e-MAP: Management of an Accounting Practice Handbook

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102—Starting a Practice

By Albert S. Williams, CPA
Albert S. Williams & Associates, Inc.
Lakewood, Colorado

102.01—Introduction

Most professionals electing to launch a practice expect professional challenges. Few anticipate the personal demands it will exact. Underestimate neither. Establishing your own practice will call upon your best technical acumen as well as your patience, your ingenuity and yes, your character. The rewards, however, can make this investment one of the best of your life.
Practically speaking, your prelaunch process should:

• Describe the services to be provided
• Delineate your marketing philosophy and plan
• Quantify the financial requirements
• Define your personal and professional objectives
• Honestly assess whether you have the desire and temperament to be an entrepreneur

This last task is key. When on your own, you must be both willing and able to rely on your own judgment and accept full responsibility for the outcome. Bear in mind the risks associated with staring an accounting practice and the possibility that achieving your goal may take longer than anticipated. But, if the final analysis proves positive, seize the opportunity and give it your all.

102.02—Start a Practice or Buy One?

The most often cited concern of beginning practitioners is "How do I obtain clients?" One solution is to acquire an existing practice, including the seller’s client lists and files. An acquisition saves hours of practice development time and provides the CPA with an established base upon which to build a practice. Bankers tend to look more favorably on a loan to acquire an established firm given the existing clientele and known cash flow. A practice that has a sound organizational structure, established policies, and a favorable image in the community also influences the loan process.
Once you've decided to go on your own, one of your initial decisions will be whether to start your own firm or purchase an existing one, if available. There are important considerations for either route that could affect the success and survival of the firm in its formative years. The principal determinants are cost and the establishment of a client base. Exercise the same degree of diligence and attention when comparing the costs of founding or acquiring a practice as would be applied when advising a client on a similar matter. The cost of purchasing an existing client base could range from 75 percent to 150 percent of annual gross fees. Terms will vary considerably, depending on geographic region, market conditions, type of practice, and other factors. The equipment, furniture, library, and other costs are additional, as is required working capital. Also, under present tax law, the acquisition cost of intangible assets is normally written off over 15 years.
Characteristics common to successful acquisitions include the following:

• Similarity of technical attributes of the seller and buyer
• An absence of drastic changes in practice management style
• A general closeness of match in personal characteristics
• An effective endorsement by the seller of the buyer
• Careful management of the transition process

Interest in acquiring practices remains high. One of the major factors contributing to this demand is the number of CPAs entering, or reentering, public accounting from the private sector. Buying a practice offers a distinct advantage for those not possessing recent experience, and might be viewed by some as a “turnkey” transaction.
The decision to buy, as opposed to start, a practice will usually be based on the CPA’s needs, the problem of establishing a client base, and the availability of practices for sale in the area.
Copyright © American Institute of Certified Public Accountants, Inc. All Rights Reserved
January 2007