Public accounting is too hard a job not to be an owner

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#1
Wiles  
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Over in PFZ, this was posted as part of a recent discussion:
I've always thought public accounting was too hard a job not to be in ownership...

As an owner, myself, I read this and immediately said, "Yup, tru dat!". I could not imagine working this hard and making a half or a third of what I am currently making.

I was reflecting on this statement this morning while I was cooking some breakfast potatoes. Certainly, this can't be 100% true. But even if it is 30%+ true, this is not a good thing for our profession.

Of course, being an employee does come with a bit less stress & responsibility. But is it worth a 50% or higher discount than their boss is making? Is it worth not finding something else to do with potentially higher pay and less demands?

I would like to hear the thoughts of others, especially those that are employees. Is this true? Why is this true? Is this a problem that needs to be fixed? How do we fix it?
 

#2
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I'll admit, this statement is the one that stuck with the HR director when I shared that in my exit interview. You are not alone to feel both ways about it. I'm struggling mightily with it now that I'm "on the dark side" :).

I think this dynamic means that we need to understand there are three different profiles of folks who work in our profession:
1) Those who are driven with the goal of being an owner and carrying the burden of all that comes along with that
2) Those who are driven, but don't have what it takes to be in the ownership role
3) Those who enjoy the nature of public accounting work and are happy to forego the benefits to not carry the burdens of ownership

The first group is the "traditional" profile, in my opinion. At some point, you either have a place for them in ownership or you are leading them on or letting them continue to believe, erroneously, that there is a spot.
The second group are excellent and productive employees, but, as employees, we have to understand they are transitory in nature. There is a fine line to walk in continuing to invest in them to develop them to be more productive and taking the "easy way" out and not investing in them because of the transitory dynamic and creating a self-fulfilling prophecy. That is, you'll push these people out of your employ because your payoff period is understandably shorter, which leads you to no longer continue to develop them.
The third group is the other half of the "traditional" profile. Every firm of any size needs a number in this group for consistency, but, in my experience, these aren't generally your superstar performers.

Just my $0.02, but really interested in other's perspectives. Thanks for asking the question!
~Captcook
 

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or you are leading them on or letting them continue to believe, erroneously, that there is a spot.

I'm in the transitional phase of discovering this was the case for the last 8-9ish years - and well on the way to building my own solo practice. I could not agree more with the statement. This industry makes no sense unless you are in an equity position.
You can find much more lucrative, and less stressful work, elsewhere in accounting.
From my experience, being an employee gets you 30-50% for the effort you put in, while ownership should get you 60-80%.
-
Judging by the W2s I see for people in the CFP industry, if I had to do it all over again I would have went that route.
 

#4
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I had an answer typed out, but it was rambly and not that great. The Captain has summed it up nicely. My only quibble would be with the second category. Some of them are good employees, others are too sure they have a better way.
 

#5
Wiles  
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Yes. Capt did provide great info. And he was the author of that comment over on the PFZ.

Before employers jump into this conversation, I would like to hear more from the employees on this board.
 

#6
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ReckedCPAEA wrote:Judging by the W2s I see for people in the CFP industry, if I had to do it all over again I would have went that route.


You always have to consider your sample, though. The many folks in this field who are struggling, aren't reaching out to you for professional advice.

If I wanted to maximize effort to dollars, I might have gone into insurance. Damn sure it wouldn't be as fulfilling, though.
~Captcook
 

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I'm not too far removed from being an employee, but I've posted in the past hinting toward this topic, so I hope it's still okay to reply. Great responses so far.

I don't remember who said it here, but what has stuck with me is the realization of how our profession is truly an apprentice-journeyman-master model. When we start out, we have to learn and generally need clients provided to us, but as we grow and become more experienced, we need less and less training and we can start acquiring clients as we advance into the journeyman/woman/person and to the master levels.

Our profession has our basic third/third/third model of firm profitability, but it's always created these problems, at least on a theoretical level. Removing overhead, the fruit of the work of our firm is split 50/50 employee/firm. As an apprentice it completely makes sense to receive only a portion of what we do (and to be honest a first year earning a 50% share might even be too high). As we advance up it doesn't scale well as the highly experienced non-partners top out too low in compensation compared to their true value to the firm. Making partner jumps you from earning 50% of your effort to 100% or more (due to your share of the 50% firm portion of the other employees). As long as we've had this model, it's never made sense for a master to stay in a non-equity position, although in the past it was always mitigated by ethical business practices and short timeframes to becoming partner.

Of course, our business world has become a lot less ethical, and all employees should be more cynical and less trusting of employer promises than they should have been before. Our own profession has overall become a lot less ethical toward its employees, so it's not undeserved. Honestly, I don't see this changing on a massive level until there is a major change in attitudes, and that the partner level accepts lower compensation in exchange for a more stable workforce.
 

#8
Wiles  
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2) Those who are driven, but don't have what it takes to be in the ownership role

Can we explore this group? Give some examples of what it means to not 'have what it takes', while at the same time being driven.
 

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Wiles wrote:
2) Those who are driven, but don't have what it takes to be in the ownership role

Can we explore this group? Give some examples of what it means to not 'have what it takes', while at the same time being driven.


I would use my assistant as an example. An EA who wants to leave me in 2-3 years and open her own shop. She is very good technically. We underestimate the skill of dealing with clients emotions. Being a good tax technician is only half the battle. The richest CPA's I know are not the most technically adept. BUT, they are adept enough.

I have been amazed at the number of second opinions I have given in the last 2-3 years where the CPA/EA charged $350 to $450 for a 1040 and the client has a schedule C, D or E. The fortitude to charge $600 to $900 for a 1040 is a start. I tell clients that my rate is $300 an hour, do you really want me to rush through your return in an hour?
 

#10
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Someone charging $300/hr for a 1040 return is not a guarantee that it is any better or accurate than a $350 return. What is true is the fellow charging and getting 300/hr is a better marketer than the other fellow!
 

#11
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ATSMAN wrote:Someone charging $300/hr for a 1040 return is not a guarantee that it is any better or accurate than a $350 return.


Not a guarantee, sure. But what is certain is that the guy or gal charging $300/hr thinks his or her time is more valuable, maybe for good reason.

I had a post in the PFZ about a prospect who approached me. Rental real estate and financial accounts in both the USA and the prospect's country of birth.

Prior preparer charged $200. No FBARs, 8938s, potential 8858s were filed for all years I examined. I would have charged somewhere around $1,500-2,000 most likely, although we didn't get to that stage...I passed on an engagement, choice was easy...
 

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Wiles wrote:
2) Those who are driven, but don't have what it takes to be in the ownership role

Can we explore this group? Give some examples of what it means to not 'have what it takes', while at the same time being driven.


I agree with Southpark.
"What it takes to be in the ownership role..." are the intangible skills any good business owner needs, which have little to do with technical ability in any particular area and have more to do with being comfortable with risk, building/managing a team, and selling (among others). It isn't that these folks won't make more money on their own, but they have a slimmer margin of error in those other roles than some of us do. They, intentionally, want to be narrowly focused. They are driven in that area and want to maintain that narrow role.

By "driven", I mean these are people that approach projects with enthusiasm. They seek out the preparation necessary and do the work to apply that preparation in valuable ways to a client. What I've seen hold people back is usually risk-aversion.
~Captcook
 

#13
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Thanks. I had interpreted "driven" more widely. Someone that has embraced what we do as a profession and not just a job. (They invest in themselves through education and obtain their CPA or EA; they read trade journals and do research on their own time; they look for opportunities to network in a way that fits their style; etc.)

It would seem somebody like this has 50% of what it takes. Throw in the willingness to accept the role and responsibility required to be an owner - extra hours, unpaid time, personal sacrifices, business risk - and they are now at 100% of what it takes.

Sure! They may struggle in one or more of the other various areas - technical, people skills, productivity, business-minded. But you do not need to be the whole package to succeed as an owner in this profession. None of us are the whole package.
 

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Wiles wrote:Thanks. I had interpreted "driven" more widely. Someone that has embraced what we do as a profession and not just a job. They invest in themselves through education and obtain their CPA or EA. They read trade journals and do research on their own time. Etc...

It would seem somebody like this has 50% of what it takes. Throw in the desire to accept the commitments required to be an owner - hard work, long hours, sacrifices, risks - and they are now at 100% of what it takes.


In my mind what one needs as far as "drive" is a true personal understanding of what one wants in life and the willingness to work toward it. Obviously to be a partner at a larger firm you probably need to be driven in the manner you describe, but for smaller firms (especially for sole owner firms) one can be successful at meeting their personal goals in different ways. There are people on this board who are successful in their own terms, because part of their success is contingent on having six months off a year.

CaptCook wrote:What I've seen hold people back is usually risk-aversion.


That sounds about right. It's really hard for a person to give up the security of what they have (especially in what we do because we're risking an upper-middle class pay and benefits package) for the unknown. To me, it's ironic that it tends to be riskier overall to avoid risk than to stay put.
 

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Wiles wrote:
2) Those who are driven, but don't have what it takes to be in the ownership role

Can we explore this group? Give some examples of what it means to not 'have what it takes', while at the same time being driven.


There are some great employees who have social anxiety. Those individuals generally do not make great owners.

It takes nerves of steal (pun from a previous post's misspelling intended) to make it as an owner, especially if you have employees.

Another issue that I've had with "decent" employees is that they do not take that extra level of foresight and responsibility. For example, if a client starts a new business, they would neglect to say, "if you start making a profit, you are going to owe tax, please let us know so we can make estimated tax vouchers for you". Then, when the client would be upset with a large unexpected balance (or interest penalty), the employee would be like a deer in the headlights, only to suffer the same failure with the next client.

I have trouble getting my employees to property disclaim Hawaii's weird sales tax. It's caused me harm on many occasion. Even though I tell them and they look back at me like I worry too much.

These employees just don't have what it takes to drive their own pirate ship, IMO.

On a different subject, just like in securities, it is the risk for which you are getting paid.
 

#16
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With respect to Estimated Taxes, I tell all my self-employed clients one simple thing. If you forget everything else just remember you are BOTH an owner and employee of the business at the same time. Both of you have to pay taxes as you earn JUST LIKE when you were flipping burgers as a kid and they took taxes out of your paycheck and you did not like it. Just remember that and call me, how much and were to deposit. If you can do just that you will be in good shape come April.
 

#17
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I would love to find someone competent on the compliance end with at least a few years experience and credentials (CPA or EA), but someone that could grow into managing the two other staff/operations over time.

My initial thought was around 70-ish plus benefits to start, then grow it as they take more responsibility/business grows to a six figure position. I would have no interest in sharing equity, but wouldn’t have a problem bonusing based on profitability.

If I’m reading this thread correctly, this will be a tough profile to find without pressure to give up equity in the future?
 

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Any good candidate like you are describing would already be employed and well compensated. You need to offer something above and beyond what they can get somewhere else, or why would they work for you?
Why would they essentially run your shop so you keep the full book of business and the lions share of the money. Where is the upside for them in the long run?
If you find someone with enough drive to manage and run the shop, it's only a matter of time until they figure out it would be more profitable to run their own shop. What would keep them around after 5 years when they could jump ship for a better offer? Get them on the equity drip, golden handcuffs and a guaranteed buyout.

You are describing my situation except I did it for a lot less than 70, because I thought I was earning in equity.

Check Robert half salary guide as a starting point. Or just throw up a listing this summer and see what resumes and salary requirements you get. Probably lots of people sick of the extended tax season that would be willing to consider a change of pace.
 

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MWEA wrote:I would love to find someone competent on the compliance end with at least a few years experience and credentials (CPA or EA), but someone that could grow into managing the two other staff/operations over time.

My initial thought was around 70-ish plus benefits to start, then grow it as they take more responsibility/business grows to a six figure position. I would have no interest in sharing equity, but wouldn’t have a problem bonusing based on profitability.

If I’m reading this thread correctly, this will be a tough profile to find without pressure to give up equity in the future?


Why would I work for you for $70,000 all year and face all of these tasks when I can file 150 tax returns from my laptop from home (1.5 months of work), make the same amount, and take 10.5 months off?

(I'm reading this and my tone sounds awful, but I don't mean it to sound that way)
 

#20
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Looks like great minds are thinking alike :)

MWEA wrote:If I’m reading this thread correctly, this will be a tough profile to find without pressure to give up equity in the future?


It's not impossible to find this person -- after all, people of all stripes exist -- but it's ultimately a fragile setup. What do you have keeping this person in your firm when they have disagreement about your management of the firm or their role in it? What happens when their bonus or their raise is lower than expected one year? What happens when one of this person's friends, or their romantic partner, plants the bug in their ear that they're being screwed?

Put yourself in your theoretical employee's shoes: You were hired at a senior accountant level and you've grown into the actual operations management of the firm. It's reasonable to expect that you are advancing on a partner track. The only part of the partner job description that isn't part of the described role is bringing in clients. But even without it, it's not out of the realm of imagination for a two partner firm to have one rainmaker and one to head the shop, and you're stuck in a position where actually making partner, and being compensated as one, is off the table. Why should you stay?
 

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