, at least I saved my sanity!

Sometime you just have to do what you have to do.

Can anyone on the boards speak to their experience starting a practice of their own while working in a small firm?
[...]
The firm I'm working for right now has a moonlighting policy that states no other accounting work on the side, or you will be shown the door. [...] I had a nonsolicit with the first firm, so I left their clients be.[...] Wife doesn't have a salary, so it's a pretty big hurdle.

That moonlighting policy is very unfortunate, too bad you didn't try to negotiate an exception up front when you were hired.

I started my own practice while working for a small firm, but the owner didn't mind since I was in no way competing with her or poaching her clients.

A non-solicit agreement does not mean you can't work with clients of your former employer, if they approach you on their own. Hopefully an internet search on your name will turn up a hit on your web page for tax work, in case they are looking for you.

As previously mentioned, it helps a lot if you have an employed spouse with employer health insurance available.

If you are miserable at work and see no opportunity, quit!

Right, sometimes you need one step back to take two steps forward.

I started my practice over a decade ago and did the prep work while I was working for my small firm employer. My departure led to litigation as I had some clients come with me via their own volition and my former employer sued me for violating my non-solicitation agreement (led to me paying them a small settlement after around a year and a half of back and forth - I got lucky as my attorney is a client so gave me a price break, while they used a high-powered firm so they lost a lot more than they gained).

I was fortunate that my wife has a job as a teacher, so we had her paycheck plus insurance, plus we didn't have kids at the time. It took a couple of years to build the client base, but now making good money.

One suggestion - stay away from New Clients, Inc. I used them to help solicit business clients - while I did get some nice clients (and still have some today, and some of those led to nice referral business), most were garbage. Didn't help that the client service rep they trained underpriced the work, so while I didn't make much money on those clients, it was worse that I had to pay the CSR 15% of the already low fee. A lot of trash business clients who I would never get near today. When my CSR quit after around a year and a half, I stopped the program and that's when I started making money.

I'm glad that I didn't purchase a practice. While the NCI program was expensive, I was able to structure the practice the way that I wanted and I was able to train clients and staff on the way that I want things done. Also glad that I don't have to deal with partners - while it would be nice to have someone to bounce things off of, I don't want to deal with a partner regarding compensation, staffing, etc.

One suggestion - stay away from New Clients, Inc. ... Didn't help that the client service rep they trained underpriced the work...

How does their program work for pricing? The CSR just makes up a price on the spot?

One suggestion - stay away from New Clients, Inc. ... Didn't help that the client service rep they trained underpriced the work...

How does their program work for pricing? The CSR just makes up a price on the spot?

Going from memory (this was a long time ago), we set a minimum fee of $125/month based on the amount of work that he thought they'd have for us. Here's the problem - for example, he got a pizza franchise with two locations who were using QB. The client did a decent job, but we had to do allocations and some other work to get the financials ready, plus the payroll taxes, which were included in the fee. He got 15% of the $125, so my net was $106.25/month for all of that work, so I lost money. He'd quote low to get the client.

We also tended to get a lot of garbage clients from this program - we'd meet with them and get the initial fee, then the client wouldn't get us what we needed. A lot of these, if not all, went out of business, and their records were crap to begin with.

Once the CSR left, I started making more money and got better quality clients.

Have you wife get a job with medical benefits so you have some income and health coverage.
Consider getting a job working per diem for a CPA firm a few days a week that allows you to service your own clients on your time. Try to go to tax seminars and sit next to old CPAs that might be interested in retiring so you can buy a few practices.

Good luck !

Try to go to tax seminars and sit next to old CPAs that might be interested in retiring so you can buy a few practices.

Anyone have insights on financing such a purchase?

You pay over time as you collect from the clients you purchased. Example:
Year 1 25% of collections
Years 2-4 20% of collections
Year 5 15% of collections

Is it typical to have some money down on this type of transaction? It would be great if I could find someone willing to walk away and pay as I collect, but I know if I were the seller, I would expect something to hold onto.

I contacted New Clients Inc for more info on their program - just for curiosity's sake. They said it's a one-time fee of $25,000 to get into their client acquisition program, but they guarantee a $300k increase in annual billings by the end of the 24 month term.

Steep investment, suspicious guarantee.

Has anyone else reading this worked with that company?

I contacted New Clients Inc for more info on their program - just for curiosity's sake. They said it's a one-time fee of $25,000 to get into their client acquisition program, but they guarantee a $300k increase in annual billings by the end of the 24 month term.

Steep investment, suspicious guarantee.

Has anyone else reading this worked with that company?

I used them over a decade ago (not saying exactly when as I don't want them on my case) - don't use them. We did get some clients, but most of them were trash (to be fair, we still have a few of them today, and most are good clients, but they're few and far between). Most were the types of clients who don't keep good records and don't stay in business long, and are also looking to have their work done cheaply. My CSR would quote $125/month for a two-location restaurant franchise, where we had to allocate expenses among the locations, plus payroll taxes - a hell of a lot of work for peanuts (and this is how he was trained by the person that NCI sent out for training). Once the CSR quit after about 18-20 months, I stopped the program and immediately started making money.

EDIT - forgot to mention that I had to pay the CSR 15% of the fees from those clients, which made the net amount around $100/month, plus a base salary and a car allowance, so it was even more expensive than the fees paid directly to NCI. Also had issues with appointment setters - had one good one but the rest sucked.

At the time I signed up for the program, I was desperate to leave my employer (small two-partner CPA firm), and NCI seemed like a good investment. In the long run, it may have been cheaper than buying a practice, since if nothing else I was able to set up things in the office the way that I wanted, and not have to buy a practice where things were done a certain way for years and employees would be resistant to change. That said, stay away from NCI.