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Starting Your Own Practice

If you’re thinking about starting your own firm, consider this your CliffsNotes for avoiding some major pitfalls.

Daniel P. Dehner, CPA

Starting our own business is something many of us have dreamt about at some point in our careers. For most, though, it remains just a dream. However, starting something you can call your own can be the most rewarding professional experience. My version of the American Dream has been an amazing experience, but the road has had its bumps. If you’re thinking about starting your own firm, consider this your CliffsNotes for avoiding some major pitfalls. And if you think you don’t have the ability to go out on your own, think again.

A Foundation of Trust, Expertise
Begin a new venture with people you trust—people you would bet your life savings on—because that’s what you are doing when you launch your practice.
Planning to start an accounting practice is similar to planning a wedding: if you try to do it yourself, you will miss many important details. So to whom do you turn when you want to start your own accounting firm? I did what most auditors love to do: I made a list.

The list started innocently and small, with the obvious entries such as computers, phones, office furniture and supplies. As I solicited input from those who have gone through this process, the list expanded to include some not so obvious entries, such as making sure you report new employees to the Employment Development Department in a timely fashion.

The beauty of starting your own firm is that you can do it your way, but to increase your shot at success, ask for help. There are more than enough qualified experts who can guide you through the overwhelming requirements that come with starting a business. Here are a few musts to help achieve a (relatively) smooth start:

Hire an attorney, preferably with experience in this specific area. There are many legal considerations when starting your own firm, such as what structure (LLP, S Corporation, etc.) you should choose, legal elements of engagement letters and trademark issues. Only a qualified attorney can help you make the best decisions for you and your firm.

Hire a tax expert to help plan your start-up expenditures and tax structure. It may come as a surprise to hear a fellow CPA suggest that you should hire another CPA to help with your tax planning. But I’m the first to admit that I’m far from qualified when it comes to making sure I have adequately addressed all of the critical tax implications of starting a business. For example, determining your “start date” for your year-end tax return has implications you may have not considered. Or, how should you value the stock in your firm? How many shares should you issue, and to whom? Those decisions will be much easier with the advice of an expert.

Do your research and compare vendors. These days, everyone from computer vendors to paperless work product consultants are clamoring for your business. It’s a buyer’s market, and you can afford to be patient to find what will work best for you. Just keep in mind that there is no one-size-fits-all answer regarding who you should contract with for your computers, phones, health insurance, etc. It’s critical that you perform adequate research to determine what will work best for you and your firm.

Also, be careful with the “I have a guy” trap that is too easy to fall into. Just because something works for one, does not mean it will work for you.
A few questions you should ask yourself when considering which vendors are appropriate, include:

1. Do you plan to expand? If so, consider vendors with resources in the geographic locations in which you plan to be operating. If you have a local IT resource and open an office in a different city, you may have challenges when you have different companies supporting your technology.
2. Who is the highest rated service provider in your geographic location? You may know that one provider is the best nationally, but they may not have local representation where you will.
3. What are your neighbors doing? Established businesses are very helpful sources of information. Most likely, they have been around long enough to help you pick the best internet service provider or break room delivery service.

You need vendors who will answer your phone calls. We all know what it’s like when the copier fails five minutes before a presentation, or when your computer crashes hours after the last time you saved a document. We take for granted the resources we have at an established firm. When you are on your own, though, you are your own fix-it department.

Most likely, you will not need a full-time IT resource, but having someone who will act like one—meaning they will answer the phone, respond timely and treat you like
their only customer—will give you more time for the important stuff, such as actually charging clients.

Be prepared to wear many hats. I considered putting practice manager, IT manager, payroll manager, staff accountant and COO on my business card, but I ran out of room.

The tasks you don’t have to worry about at an established firm can overwhelm you when you’re on your own if you’re not prepared to manage them. Every minute
you spend dealing with these activities is another minute that could be devoted to chargeable work.

There are services that are worth the cost, such as a payroll and IT support, among others, but being prepared to efficiently handle the rest is critical. This process will develop over time, but I suggest documenting every procedure you undertake to keep the practice running, such as cash reconciliations, running payroll and entering transactions into your ledger. There might come a time when you need someone to help you and this documentation can be a helpful guide. The more you can spend charging your time, the closer you are to hiring full-time people to do the rest for you.

Finally, one last piece of advice that I overlooked when I launched our practice: If you want to represent yourself as an accounting firm, your firm needs an active license to practice accounting. The California Board of Accountancy can help with that. This may seem obvious, but in the middle of negotiating leases, finding the best computer vendor and carving time to actually make some money, we sometimes forget the easy ones.

Daniel P. Dehner, CPA is a senior consultant at Durkin Forensic Incorporated