How many Years to Profitability

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#1
O510  
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1
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10-Jul-2014 6:43pm
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Rosemead
I was just wondering, for the Tax Office business owners here, how many years if any did it take for your office to turn an annual profit? I am hearing that it takes 3 years before you can amass a client base large enough to produce profits, while i'm reading online that franchises have estimated about 5 years. This is for a tax office, not for working from home. Thanks ahead of time, i've never seen a straight answer to the question and known it depends on a wide range of factors but would be interesting to hear.
 

#2
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222
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23-Apr-2014 8:17pm
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FL
Too many variables to respond. What's the competition, Do you have a referral source or are you counting on TV/Radio/Print advertising, Office or from home, what are your credentials, Franchise tax store or stand alone, tax only or do you offer other services?
 

#3
Hunter  
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40
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5-May-2014 10:01pm
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Charlotte
A buddy of mine started his own practice a few years ago. Didn't take him long to become profitable. He became active in the community and that got him a lot of clients. He now had almost 200 clients 3 years later.
 

#4
eze  
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8-May-2014 7:02pm
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Grey Area, California
Wow, I guess I was fortunate. I had a few anchor accounts that really helped me. Also, I did a lot of different things, bookkeeping, tax audits, litigation support, and tax compliance....anything a privately owned business might need.

I made more money on my own, versus employee, almost immediately. Of course, I was totally scared and worked my arse off.

Build your networking skills before you go out...this could take years.

Keep office costs lean and mean when you start. You need good software, internet, a phone, and good client relationships......you don't "need" much else.

Also, get your personal monthly expenses as low as possible to reduce the cash flow pressure on your self.

Eric
 

#5
dingus  
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306
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2-Jun-2014 9:24am
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Idaho!
eze wrote:Also, get your personal monthly expenses as low as possible to reduce the cash flow pressure on your self.


This!

I eeked out small profits me first 3 years, but this year is going to be the first one where I feel like I actually am comfortable. If I wasn't living CHEAP, this wouldn't have been possible.
 

#6
ATSMAN  
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MA
Don't quit your day job! If I had to do this all over again with the increased competition I would find another line of work.
 

#7
makbo  
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In The Counting House
"Profitability" is not equal to "supporting yourself and family if any". Having X clients means almost nothing without more information.
 

#8
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23-Apr-2014 9:12am
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Portland, Oregon
Consider carefully what ATSMAN and others say above.

I saw an article, at Yahoo I think, perhaps a year ago that listed the 10 most underpaid professions. Tax preparer was among them, and I believe it. The cost-benefit ratio is not what it ought to be compared to many other professions one might consider. Keep in mind all the personal obligations (licensing, legal exposure, professional compliance obligations including CPE, data security requirements, etc., not to mention base knowledge before you even begin) relative to the pay you get. Too many clients come in figuring that if they can do it with TurboTax for $40, then they're really being more than reasonable and generous by willingly paying you $150 to $200 for a return. But you'll starve on $150 returns.

We've been pretty aggressively raising our prices, and the result has been a LOT of unhappy clients even after we've done all but jump hoops in front of them explaining beforehand that prices will be higher. But it was that or starve. I particularly like the point Makbo makes just above: you can be profitable yet still far, far from being sufficiently so.

One piece of advice: it's very possibly better to start with pricing at a genuinely sound level to begin with even if it means taking three times as long to build up your client base. Sure, it's great to have 200 clients within a couple of years. But do you really want to be losing $50 on every sale, and trying desperately to make up for it in volume? Once you have a bargain hunter on your roster, that person will NEVER be happy with anything but stupid-cheap prices. Then when you do raise their prices, they'll get mad, go off and write a savage Yelp! review, and you'll be screwed with no easy way to fix it, making it all that much harder to find a replacement client.
 

#9
ATSMAN  
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MA
In my opinion you can only raise rates to a point, before taxpayers go to your competitor. Most of the referrals that I get from CPA firms, they tell me flat out that the taxpayer is not willing to pay firm rates and they would be better served by me. I charge significantly less than $150 for your basic run of the mill returns.

Frankly you need a second source of income to pay your bills. This gig is just extra income for 3 months. It covers my expenses and I have a little extra income.
 

#10
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Portland, Oregon
There's a reason the CPAs charge what they do, if they've been around awhile successfully. Put simply, they do not even want the clients who think a basic return will cost $150 or less. We've finally figured that out too. We could have a client base of 1,000 IF we charged that little, but it would come back to what I said before: losing money on every sale and trying to make up for it with volume.

If it's a part-time job you want, you're better signing on with an established CPA at $20-$30 an hour, W2, cranking out returns in the back room. No worries about overhead, returns coming back in mid-summer with angry or frightened clients attached, extensions, unexpected complications in "simple" returns that take hours to resolve (but the client figures the $150 price is engraved in stone), E&O insurance, legal exposure, IRS preparer fines, etc., etc., etc. I'm not an accountant, but my business partner is a full-blown CPA and -- honestly -- she sticks with taxes primarily because she really likes THAT work. But if she didn't, she'd make better money with more stable hours year-round doing nothing but corporate accounting work and the associated returns. The "tax season" would scarcely register in that case, as she'd have no need for "extra income" from seasonal 1040 work.
 

#11
pluskey  
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39
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23-Apr-2014 7:17am
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Maryland
I have to agree that there are too many variables to give specific advice, but I can relate what my wife, a CPA, did when we got married and moved from Connecticut where she had a tax practice. She did, and still does, work from home with a separate home-office dedicated to the business, which saves tons of money on rent, etc. That isn't your case.

But, to build the business, we went to the library (now you would just go online) and looked up recent home sales, and we sent the new homeowner a welcome letter and a refrigerator magnet advertising her tax and accounting service. That worked amazingly well, because the new homeowners would probably be looking for an accountant, and the refrigerator magnet served as a reminder when tax season came around. Also, unlike bulk advertising, we were able to target people new to the area, where they lived since people prefer services near where they live, and probable income based on price of the home.

If you are looking for business clients, you can do a similar search with your local business licensing agency.

We had a couple hundred business card size refrigerator magnets printed up by mail order; now you would just go to Staples or online. The magnet size does matter, too small and people will just throw it away, too big and people would be annoyed by how imposing it appears. We wanted something just the right size so potential clients would keep it to post stuff, kid's art, school lunch schedule, notes, etc. on their refrigerator.

Modern electronic advertising, so long as you can target your desired demographic, would probably be a good idea. Our practice start-up predates this, but it wold probably be a good approach. Here, I would suggest Angie's List, Google AdWords and Yelp.

To become profitable you need clients, and the right size business. While it didn't apply to us, since we have the home-office based practice, friends who started up who were profitable quickly began in a small office and then moved to larger space when they outgrew their office. So long as you don't move too far, the clients will follow. That may guide you in shopping for rental space.
 

#12
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60
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23-Apr-2014 9:12am
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Portland, Oregon
Pluskey, nice posting with good, practical info.
 


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