How to Start a Tax Accounting and CPA Firm

How to Start a Tax Accounting and CPA Firm

Having gained considerable experience developing five of my own accounting practices and spending the next two decades individually helping over 2,000 accountants develop their own practices, there are a few basic principles accountants can follow to ensure the greatest opportunity for success.

The best way for accountants to succeed in starting their own accounting and tax CPA practice is by giving themselves the greatest opportunity for that success. This can be done by remembering that the basic principles of a successful practice are good clients along with the basic tools to serve them. Many accountants who want to develop their own practice position themselves with large amounts of unnecessary overhead that undermines their opportunity for success. Unnecessary expenses can be postponed until they become necessary. Take only the necessary items to service the original customers. It is important to keep the initial overhead costs as low as possible in order to quickly create a positive cash flow to finance the development of the practice.

When starting an accounting and tax CPA firm, it is recommended that accountants start from home. In today’s technological world, clients are very accepting of accountants working from their homes. In a sense, this gives customers the feeling that they are getting more value. They believe that if the accountant incurs less overhead, perhaps some of the savings are passed on to clients. By saving on rent and other office expenses, accountants will accelerate their positive cash flow, which can be used to fund practice expansion without going into debt. Once the cash flow is sufficient to maintain an office, then the accountant can decide if expanding into an office is warranted. Accountants who work from home may also find that they like it so much that they choose to forgo moving to an outside office.

Another way accountants can keep overhead costs low is by avoiding unnecessarily expensive software. Many accountants purchase very expensive unnecessary client support software that they have yet to develop. There are extremely good software companies that provide an excellent product at a low to medium price range. Drake Tax Software is a very cost-effective software program that has an excellent reputation. The September 2011 issue of The Journal of Accountancy published the results of a software survey and Drake Tax Software received an excellent rating. Accountants starting their own CPA accounting and tax firm are encouraged to look for good software at affordable prices, giving them the essential tools to serve clients.

There are many other simple ways accountants starting their own tax and accounting firm can reduce start-up costs. Simply the name accountants choose for their firms will reduce their initial costs. If accountants use their first name, middle initial, and last name followed by CPA and/or CPA, they can avoid DBA registration costs, bank fees, and filing fees. In addition, active licensed CPAs have legal rights to practice public accounting under their own names, saving them the costs associated with fictitious names. Many times, CPAs may choose fictitious names, which would reduce potential clients’ perception of them, which in turn would hinder a start-up business. For example, a licensed CPA doing business as “Bay City Tax Office” or “Accounting and Tax Office” loses credibility. Potential customers may perceive this company as uncertified and unlicensed.

Accountants who are considering developing an accounting/CPA practice and who are currently employed are encouraged not to quit their jobs in pursuit of starting their own CPA accounting and tax firm. Instead, they must develop their practice concurrently while still employed. This may be a time-consuming decision compared to quitting their job and devoting full time to their practice; however, the sacrifice is worth the reward. As the practice grows, accountants can grow with it and transition full-time into their own practice without putting undue financial pressure on themselves or their families.

By easing the financial pressure of implementing the new practice at the same time as employment, there will be a significant increase in income without incurring large expenses. Cash reserves will increase significantly as employment income is maintained and new income will begin to flow in from the new practice as well. This increase in cash reserves will be of great help in funding a full-time transition and will make the move smoother when the time comes.

Moving to full-time practice Accountants will find it easiest to move full-time to their own practice in the month of January. January is the start of tax season, and with it comes the start of income tax preparation. The increase in revenue will come just when accountants need it most. It is important that accountants position themselves to start marketing early in the tax season to aggressively develop individual tax clients, taking full advantage of their first tax season. In addition, January includes year-end work for many businesses, such as payroll and financial statements. It will also add additional revenue to accountants’ practices in the month of their switch.

January is also the best month of the year to go full-time in practice because it can be the best month of the year to develop new business as clients. Most business owners resist changing accountants. It takes a very solid reason for a client to leave a previous accountant. Once a client has decided on a change, he or she will usually not refer to the change until the end of the financial year, not wanting two accountants to split a fiscal year. Accordingly, the end of the year is the best time to reach out to business owners and this will make the transition to full-time practice easier.

Finally, when starting an accounting and tax CPA firm, it is important to avoid marketing services as a commodity or product. This often leads to very low response and low quality customers. It can also be extremely expensive. There are many accountants who follow very expensive marketing programs offered by various companies and who are attracted by hard-to-fulfill guarantees. Many of these programs are commodity oriented. The accounting industry is not commodity driven; it is driven by trust and loyalty. An accountant’s marketing campaign should be guided by truth, honesty and professionalism, which will allow the client to feel more comfortable knowing that he or she is hiring an accountant who can be trusted.

Accountants or CPAs who are currently employed and want to start their own accounting and tax CPA firms will find it helpful to continue the practice by following some very simple steps:

1) Avoid unnecessary costs and expenses.

2) Consider starting a CPA accounting practice from home.

3) Develop the practice along with current employment.

4) Avoid promoting the company as a commodity or product.

Remember, opportunity begins with action. No action, no opportunity. Accountants who take action set themselves up for success. They should start their own CPA and accounting firms from home while working. Their successful track record, without jeopardizing their future, will give them the confidence and cash flow they need to enjoy the freedoms of accounting and tax CPA firm ownership.

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