Starting Your Own CPA Firm
If you have reached the point in your career where you are seriously
considering starting your own CPA practice, the following information
and checklist is presented to help you plan and launch your new venture.
Success, of course, is up to you and the effort and creativity you put
into building your business. But following the blueprint that others
have followed in establishing their own business can help you clearly
define your objectives, assess your needs, and avoid many pitfalls along
- Developing a Business Plan
- Financial Considerations
- Start up and Operating Costs
- Cash Management
- Borrowing Money
- Legal Considerations
- Insurance Considerations
- Additional Information
Disclaimer: The following narrative is provided simply to point out some of the issues and concerns attached to any of the Life Events, and it is not intended to be dispositive of all of the issues or concerns possibly confronting individuals dealing with such Starting Your Own CPA Firm. Any individuals wanting or needing additional information should contact the appropriate professional, whether an attorney, a financial planner, a retirement planner, etc., to receive such information and guidance.
Before you announce to the world that you are now self-employed, it is wise to ask yourself some very serious questions.
- Why do you want to start a practice?
- Do you have the motivation and personality to start and manage a business?
- Does your spouse and family support your decision?
- Does your employer know of your intentions and will there be support or interference in your plan?
- Do you have the financial means to weather a start up period?
Being your own boss sounds like the American dream. But the reality
is hard work, low pay and many, many hours building a business from
scratch. The time commitment alone will change many of your familiar
routines and the cash flow of a start up venture will strain your budget
and change spending patterns for you and your family for many months or
even years. But once you've weathered your start up phase and your
business is established, the rewards can't be beat.
There are several ways to put yourself in business.
- Buying a practice. An established CPA may be ready to retire or
move onto other opportunities. Buying an existing practice has the
advantage of an established client list and assets, but the cost may be
- Finding a partner. With another CPA, you can share the start up
expenses. Of course, you'll also share the revenue as well. And all
decisions will require agreement or compromise.
- Starting from scratch. You call the shots. You handle all expenses.
And of course, you reap all profits.
Step number one in launching a new business is to develop a written business plan. The business plan is an outline of all aspects of your anticipated practice. It captures all your thoughts in a logical, detailed presentation that not only acts as your guide but also tells others what your business is all about. A solid business plan is critical if and when you seek funding for your venture.
Your business plan should:
- Outline the goals of your business
- Identify the structure of your business (sole proprietor, partnership, C Corporation, S Corporation, or Limited Liability Company)
- Describe your experience and skills
- Describe the services you will provide and competitive advantages you foresee
- Identify your market and client potential
- Outline pricing of your services
- Explain management and staffing
- Outline equipment and office requirements
- Estimate start up costs
- Estimate monthly operating costs
- Estimate projected revenue
- Define the source of start up and operating capital
Before opening your practice, it is critical to review your personal financial situation, your income needs and your cash flow projections. Even if you have a paying customer lined up from day one of opening your practice, consider the fact that it may be several months before you actually receive payment for your services.
Do you have the cash on hand to pay your ongoing household expenses plus the start up and operating expenses of a new business? If you are leaving an employed position, what impact will the loss of a paycheck have on your financial obligations and your family's lifestyle? Aside from savings and equity you hold, what other sources of income can you rely on? Can your spouse provide adequate income to handle the day to day household bills? Do you have a severance package from your employer to help get you started? Can you rely on family and friends for financial assistance? Do you need to borrow money from a bank or commercial lender? Do you have a solid credit history? Are you heavily in debt? Will you qualify for a business loan?
- Current assets (cash, liquid equity, line of credit availability, other income)
- Household budget
- Current personal debt and payment schedule
- Estimated start up costs (office furnishings, equipment, etc.)
- Estimated operating costs (rent, utilities, salaries)
- Estimated revenue
- Estimated break-even point
The cost of starting a CPA practice depends on many variable factors. Your geographic location will determine the cost of renting office space. You might consider starting with a home office and then growing into larger quarters. You may already have some equipment or computers that you can use to get started, or you may need to purchase or lease complete furnishings and equipment. Here are the basic elements you'll need:
The Home Office
Many start up businesses begin as home offices. Although the home office offers many cost savings, it may or may not be right for you. Do you have adequate space to devote solely to your business? Is it quiet and away from family noise and traffic? Do you feel comfortable bringing clients into your office? If you anticipate employees, is your family comfortable with this? Do local zoning requirements allow for a business in your home and what restrictions are there on employees, client visits, parking, deliveries, signage?
The Commercial Office
Renting space in a commercial office building may better fit your business requirements. Rent and lease conditions vary considerably, so it is best to shop around before settling on a location. Before signing a lease agreement, be aware of the long term commitment and cash requirements. If your business grows rapidly, is there space to expand? Conversely, if your business does not take off, are you locked into a commitment of many years? Does the office meet realistic financial considerations, does it convey a positive image to clients, and does it offer flexibility based on your actual performance?
The Shared Office
Many businesses today are using the shared space concept. Within a commercial building, you rent private office space but also use a shared reception area and staff, shared conference facilities, copy machines and phone systems, as well as rest rooms and coffee or lunch areas. This arrangement offers the image and amenities of a large office at shared costs with others.
Once your office space is procured, you'll need to furnish and equip yourself for business.
- Desks and chairs
- File cabinets
- Visitor chairs
- Worktable or conference table and chairs
- Secretary or receptionist desk and chair
- Computer(s) and stand(s)
- Computer printer
- Fax machine
- Telephone(s) and answering machine or service
- Reference library
Note: The AICPA offers members substantial discounts on
selected equipment and services. See link at end of this article.
Determining staffing is one of the most critical elements in starting
your business. Can you handle all aspects of the business yourself? Is
it the best use of your time to be answering phones, scheduling
appointments, sending correspondence and handling general office duties,
as well as professional services? If you do hire, be sure to identify
specific job duties before you bring someone on board.
In planning for staff costs, consider that you must offer a competitive salary and benefits package to attract and retain quality staff.
You may want to consider part-time or temporary office staff until your practice is established and you can comfortably meet expenses. Once your cash flow reaches the stage where you can meet your operating costs and your personal income requirements, consider the expense of salary and benefits to full-time employees.
- Develop a monthly budget. Include rent, utility costs (if not
included in rent payment), telephone, email or online service, cleaning
and trash services, parking (if not provided), supplies, and postage.
- Establish a business checking account with your bank. Do not use
your personal checking account for business expenses.
- Consider whether you have sufficient personal capital available for your start up period or if you need to borrow money.
If you do not have sufficient capital of your own to cover start up costs and at least the first six months of operating costs, you may need to borrow the money to get started. There are several options to consider.
You may start with your own personal credit availability. A loan against your home equity may be sufficient to get started. Family or friends may be willing to loan you money to get off the ground. Or consider establishing a business line of credit with your bank. This can provide the money you need, as you need it, without borrowing a fixed lump sum.
If these sources do not provide all capital you need, apply for a business loan through your bank. Keep in mind that before you'll qualify for a loan, you must be able to put up a percentage of your own capital against the loan amount. Your home and other assets may be needed as loan collateral. Before you approach a commercial lender make sure you:
- Have a solid, realistic business plan developed.
- Itemize specific expenses you anticipate.
- Apply for only the amount you can account for; a bank will not lend for unexplained purposes, without specific itemized needs shown.
- Outline your repayment abilities.
Before you open for business, be sure to check local, county, and state business requirements and certification. You may want to engage an attorney to assure your compliance with all local requirements and to handle the formal establishment of your business as a legal entity.
Before you begin your first engagement or open your doors to the public, it is important to address your total insurance requirements.
If you are leaving an employed position, you will most likely lose all insurance coverage provided by your employer. You will need to address personal health insurance coverage for you and your family.
As a professional today, Professional Liability insurance is critical. Lawsuits are a fact of life in the business and professional world. You must protect your practice and your personal assets against legal liability resulting from errors or omissions in providing professional services. If and when your practice has employees, Employment Practice Liability insurance protects you against charges of discrimination in hiring, wrongful termination, and other workplace liabilities. And as a benefit to employees you may want to offer Group Life Insurance.
The AICPA Insurance Program offers members a wide range of affordable coverage plans, including:
Commercial Property and Liability -
Business Owner's Policies (BOP) combining property and general liability
coverages are available to meet the diverse and growing needs of small
to medium-sized firms. Worker's Compensation coverage is offered to you
at low rates. Other coverages include commercial liability umbrella and
Professional Liability- Plans which provide comprehensive coverage tailored to meet the diverse needs of CPA firms of all sizes and areas of practice.
Employment Practices Liability- A wide range of services to help firms understand and comply with the rapidly expanding arena of employment law.
Group Life Insurance for Firms- Term life insurance for owner and employees.
There are two aspects to marketing your services that need to be considered at the outset of your business planning:
- Defining your service
- Reaching prospective clients
Your marketing plan needs to define the kind of accounting services
you will provide. Do you have sufficient experience to provide many
areas of service or are you more narrowly focused? Will you serve
private individuals, businesses, or both? Can your local area support
your business or is it already crowded with other firms? Is there a
niche that you can fill that your competitors are not serving? Knowing
the needs of your prospective marketplace is critical to success.
Once you've determined your services, you need to communicate with your prospects. Get business cards printed as soon as you determine your office location and phone number. Get listed in the yellow pages of your local phone directory. Since phone books may only be printed annually, it is important to know when the next book is printed and get your information out on time. You may want to consider an announcement ad in your local newspaper, or a mailing to a compiled prospect list. Networking also plays a critical role in marketing, particularly professional services. Pass the word to family, friends, and business associates about your service and ask that they tell others.
Consider joining your local Chamber of Commerce or other business associations. This provides networking opportunities and many times marketing support as well. Contacting clients that you served while in the employment of others can be precarious. Be sure to use discretion as this may alert your employer to your self-employment intentions, negatively impacting your planning and financial set-up stages. There could also be legal implications. It is better to hint at your intentions and let the client follow you rather than make a solicitation.
Finally, once you have identified your services and market, you need to establish a pricing schedule. This is often the most difficult aspect of running a business. Your price must be competitive with other CPAs, low enough to attract new clients yet not so low as to undercut your revenue requirements.
AICPA Publications - Managing the Accounting Practice
This handbook is available for purchase through the AICPA. Call 1-888-777-7077 and select option 1.
The AICPA offers a Self-Study Course on Starting Your Own CPA Firm.
Starting your own CPA firm is exciting, challenging, and rewarding. But be prepared for hard work and some periods of very tight finances until you're established. Make sure that you and your family can handle the years it may take to get to that point. Do your homework before you start. A well prepared business plan does not guarantee success, but it greatly improves your chances and makes life a little easier.