[Anonymous]

Quick background – I am in my mid 30’s. I dropped out of college to run a business with my brother when I was 19. We were moderately successful for 12 years and for reasons I won’t go into here, we sold the business a few years ago. I decided to go back to school and finish off my accounting degree and graduated last May. The small, family-run CPA firm I interned at during my last semester at college offered me a full time position when I graduated and I took it. There are 7 people total working here: the 2 CPA partners, another CPA who only moonlights and is really only here during busy season, myself, another staff accountant, a receptionist, and an office manager who is only here once or twice a week to do orders and handle payroll.

Fast forward to today. I went in for my first annual review. I was expecting to get some honest feedback, maybe a little criticism, and a moderate raise. They told me that they can’t afford to give me a raise this year, but they are extremely happy with my work and all the clients love me.

Instead they offered that when I get done with the CPA exam (already passed FAR & BEC, just took REG in June and have AUD scheduled for August) they want me to start bringing in my own clients. They would not give me any equity in the partnership, but they would give me a percentage of the income from any clients I personally bring in with the percentage they receive being deemed “overhead.” We would decide on the percentage if/when we get to that point and put the whole agreement down in writing. I would basically be like an independent contractor, with the percentage from my clients that I pay them being a sort of “rent” for being able to use their offices, software, staff, etc. I would still receive my current salary and benefits that I do now.

They said if I don’t want to do this I can stay as is, or leave with no hard feelings – they just can’t afford to pay me anymore than they do now.

Has anyone else encountered anything like this? I can think of a lot of pro’s and con’s to the whole situation. This just happened two hours ago and I’m still trying to wrap my head around it.

[turo9992000]

Do it, build your book and become a partner or leave. They are being cheap probably. Do you know how much you bill, and how much is collected? I haven't run into your exact situation, but in my town, it's pretty normal that professional staff is encouraged to bring in new clients, they get 20% of the first year's revenue from the client as a finders fee. Yearly salaries are based on 50% of billing, with the expectation that 60% of the time will be billable. If your hourly billable rate is $200 and you bill 1200 hours a year then your salary will be $120,000.

If I was you, I might do it. From everything I've seen a general rule of thumb is for every dollar brought in 30% goes to overhead 30% goes to professional staff, 30% goes to the partners, the remaining 10% fill in the gaps. I'd offer them 30% of what your clients bring in and you keep 60% percent, unless you will have other professional staff helping you with the workload.

AUD - 64, 80 Passed on 10/09/17

BEC - 75 Passed on 12/09/17

FAR - 69, 71, 73, 83 Passed on 06/10/18

REG - 81 Passed on 09/10/17

[Recked]

They are laying out a path to you being self employed. Once you have a decent book of business you can ask to join/form a partnership with them, or you can leave with your clients and be solo/self employed. Sounds like it would make more sense to share/split overhead, unless they get piggy.

This also motivates you to grind it out, get your own clients/bring in new business, and keep yourself busy.

The only trap I see is if your agreement has either a non-compete clause, or a stipulation that the clients you bring in belong to the business, and if you ever leave you will need to pay to bring your clients with you.

As stated above 30% to overhead is a pretty typical number unless your firm is super efficient or an under performer.
If you are motivated and have decent people skills then this can be a great opportunity for you, and from my understanding of smaller firms, this is typically how it's done unless the owners just want people they can grind and make money off of.

Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

[Anonymous]

Thanks, @Recked.

They were very specific about segregating our clients. Apparently, the 2 CPA partners were part of a larger partnership about 10 years ago and things went south and they got into a large battle about who had which clients. They deliberately stated that they never want to do that again.

There was no mention of a non-compete clause, but I didn't think of that and will look out for it.

30% was the number they threw out there when bringing up the subject, but they said we could negotiate that number if/when the time comes.

I do think it's a great opportunity to spread my wings and beginning my own practice has always been my end goal. I was basically a salesman when my brother and I ran our old business, so my people skills and business network are already in decent/good shape. I also already have about 12 clients (mostly friends/family) that I did taxes for this past season that I could immediately bring in. There is still a lot I don't know about running a practice and I definitely could pick that up here.

My only concern is that between going back to school and raising 2 young kids, my savings from my old business are almost shot. I really needed this raise and I'm not sure I can wait until next busy season to start seeing the benefits. Basically, I think this deal would pay off in the long run, but whether I can make it through the short run is another story. That will be the biggest factor in my decision.

All this is hinging on my passing the CPA exam, so for now that will remain my goal. If I get good news on the 28th for REG, I will only have AUD left. Just going to keep my head down and keep studying for now. Thanks for your input, @Recked.

[Recked]

I would encourage you to try and cut costs/reduce your monthly expenses.
If the end goal is self employment, and they are pretty much offering you that, its a no-brainer.
I think you will regret leaving now for the instant gratification of more money now, to be a cog in a machine.
It's a bitter pill to swallow.

Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

[Mehdi]

I have more or less the same story here in my job.

ماشین عروس

[Recked]

I'll share my story as it might be relevant.
I was paid below market, and finally confronted my boss about it when a starting driver at Frito Lay got a job making more than I was making. I only had a 120 hour degree and the new rule change in NY to 150 hour in 2009 meant I could not sit for the exams.
Boss offered to match the salary and I agreed to stay (2012) under the understanding that I was working for something for the future (equity). I was still 5 years away from the 15 year path in NY.
Unfortunately nothing was put in writing. In 2017 I became eligible to sit for the exam/be licensed.
Proceeded to knock them out quickly and now I'm 3+ months from being licensed and boss is still dragging his feet trying to figure out how this will all work.

Always put it in writing. Protect your investment. Avoid the non-compete, and retain ownership of your own clients.
Your own book of business is the end game.

My cousin did things by the book. Graduated 2 years before me, licensed within 2 years of college.
As soon as he was licensed he was taken on as a junior partner in his small firm (3 other CPA/partners) and expected to keep himself busy.
Cover his share of overhead, and the sky was the limit for how much he could earn.

They recently had a kid fresh out of college that they were hoping would follow the same path. Get licensed, build clients, share overhead.
That kid left before taking the exams, for a job to make more money. Took the exams in a year or 2, and is now part of the machine, making good money I am sure, but the partners also make money off of his work. Chose your path carefully.

Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

[Anonymous]

@Recked – I'm a year out of college and am on my way to being licensed around the 2 year mark (maybe sooner). I'd love to start bringing in my own clients to build up my own book and whatnot. Do you have any advice where to start or what conversations to have with my boss? I guess I just don't know that much about the progression of the industry but I'm curious.

[Recked]

So the first step is to get licensed. You will need your boss to sign off on your experience, so just in case his plans are different than your plans you need to be wary not to rock the boat until after he signs off on your experience. Depending on his life stage, he might be planning for you to purchase his firm so he can eventually retire, so hearing plans that you want to build your book of business as opposed to helping him build his business to ultimately sell to you might not be in his plans.

Once you get licensed, then you can have the conversation about what the future holds. Where does he see you in 5 years, where does he see himself in 5 years? What do you need to do to get on a “partner path”? I think it normally might take 7-15 years to “become partner” at a larger firm. Be careful how hard you push as you still need to get lots of real world experience under your belt before you can be self employed and know enough to properly service your clients.

Firm size and age of owners is probably the biggest factor is determining your progression at your firm.
Keep in mind the baby boomer generation is all fast approaching retirement age, and there will be a surplus of owners looking to transition out over the next 5 – 10 years.

Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

[Anonymous]

Update:

I actually managed to get in touch with a person who used to work here and was able to chat with him a little bit.

It seems the partners made the same offer to him that they made to me. This person said he received no raise after his first year, but did receive the same offer to start bringing in clients. He said he started pounding the pavement and after his 3rd year he had tripled his salary. He then went on to tell me that he stayed an additional 2 years and his salary continued to rise, but he left to start his own partnership with another person and was able to take all his clients with him when he moved. 10 years later and he sold his partnership stake to become CFO at his dream job.

So, it seems like this is a legit deal. I will just have to up my game and start bringing in some clients. First thing is still first – getting my (hopefully passing) REG score on the 28th, then crushing AUD in August.

Thanks for all your help everyone/@Recked!

[Recked]

That's awesome to hear a success story from someone that was in your shoes.
After you get licensed you should offer to buy that guy lunch or coffee, and discuss how he was able to attract and bring in enough work to triple his salary in 3 years.
That's some pretty impressive growth. A lot of firms require their people to be active in the community, either through not for profits/sitting on boards or doing volunteer work etc.
It's a way to get your name/face out in the community to meet new people that share common causes/interests and attract new business.

Stay focused on the primary goal and do what it takes to pass.

Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

[SeattleCPA]

This seems like a funny deal to me.

First, you know very little, probably, about identifying profitable accounting services and profitable clients. Sorry. Not trying to be mean, but how can you? And so what you're likely to do is build a crappy book of business: low-profit services to low-profit clients. (This is really easy to do BTW… and you will hate your job in the end once you figure out that's what you've done.)

Second, gosh, you sound like a really solid candidate and someone who not only has enjoyed past business success but also someone who possesses extra maturity… I don't know why you just don't locate a position in a better firm.

Third, whatever the two owners think, that arrangement seems like a dirty trick to play after you've put in the hard work. They needed to tell you that ahead of time. What other surprises await you down the road?…

I don't really remember my CPA exam scores. I've been a CPA for decades... I run a four CPA firm in Redmond WA. I'm the author of a bunch of books about small business accounting including QuickBooks for Dummies and Quicken for Dummies.

[SeattleCPA]

BTW, one other thought…. A partner or a professional service owner is supposed to be able do three things beyond being a mere “technician.”

FIRST, fund the business with needed capital. That's part of the role and explains partly the higher income. (These guys don't want to do that. Or maybe can't.)

SECOND, market profitable services to profitable clients… That's really what being a partner mostly is. (These guys are depending on new staff accountants to sell? Seriously, that is crazy!)

THIRD, manage the firm's resources and systems so the ship sails smoothly and so all the stakeholders make a decent living. Not just partners but staff and operations folks.

I don't really remember my CPA exam scores. I've been a CPA for decades... I run a four CPA firm in Redmond WA. I'm the author of a bunch of books about small business accounting including QuickBooks for Dummies and Quicken for Dummies.

[Author]

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