Stumbling blocks to starting your own CPA practice
Potential problems include an insufficient client base and partner mismatch.
March 25, 2013
As with any new business, a CPA practice requires time, money, energy, and creativity. By planning in advance, you can better anticipate your challenges and create solutions beforehand.
Despite planning and preparation, new practices do run into problems that can ultimately cause them to fail. These stumbling blocks fall into three categories:
From my experience advising owners, I have found that these problems usually occur because the practitioner lacked objectivity (underplanned) or was just overconfident.
Insufficient client base
An insufficient client base is the first and most critical stumbling block. Starting practitioners may unrealistically expect certain clients to come over to them. They assume the clients they took on through moonlighting, through anticipated references from friends and associates, and through their previous employment will follow them to the new practice.
This can be a really bad assumption. People don’t take switching accountants lightly. From the clients’ perspective, if they are fairly happy with the service they have been getting, switching is quite inconvenient. It requires their time.
Clients often don’t switch accountants as hoped or expected for a number of reasons, including the following:
Having a mentor or two to provide a sounding board is also a very big help. Your banker, other CPAs, and seasoned businesspeople love to help ambitious people looking for guidance.
A mismatch with a partner or other business associate is the second stumbling block that will severely hurt your business. Because working with others requires effective communication and the ability to compromise, it is imperative to really know your potential associates. In large practices, clashing individuals can work around each other, but such polarization cannot be tolerated in small firms. Be sure you understand the personality and background of your associates and establish well-defined boundaries for working with each other.
Just as one can make a poor choice in a business associate, one can err in a practice acquisition. A poorly chosen acquisition, combined with a poorly executed transition, can turn into a nightmare. Most acquisitions that fail are the result of a mismatch of technical skill, management style, and personality. Losses also are incurred by not planning and executing the transition well. To counteract the possibility of this happening, you need to evaluate carefully any potential acquisition and weigh the pros and cons objectively.
Editor’s note: This column is an excerpt from the second edition of the book On Your Own! How To Start Your Own CPA Firm, by Brannon Poe.
Brannon Poe, CPA, is a Charleston, S.C.-based intermediary who specializes in the sale of accounting practices. He writes a blog that can be followed on Twitter @poegroupadvisor or at www.poegroupadvisors.com.