Establishing a successful small CPA or accounting firm

Starting Up a Small Business (cpa or Accounting Firm)

Establishing a small business is one of the most challenging yet highly rewarding opportunities available to entrepreneurial individuals. During the height of the technology boom in the mid-late 1990s, it seemed as if almost any individual could start a business and become successful. However, as the bear market of the past 2.5 years has shown, what goes up must come down, and not every business will be successful. Starting up a small business offers individuals numerous advantages, both in terms of flexibility (i.e., hours do not have to conform to the rigid 9-5 structure of working for someone else) and potential reward (i.e., profits are generally not split in small businesses, or at least split between fewer individuals. However, there are also potential drawbacks of starting up a small business, including the risk of failure.

This paper analyzes and examines issues related to starting up a small business (CPA or accounting firm). In Part II, the central issues concerning such an endeavor are detailed. Part III outlines the recommended actions. In Part IV, the basis for the recommended actions are reviewed. Part V describes reasonable alternatives. In Part VI, significant factors concerning this endeavor are examined. Part VII entails a factor analysis. In Part VIII, the implementation plan is reviewed. Lastly, this paper concludes with suggestions for establishing a framework to ensure that the small business has the greatest chance of success.

II. CENTRAL ISSUES

Before you can establish a credible CPA or accounting business it is necessary to examine one main issue. Do you have what it takes? When analyzing such a question it is important to look at these other central issues:

Why do you want to start your own business?

Do you have the motivation necessary to start and maintain your own business?

Does your family support your decision?

RECOMMENDED ACTION

You are now ready to look at the next step in starting your own small business. This step is the business plan. Why business plans? 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 seen funding for your venture. Financial institutions look favorably on clear and detailed business plans.

There are many options available to the business owner when it comes to creating a business plan. You can create your own plan or have someone else with the proper expertise create one for you.

What needs to be in your business plan and why? There are many different components necessary when creating a business plan. The following components are essential in a proper accounting or CPA business plan:

Outline the goals of your business

Identify the structure of your business

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 projected revenue

Define the source of start up and operating capital.

IV. REASONABLE ALTERNATIVES

Essentially there are many other alternatives to starting your own CPA business. One of the most obvious is joining a large accounting firm. When joining a firm you are limiting yourself in many ways. The possibilities of your financial rewards are limited to what the firm decides to pay you. If you choose to start up a small business, you will most likely receive a higher percentage of the profits.

Individuals who decide that working for a large accounting firm is not the right fit for them may decide to work as a freelance consultant or to partner up with fellow accountants or CPAs, and perhaps even lawyers. As with starting up a small business or striking out on your own, there are challenges in partnering with other individuals. For instance, some partners may have different visions about how to bring in and retain business or what areas to focus on. In addition, individuals may have different viewpoints about how compensation should be determined. For a partnership arrangement to work, the partners must agree to discuss the issues in a well-thought out, rational manner which allows for disagreement but also which emphasizes just resolution.

V. IMPLEMENTATION PLAN

Now that you have created your business plan, you are motivated and ready forge on what do you need to do? The following are key steps to follow to begin implementing your business:

Finding Office Space

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?

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?

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.

Necessary Office Equipment

Once your office space is procured, you'll need to furnish and equip yourself for business.

Basics include:

Desks and chairs

Lamps

Bookcases

File cabinets

Visitor chairs

Worktable or conference table and chairs

Secretary or receptionist desk and chair

Computer(s) and stand(s)

Computer printer

Software

Fax machine

Telephone(s) and answering machine or service

Supplies

Reference library

Staffing

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.

Cash Management

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.

Legal Considerations

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.

Insurance Considerations

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:

Professional Liability- Plans that 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.

Marketing

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.

VI. CONCLUSION

Establishing your very own small business in the accounting/CPA field can and is an extremely challenging yet rewarding experience. It is of utmost importance that you consider every aspect of the business before you begin.

Again having a good reason behind your project is the first key to business success. Know what you want and how you plan to achieve it.

Second, motivate yourself, without intense motivation the success of your business may be in jeopardy. Find strong people to support you. Create good relations with your financial partners and ask many questions. Once you are set up starting your own business you must then begin by creating your business plan. The outlined steps are key for both a good business and to acquire financial backing.

Remember that starting your own accounting firm has many benefits. One of the most important is the control you will have on your future. Statistically your likelihood off succeeding in this field is quite high. Many people enjoy working with a small firm where they get to know the staff and create a bond.

Be a strong leader and role model for your staff. Model what you would like to see from them. Work hard, be positive and stay motivated, market yourself properly and you will inevitably succeed in starting your own small business.