So the next question is going to be, is she accepting new clients, or would she be passing new clients along to you so you can grow your book of business?
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I think comparing your software and overhead needs in the NOW is being very short sighted for you.
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I don't think you currently have a good grasp or understanding of exactly what is being offered to you, so I would suggest you get her to outline (in writing if possible) exactly what she is proposing. A revenue share based on gross is incredibly favorable to you to help you grow your book of business while keeping overhead some what affordable. It seem like a very kind gesture on her part. But on the flip side, if you continue to work for her, allowing her to grow her business and take on more new clients, while you do the work, you are just enabling her to create a larger firm that she will expect you to buy from her in 10 years when she wants to retire. In 10 years you presumably will have already built a decent book for yourself, so you would be forced to hire and train staff to take over the workload, so you can continue to service the same volume of clients to earn enough to “buy her out”.
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You are currently on a similar path to where I thought I was 10 years ago. I did not get anything in writing and I'm now left in a position where I am starting my own venture while working for my employer full time. Whatever you do, make sure you get this all in writing.
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So your home work. Get a better grasp from her on what is being offered to you, how it will work if you agree to a % of overhead. You have only outlined the drawbacks to you, being the expense, but there must be an upside that hasn't been outlined yet.
Work up a business model with and without taking this opportunity. Put some real numbers to both scenarios.
Get something in writing from her that outlines what she is thinking this will look like in 1, 5 and 10 years.
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Typical firm overhead for a small firm or sole prop is about 30%. Typical firms sell for about 100% of gross (dollar for dollar) to an outside party, and they average 75-80cents on the dollar for an internal acquisition (which you would be at the end of 10 years i assume). If the total overhead is 30% and you can work out a overhead sharing plan for the fixed costs, it can help make you more profitable in the long run. Obviously the lower the volume, the lower the expenses TO A POINT. You'll eventually reach a threshold where you need phones, internet, office space to meet clients, etc. At that point you'll end up being over 30% overhead until your gross reaches the point where your fixed costs + variable work out to be back in the sweet spot range.
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Does your experience and skill set warrant you running your own firm at this point? Are you ready to make the leap?
You don't want to end up being a CPA/glorified bookkeeper. Do you have the skill set and knowledge base to service more advanced tax clients? Are you preparing returns soup to nuts or is your work still being reviewed? How often do you have to ask questions while working on a new tax return? Have you checked the market for other soon to be retiring CPAs in your area? Have you research what firms are currently listed for sale, and for how much in your area? You need to do a ton more research before you can determine if this is a good deal or not, and if you are being offered something that is valuable to you… and furthermore, is it even something you want?
Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)
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