February 12, 2020 at 1:04 pm #2928618
Hi All – I have been working in Big 4 Tax for 2 years now (SALT) and if I am being 100% transparent, I am not satisfied. The end goal has always been to eventually be my own boss, meaning either open up my own CPA firm or buy in as a partner at a smaller firm. I recently started a side hustle of doing tax returns for individuals (yes I know this isn't allowed but neither is taking a pen home with you from the office). My question is does anyone have any advice as I begin this tax prep business? I currently have 63 individuals & businesses that I will be filing for this year and am looking to sustainably grow this practice until it is deemed lucrative enough to make a full time career. If anyone has any experience in this I would love to speak in greater detail but any advice is great advice. Fire away ninja's.February 12, 2020 at 2:19 pm #2928741
Lots of practices for sale currently or in the near future as the baby boomers start to transition out.
Some sell, some die, some just hang it up.
If you want to accelerate your departure from your current job start making friends with local older CPAs and express an interest to be part of their transition plan, as most do not currently have transition plans. Practices typically go for about 100% of one year's gross revenue. Internal acquisition rates have been averaging about 75-80%.
Typical payout is % down and then paid 20% of gross over 5 years, or 10% over 10 years for example.
As far as advice to grow your current practice. Advertise, be active in your community, service your clients well so they pass your name along.
Don't under charge or sell yourself short. If you charge less than everyone else, you'll wind up overloaded with cheap clients that will quickly flee to the next cheap option when you start trying to raise your rates to market rates.
If you make a mistake, own it, fix it immediately, and cover the interest and penalty without them taking you to court.
Just keep pushing forward and it will start picking up steam.
If you do end up making a deal with an aging practitioner, don't do anything unless it's in writing!February 12, 2020 at 2:23 pm #2928750
I have this mug on my desk in my side practice office. It was a gift.
I think you would appreciate it.
I was going to get that on the back of my business cards, but the whole copyright thing… decided it was a bad idea.February 12, 2020 at 3:51 pm #2928909TncincyParticipant
@Recked I went to the etsy site, and I can't stop laughing at the tax/accounting/cpa gifts. I know I won't drink but from one one cup at a time, but I have to narrow it down. I definitely want the t-shirt.February 12, 2020 at 3:56 pm #2928912
I use mine to hold pens and such.
None of my clients that I meet with have really seemed to notice.
Tough crowd…February 12, 2020 at 4:34 pm #2928966TncincyParticipant
I found a coffee mug from our local coffee shop that says, “I really need a day between Saturday and Sunday.” My clients love that one. I got the no crying during tax season, and Sorry for what I said during tax season. I got the First coffee then taxes mug. I hope you get a commission for this 🙂February 12, 2020 at 4:51 pm #2928993NYSCPAParticipant
I'll second everything Recked said and add that 99.9% of my clients are from networking/referrals, no advertising necessary, but always an option. How do you find time to take care of side business with Big 4 OT during busy season? As your side business grows you may want to transition to private/smaller CPA firm to allow you more time to do side work. What state/city are you in? What is your billing rate?
“The end goal has always been to eventually be my own boss, meaning either open up my own CPA firm or buy in as a partner at a smaller firm.” – This is me to a T. I actually told my boss this during my interview and he hired me anyway. I'm sure he did this for succession planning as no one else in my dept wants to be Partner once he retires. At this point I'm just waiting to get the news that he is retiring… In the meantime I started my own side gig, have about 1/3 the clients as you do, but most generate decent fees and a few generate 20k+/year so I'm not in a rush to expand just yet.
“And you old men love building golden tombs and sealing the rest of us in with you.” While I live by the sentiment that there is nothing like building something on your own, I also understand the practical implications of taking over what someone else has built, via an outside acquisition or internal takeover. There are merits to going either route.
Best of luck to you in your endeavors!February 12, 2020 at 5:01 pm #2929002Biff TannenParticipant
Hopefully one day you’ll win the lottery. If so, send some dough to your boy Biff TannenFebruary 12, 2020 at 6:04 pm #2929053vbmerParticipant
Define “a lot”. How much does a Tax Partner at a typical micro firm (<5 partners) make? $300k? That's experienced Senior Manager salary at Big 4… (not in Tax, but still, you are young enough to get out of Tax) If you want Partner at a firm where you would make >$1m, you need strong experience at a big firm, and you will need to be loyal to the firm and bring in new business, rather than running a side business. You can't just parachute in as a Partner somewhere in the way you are describing and make “a lot” of money.February 12, 2020 at 6:31 pm #2929092
@recked @NYSCPA So here is my current situation; I am working in SALT where all of my clients are multi-million/billion dollar corporations. I can confidently say that around 60-70% of the work I am doing right now will not translate to a smaller CPA office dealing with small businesses and individuals. I would also note that most of the individuals that come to me are simple w-2 returns with the occasional sprinkle of multi state 1099 clients, nothing too complex and with the right software pretty reasonable to work on when I get home from the office.
I am at a crossroads because the paycheck is guaranteed, but I have ZERO interest in the work I am doing at Big 4. Ideally I would like to build up a book of business to go to an older CPA with some leverage when negotiating buying in as a partner. I am also open to the whole “grooming” into partnership as most clients will want to get to know me before I take over. My biggest dilemma right now is should I begin looking to leave to a smaller firm sooner than later so I start to get tangible relevant knowledge and experience or should I wait it out a little longer at big 4? I am 25 living in Michigan and at the risk of sounding ungrateful or pretentious, I want to break 6 figures by the age of 30 (I set that goal right before sitting for my first CPA exam).
I guess all of this boils down to one question…. Given my limited experience with individual taxation and small business accounting, what would be my best bet, staying with my B4 firm for a few more years? or to begin actively looking for a smaller CPA at the risk of taking a slight paycut until I am groomed into partnership.February 12, 2020 at 6:37 pm #2929098
@Vbmer I totally get what you are saying but the biggest hindrance I have in staying at B4 is that the average senior manager at my firm makes around $150 and that requires at minimum 7 years. Partnership at my firm is easily no less than 14 years (with a GREAT chance of never even becoming partner). I am not even done with year 2 yet and see that I can make a very handsome income running my own circus while doing something I actually enjoy which is running a business. Would I like to make >$1mm a year? ABSOLUTELY, but I think I would settle for $4-500k LOL.February 12, 2020 at 7:41 pm #2929173fassoponyParticipant
You are absolutely correct that SALT experience will not transfer well to a small firm. The bookkeepers do most of the state reporting. I do some because I do the accounting for some of our tax clients and I specialize in cost and compliance (I come from a construction accounting background) but the excise tax is a very small part of contractor compliance.
There are a LOT of retiring CPAs out there, especially audit it seems. I don't know what you make now but I assume you could ask for 70,000.00 minimum? It varies so much region to region.February 13, 2020 at 11:47 am #2929812
400-500k is probably not realistic for a sole prop or small firm.
Let's say you charge $300/hour and bill out 2000 hours a year.
That's 600k, but there is no way you can bill out 2000 hours as a solo with no staff.
So let's say you lose 1/3 to overhead and 1/3 to staff salaries.
Not clearing 400-500k.
Partners (5-6) in a 3-4Mil firm are handling books of business of about 750k each with staff support. Assume the same 1/3 to overhead and 1/3 to wages, I would guess a smaller firm partner is topping out about 300k. A larger firm with 11 partners doing about 11Mil a year with close to 100 staff. I would think the partners are probably making 400-500k.
Set some realistic goals, and adjust your spending to match you goals.
Do you want to make a boat load of money, or do you want to live your life and retire asap?
The average firm does 150k per full time professional. Better performing CPA's in a smaller firm will bill our 250-350k a year.
The key is to generate as much income as possible with as little staff/wage overhead as possible.
Bill out $200k a year as a solo with no staff. Lose 1/3 to overhead costs, the rest is yours after taxes. You don't need to work 2000 hours a year to accomplish this.
Live small, save big, cash out at 50 and enjoy your years.
Back to your current situation. SALT sounds like some repetitive tasks day in and day out.
This will NOT apply to a smaller firm. You need to get some more varied tax experience. You are certainly in no position to strong arm your way in as partner in a firm.
If you build your book to 100k+, then you're bringing something to the table, but there needs to be an upside to both parties for a deal to make sense.
Keep grinding, keep building your book. Don't under charge. Start looking for opportunities at a smaller firm now and maybe in a few years you'll find the right fit, or your side gig will be large enough for you to make that leap of faith. Either option is going to take some start up capital so SAVE SAVE SAVE!!February 13, 2020 at 1:52 pm #2930004NYSCPAParticipant
It seems like no matter how you define a lot of money, staying where you are now doesn't get you any closer to your goal. Only thing it provides is a salary. Which I'm sure you can find at another job while gaining relevant experience.February 13, 2020 at 1:56 pm #2930031vbmerParticipant
@Recked do Partners at small firms really charge out at $300/hr? ($300 seems reasonable for a sole proprietor) That is less than Big 4 Seniors… I thought the mix would be closer to 1,000 hours billed at $600/hr.February 13, 2020 at 3:02 pm #2930163
All depends on the area.
Partners at firms in my area seem to run in the $240-$360 range.
My rate is $300/hour.
There are some sole prop CPA's that are charging $150-$200/hour, which I feel is undercharging and doing the whole industry a great disservice.
If that CPA with 4-5 years of school, one or more degrees, and 4 passed exams is charging less than H&R Block, they are screwing the rest of us.
I can see partners in larger firms charging 400-500 an hour, and $600 an hour maybe for a Big4 partner in a metro.
I have no idea what a senior would get at a Big4, but I am curious.
Keep in mind the types of businesses/clients we're talking about. Sole prop and smaller firms aren't dealing with Fortune 500 clients that need audits and the works.
Small business and simpler personal clients can't afford rates too high, you wind up pricing yourself out of the market.June 9, 2020 at 7:27 am #3021651Number_cruncher32Participant
I am interested in starting my own tax prep business and I was impressed thst you are able to do it on the side while still working a full time job with a Big 4 firm. I was curious, how did you obtain your 63 clients? Did you advertise? If so, in what type of forum? How long did it take you to accumulate thst many clients?June 9, 2020 at 10:12 am #3021801Jeff Elliott, CPAKeymaster
“If that CPA with 4-5 years of school, one or more degrees, and 4 passed exams is charging less than H&R Block, they are screwing the rest of us.”
They aren't screwing you. It's your job to show the value you provide vs the others and differentiate.
Only 10% of customers use price as their first factor anyway. 5% automatically go with the lowest price. 5% go with the highest price.June 9, 2020 at 12:25 pm #3021897
Very valid point, as always.
I manged to land a client this year that legit paid $40 for a tax return last year.
The preparer actually did time for tax fraud about 10 years ago.
They were not happy with the bill and I negotiated it down (before starting).
Ended up over time on it, of course, but I definitely over serviced that client to show the value.
I've lost more than 5 new clients this year based off of price alone.
All were people who had always done the taxes themselves, but the returns were getting more complicated so they wanted to go to an accountant. Most were self employed or side gigs, so I knew it was going to be some intense hand holding and loads of questions like what can I deduct.
Hate to lose a client, but I'm not going to cut my rates for those headaches.
Funny enough every client that was hesitant about the price but went with me anyway, always seems to thankful to have found me. Even got a number of thank you cards this year. That always shows me I did a good job and I save them, I've collected quite a stack.June 9, 2020 at 6:42 pm #3022149Jeff Elliott, CPAKeymaster
You might consider a prepared response when people object to price…walk them through mistakes you've seen that led to big penalties, not to mention having the feds in their life.
I would then offer to give them a few numbers of “cheaper” accountants they can call.
They will likely go with you once they see you don't need them.
If you haven't read it – go read the book “Influence”. It's in my list of top-7 business books.June 9, 2020 at 7:46 pm #3022236NE CPAParticipant
Great thread. Are there any additional resources (books, sites) that lay out starting your own practice? This forum is great, however the focus is very different.
One of the main reason's I am pursuing the CPA is to start my own practice. I work in a standard corporate accounting focused role and I'd like to make a shift away from paycheck jobs. Besides the scaling the CPA exam mountain, I imagine, I would either need to work at a smaller shop to get some practice or launch things on my own on a part time basis. Lots to consider here, any insight would be appreciated.
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