New Opportunity Guidance

Looking for some guidance/mentorship:

Two reputable CPAs who own a CPA firm outside of Cleveland approached me because they are looking to retire. One, in the next 12 months. The other, probably in 3 years. Deal is that they would hire me as Principal in year one, pay a wage comparable to what I make now and give me 50% of everything *new* I bring in. I would handle 60% of the bookkeeping/tax prep and be responsible for practice development. *New* because I have a non-compete where I am at now.

In year 2, I would buy-out the 50% member at 100% of his average billings spread over 3 years.

In year 5, I would buy the other 50% member at the equivalent cost.

I have crunched the numbers, asked questions and I would make 4-5x what I am making now in year 5.

I realize losing clients is inevitable, although I do pride myself in offering connoisseur like service, so my hope is that I can retain 90%.

I am also stuck as the sole Tax Manager where I am now, with no succession plan, no room to grow (I keep 10% of the profit that I bring in).... as the owner is 54 years old and will die here....alone.

Nonetheless, I'm losing sleep over this. Losing an immense amount of sleep. I have brought in clients, but I also have lost more in meetings as soon as I bring up fees (our average billing rate is $145/hour). I am NOT a rainmaker, but I do enjoy meeting people and I am 100% ok with having to pound the pavement. I haven't had to do bookkeeping in many years (I'm 38, so maybe 8 years), but I can handle it. Tax compliance, audit, special engagements I can hold my own.

I can stay where I am, be content (miserable at times), overworked and underpaid or I can take a chance and make this thing work.

Any thoughts?

Go for it.

"the opportunity" don't come around too often, this might be it. you got it take it when given the chance.

you are still young, even if things don't work out, you can always find a good job with your experience. good luck.

How does one person take over for two CPAs, and maintain connoisseur service (90% retention), especially w/out employees? [edit -- maybe there are existing employees you'd take over? What I'm trying to say, more generally, is how much of the overhead of running a larger practice are you ready for? It's not for everyone, I've seen this with my former employers]

Go for it. And listen to what Makbo said.

Go for it. And listen to what Makbo said.

Yeah, and if you'll be making 4-5x what you make now in year 5, hire someone like you and still make 3-4x what you make now.

The more you focus on systematizing, growing, and refining the practice the more money you'll make in the long run. Sure, you can realize $100/hour from manager type work...but you can realize $250-500/hour doing the working on your business stuff.

I haven't had to do bookkeeping in many years (I'm 38, so maybe 8 years), but I can handle it.

Also, on this note - there is a huge opportunity to make bookkeeping profitable. Get your clients on some kind of cloud based system that links directly to their bank accounts and credit cards. QB Online is the obvious one, but I think Xero is far superior in just about every way. (There are others too, I'm just speaking form my experience.)

Also, go for it!

I sincerely appreciate the encouragement and I will take on the opportunity. As mentioned, living with regret only because I am naturally scared (or timid) of change, would be hard to swallow.

Mark - Two partners, two employees currently in place. I would be the 3rd employee in year 1 (as Principal). In year 2, as the contract reads, I would purchase 50% of the partnership and employee #2 would retire (she's been ready to retire for a year, but is a strong, dedicated employee).

Dingus - you're correct and I will look into the 'could based' system. I also realize I will have to hire a manager in year 2-3.

The Firm has a strong name, no website (which I would implement first) and has been fortunate enough to have a thriving business based off referrals.

After two-years. my non-compete is up here and I will have followers. Has anyone ever worked around a non-compete? I will not do anything to get sued or muddy the waters, but I will keep in contact with my clients here. I thought about bringing them on board and working for free (non-compete states I cannot accept a fee for service), but that doesn't make much sense. Build it and they will come, I suppose.

Thanks again for all of the great feedback. I'm sure I am going to need a support system in a couple of months. Newfirm wants me to put my notice in October 1 and start with them November 1. My feeling is that #1 I won't leave during busy season (obviously) and #2 Nov/Dec have historically been good months to bring in business.

What methods do you guys use other than networking with attorneys/bankers/financial planners? LinkedIn?

What methods do you guys use other than networking with attorneys/bankers/financial planners? LinkedIn?

Since you don't have a website, getting one up and going and doing this could help: viewtopic.php?f=10&t=868

Also, I don't do it nearly enough, but keeping in contact with clients, i.e. useful email newsletters is a great way to keep referrals coming.

Thanks! Website will be the first implementation. I like that Google idea and will give it a shot. Most CPA platformed websites will send a canned monthly e-newsletter that looks as though its coming directly from you.

Looking for some guidance/mentorship:
I am also stuck as the sole Tax Manager where I am now, with no succession plan, no room to grow (I keep 10% of the profit that I bring in).... as the owner is 54 years old and will die here....alone.

This part alone is what should make up your mind. The only reason to stay in this position is if you think the owner will die in the next year or two and that you can buy the firm for pennies on the dollar.

You're right and I knew the 'correct' answer, but there's an intense fear factor that goes into leaving a firm of a cushy 6 years and having to worry about bringing in new business. That's what makes it easier said...

You're right and I knew the 'correct' answer, but there's an intense fear factor that goes into leaving a firm of a cushy 6 years and having to worry about bringing in new business. That's what makes it easier said...

Don't worry, accountants are in demand. I'm not saying that marketing and sales aren't important...but don't you know plenty of CPA's that do essentially no marketing, and still are doing just fine?

Competition is very high around these parts and who wants to just have an ordinary practice?

Although I think quite a few people would take making $100-150k annually and working 1/2 the year.

Geez, why are you losing sleep over this? This sounds like a great opportunity.

I jumped ship lots of times during my career--basically every time the money was better. Now I run my own show, but I never felt guilty about going to a new job. It's just business, you've got to look better opportunities when they come up.

I have a non-compete where I am at now.

I wouldn't write that off without further research. Ohio is following most other states in looking at non-competes in terms of public policy rather than strict contract law. In short, it's probably not enforceable.

Generally a non-compete is only valid to the extent it protects legitimate interests of the company, such as the high cost of technical training being used for a competitive start-up. But in the original post, the worker is moving to an established business that does not depend on such training. A company can protect its specific client list (so be discrete!), but it can't disrupt normal market forces--frankly, tax clients must be allowed free choice for a financial advisor.

There are many such issues to work with. Anything more than a year can certainly be questioned. Tax work is at least state-wide, so it is unreasonable to say a professional can't support his family anywhere. It isn't fair to curtail an employee's career path, so a basic company form with boilerplate language probably won't hold up. Even if it does, the only risk is having to pay back the fees that otherwise couldn't have been earned anyway. The client still won't go back.

Jeff, you should consult with a competent Ohio attorney regarding the non-compete. Since you'll need one for the deal anyway, it shouldn't be a problem finding one that can handle both parts. The enforcement of non-competes is highly state-law specific and many courts will redraft an unreasonable non-compete into a reasonable one. Even where a non-compete is unenforceable, employers have other remedies, such as trade secret law, to limit competition.

The question I would have on the non-compete is whether it really is a non-compete (typically unenforceable in many states) or is it a non-solicitation agreement which usually states you can't take any clients with you. Agree on posts above to consult an attorney on this. I also like your inclination to handle the situation professionally. I've been on the other side and gotten burned by employees soliciting my clients.

But like others say, sounds like a great deal. Make sure you work the cash flow numbers; adding your salary to the firm and you paying 100% over three years will eat into the cash flow. Make sure the cash flow works. I've analyzed a few deals and the cash flow made it difficult. I know some industry professionals that recommend a seller be paid over 5, and even 10 years; might be worth considering. There is an excellent book by Joel Sinkin called CPA Firm Mergers and Acquisitions. It goes over how to structure an agreement and how to handle the transition. I highly recommend it.

Thank you SMT -

I will be 100% professional. From not soliciting clients to putting my notice in October 1st with a departure date of October 31st. If he wants me to go before then (I doubt it), so be it.

I ran the cash flow numbers and then had another CPA review them. So long as the buy-out reflects the retention rate (ie. if 50% of his billings walk after year one, his buyout will be adjusted accordingly) I will be ok and very ok after year three. I'm confident in my ability to retain clients and my goal will be to get in front of them during year one. Things will get a little less lucrative if/when I need to higher another staff, depending on the level. Bookkeeping is not my forte, so I will have to re-familiarize myself with it now and then bring someone on board that is an expert.

The non-compete states that I can not make 'contact' or 'divert business' or 'accept payment' with/from existing clients or employees. I easily could walk away with 40% of our clients as I am the major contact here. Upon expiration (in two-years), I'll rethink my agenda. The owner has been generally good to me (save a mediocre salary and the micromanaging). I am not going to do anything that will drag my name through the mud. After two years, if a past client is unhappy and reaches out to me, then I believe it's fair game.

I appreciate everyone's eagerness to help. Like I said, I am POSITIVE I'll need talked off the ledge in a few months when my anxiety is through the roof. I owe CK a huge 'thanks' thus far. He's been a great tax mentor and he's a true asset to this board.

Tax-Writer/Brian - sorry, I missed your posts and appreciate the feedback.

TW - ONLY a tad anxiety stricken (which I think is natural) because I am leaving what I call a 'cushy' job, and moving to a different role where I am in charge of keeping the firm flourishing. Maybe I'm overly cautious. I know that I am not a rainmaker (historically) and I've been out of the bookkeeping capacity for 10 years (from E&Y to here - where I handle the tax matters and forensic work). Yes, I can -re-learn it quickly, it's just an adjustment.

One thing is for certain - it's 100x easier to put in 60-70 hours weeks (30+ in practice development), when you are putting 1/2 in your own pocket. I think everyone will agree with that.

Seems like the consensus is the non-compete may/may not be enforceable.

I will send it over to my attorney who is reviewing the employee/partner contract today.

But from an ethical standpoint, should I be struggling with my contact with clients? Even though they may talk to the owner once a year, I still struggle with it.