Can a Cpa Firm Be an S Corp
| EXECUTIVE SUMMARY | |
 A decade of declining enrollment in college accounting programs during the 1990s combined with passage of the Sarbanes-Oxley Deed in 2002 and the new financial reporting and internal command demands on publicly traded companies have created a sellers' market for CPAs. That makes it a good time to have the plunge and launch a practice. Randy Myers is a freelance financial author who lives in Dover, Pa. His e-post address is randy@randymyers.com . |
aunching your own CPA practice is one of the greatest professional challenges y'all'll ever undertake—and potentially one of the almost rewarding. Fraught with difficult work and long hours, information technology's withal a chance to build a business, provide existent value to clients who depend on you and, ultimately, shape your own destiny. This article explains how to place opportunities in your local market, concenter and retain profitable clients and attend to the myriad details—from furnishing an office to ownership insurance—that accompany the launch of any small business organisation.
The Future Looks Promising
Lx-five per centum of small business concern owners say they would tell a friend to launch a new venture at present rather than expect some other year.
Source: MasterCard International
Global Small Business organisation Survey.
The opportunity has seldom been meliorate. A decade of declining enrollment in college bookkeeping programs during the 1990s and the new financial reporting and internal control demands the Sarbanes-Oxley Act created for publicly traded companies have left CPAs in a seller'southward market. Every bit industry, midtier accounting firms and the Big Iv scramble to meet the new mandates, the needs of smaller businesses take, in many cases, taken a backseat—and those clients need help sooner rather than later.
"There's a lot of low-hanging fruit out there, including good clients some of the bigger firms don't desire," says CPA Chris Echols of Montgomery, Ala., who purchased a solo practice and relaunched it as Chris Echols & Associates in Dec 2002. "With the shortage of accountants and the bigger firms gobbling them up at skilful salaries, you don't discover equally many people going out on their own."
WHY Buck THE TREND?
CPAs who've fabricated the leap to self-employment cite a multifariousness of reasons. For Jonathan Tannenbaum of Levittown, N.Y., it was the culmination of a lifelong dream of running his own business organization. For Jelena Black of La Palma, Calif., it was a chance to residue her profession and family on her own terms. For Robert Kober of Salisbury, Md., it was a mode to inject new vigor into a career that had begun to seem mundane. "Information technology isn't necessarily easier than working for someone else," says Echols, "but it is more rewarding. Yous're building something—for yourself and for your kids."
Starting your own CPA practice requires much more accounting expertise. That's a surprise to some budding entrepreneurs. "In college I was told that all you had to be was a good technical person and you lot were set up in this field," says Kober, who swapped his job every bit corporate controller for a group of nursing homes for his own practise in 1997. "Merely as an possessor, you lot take to know a lot more than that."
READY, SET, PLAN
Well-nigh of the must-do beginning-up activities are the same equally for any small business organization. You have to research your local marketplace to assess the opportunities, decide which services to offer, choose the legal form your business will take, notice and furnish an part, purchase the necessary insurance to protect against unexpected liabilities and attract clients (come across " Tips From Six Who Made the Leap ").
In addition, recall that regulation has intensified in a number of practice specialties. Depending on the specific services you lot intend to offer, accept extra care to cheque with state and national dominion-making bodies and professional associations such as the country societies and the AICPA to determine which requirements will use to you or your firm. For example, some personal fiscal informational services require registering with the SEC or land securities departments, while certain attestation services require enrollment in an AICPA-approved peer review program to maintain Constitute membership.
Research and planning. Before launching Hall and Co. CPAs in the fall of 2004 Martha Hall created a business plan. By networking with local business owners, bankers and attorneys, she found that practitioners in and around her hometown of Geneva, Ohio, had sewn upwards most of the local bookkeeping business concern. Merely she as well discovered that her background—seven years in public bookkeeping and some other 15-plus in corporate finance for several Silicon Valley companies—was broader than that of most of her competitors.
She targeted her marketing efforts at larger businesses 45 to 60 miles abroad in Cleveland and Youngstown, Ohio, and Erie, Pa. Hall differentiated herself by offering not merely annual taxation and compilation work but also strategic planning services.
"A lot of my practice is centered on helping businesses reorganize and turn themselves effectually," she says. "I love doing that."
To develop a concern programme earlier her launch, Blackness did some enquiry over the Internet, visiting competitors' Spider web sites and actually canvassing their locations past car. She discovered that her local market is dwelling house to many manufacturing companies, which accept a lot of inventory issues, and a number of starting time-up companies, which need aid incorporating and drawing upwardly business plans. She decided that both groups made excellent target markets for her fledgling firm.
Note that while accreditation as a CPA is the bones requirement for opening a CPA practice in most states, some states and municipalities may require you to purchase a concern license earlier setting up store. Check with your state guild and local government virtually licensing. Include that in your business plan.
Ascertain your business. Specializing in a specific manufacture or market place segment, while not imperative, tin can assistance you attract and retain clients. If, for example, you take expertise in tax planning for loftier-internet-worth individuals, as CPA Stanley Pollock had when he launched his house in November 2004, it can make sense to build your do around that offering. "Your market niche will come from your groundwork and experience," says practise consultant Hugh Duffy, chief marketing officeholder and co-founder of Build Your Firm Inc. in Madison, Conn. "Information technology could be in terms of the services yous offer or the industry sectors you lot work with. But brands, companies and services that differentiate themselves from their competitors break through the clutter."
Duffy warns against defining a too-narrow niche when you're just starting out, withal. "You have to effort for the best of both worlds," he says. You take to be a generalist to cover your overhead, put food on the table and position yourself to come across the needs of pocket-size businesses. Simply you also accept to retrieve about what niche y'all eventually want to build up, so you can come across the needs of those clients ameliorate than anyone else. "Fortunately, the marketplace is big enough that you can be a generalist or a specialist. You can succeed either way."
Choose a location. For many CPAs striking out on their own, the answer to where to locate their offices is, at to the lowest degree initially, an easy one: home. "The cost and convenience fabricated it the easiest way to first," says Tannenbaum, who founded Carson Consultants CPAs PLLC in his Plainview, N.Y., residence in August 2003. He stayed there for 16 months until the birth of his get-go child squeezed him out of the home function and into commercial space in nearby Levittown.
About communities allow such home-based practices, although you lot should bank check with your local zoning officeholder to make sure you're on solid legal ground. From a marketing perspective, exercise consultant Frank Salman, CPA, of Victorville, Calif., says there's a new breed of practice emerging for which a home role is not only sufficient, just readily accepted by the marketplace. "CPAs working out of their homes by and large can gross $100,000 a year, plus or minus, and take home $xc,000 of that for a 40-hour week," he says, "and you don't have any employees or the overhead of an office. It gives you lot flexibility, liberty and a mostly enjoyable lifestyle. And if you lot lose one client out of ten considering you don't take an office, that's alright."
Of course, it's not for everyone. Kober rented commercial space from the kickoff, convinced that information technology would amend motivate him and also communicate to his clients a sense of longevity and commitment to his business. "I also thought I'd exist able to charge more," he acknowledges. "There'due south a different expectation almost fees when yous're hiring someone who works at home."
Duffy agrees. "I believe those with dedicated office space do better, especially in metropolitan areas." Clients take yous more seriously, and the location generates some walk-in concern.
Pick a legal structure. Deciding whether to exist a sole proprietorship, partnership, C corporation, S corporation or some blazon of limited liability entity has important revenue enhancement and legal consequences. In the terminate, any form will serve y'all well as long as it dovetails with your goals. Work with an experienced lawyer to decide and draw upwards the necessary paperwork.
Kober chose the simplicity of a sole proprietorship for his tax and compilation practice, although that necessitated "a lot" of liability insurance since it doesn't offer the protection from creditors that incorporation provides. Tannenbaum launched his practice as a professional limited liability company considering of the flexibility it offered in allocating income and expenses and in albeit new members to the practise. Black set up a limited liability partnership because of its flexibility in making distributions from the concern and also to avoid the flat tax rate associated with incorporation. Echols and Hall both opted to be South corporations, which as pass-through revenue enhancement entities avoid the problem of double revenue enhancement that a C corporation might incur on whatsoever dividends paid.
Insure thyself. Owning your own business means ownership your own insurance—and it tin can be pricey. Pollock says he went through "insurance stupor," stunned by the toll of providing his own health care coverage on top of professional person liability insurance and an umbrella policy. Echols, who pays for health insurance for himself and two employees, says that "exterior of payroll, it's my largest expense." Fifty-fifty if you're covered past a working spouse's insurance plan, your employees are not.
Some practitioners supplement their liability insurance with an errors and omissions policy. Many landlords require liability insurance for the part, and that policy oft covers errors and omissions, too. "It's not an exorbitant amount if you lot take a $200,000 to $300,000 limit," Salman says. "And that's plenty adequate for somebody just starting out."
You besides will need disability insurance to provide income in the event you get sick and business organisation interruption insurance should a disaster forestall yous from opening your doors. Kober says he purchased business break insurance because his location 30 minutes from the Atlantic Ocean leaves him vulnerable to storms that could put his role out of committee. Considering he owns his own office building, he as well carries hazard insurance on the property.
Replenish your office. Sure, you'll demand a desk, a comfy chair, filing cabinets and all the other accoutrements of office life. Merely more than important, you'll need technology—a computer, printer, telephone, fax machine, a copier and, inevitably, good tax software. "You have to exist fluent in using a estimator. Yous have to know how a program works, what programs integrate and how to movement from i piece of software to another," says Kober. The good news is that the price of engineering science continues to decline. In fact, your well-nigh expensive purchase might not be the hardware you buy but the taxation software you lot choose. From a leading vendor, it easily can cost yous $5,000 or more annually. Pay-per-use arrangements can assistance go along costs under control while you lot're building your concern.
| Getting Started With Direct Mail service and Telemarketing Directly mail and telemarketing are time-tested marketing tools. Whether you do the work yourself or rent a third party, you commencement have to place targets for your message. The simplest way to practise that, says practice consultant Frank Salman, CPA, is to buy a list of businesses from i of the two major list compilers, Dun & Bradstreet or Info USA. Set parameters that will help you target likely prospects for your services, such as small businesses with, say, up to l employees and $10 million in annual revenues. Get-go in your own zip code surface area and piece of work your way outward through neighboring cipher codes until you take 5,000 names; from such a list, you might find 200 to 300 companies looking for an accountant. Salman—who launched v CPA firms earlier switching to consulting total-fourth dimension—says that when starting those practices, he excluded other CPAs and income tax practitioners from his lists every bit well equally educational institutions, financial institutions, banks and municipalities, which require certified audits. Contacting the companies you lot detect in a way that elicits a positive response is the next disquisitional pace. "Information technology'due south the approach that makes what you lot are doing work," Salman says. "The potential client has to trust you lot and have confidence in you, and that's something that must be developed; it tin't be sold." For a straight post campaign, Salman advises against sending out the typical long-winded letter of introduction or "congratulations on opening your new business concern" greeting. Instead, use a very short, professional person piece of correspondence, such as a tax tip, that doesn't reek of salesmanship. "The recipients should expect at what you've sent and immediately recollect, 'That's a CPA who might be able to assistance me,'" he says. |
Finding clients. Developing a roster of clients is the single greatest hurdle facing a young CPA practice. If y'all tin't attract and retain proficient clients—who will value your contribution to their business and are willing to pay for it on a timely basis—your fledgling business merely won't succeed. All the same promised referrals from your friends and family seldom pan out, and trying to find clients by hobnobbing at Bedroom of Commerce or Rotary Club meetings tin can exist an extremely time-consuming process.
"If you tin't swim across that river chop-chop plenty to start recouping your overhead and time," warns Duffy, "yous will drain your resources chop-chop."
To prevent that from happening, the entrepreneurs interviewed for this article turned to business organisation-to-business organisation marketing techniques such every bit direct mail, telemarketing and Internet marketing. Hall spends liberally on advertising, while about of her local Ohio competitors practice non, she says. In 2005 her marketing budget was virtually $ii,500 a month for telemarketing and another $10,000 for a Web presence and support, print advertising in newspapers and the Yellow Pages and networking. "I added eighty clients, so I plan to triple that this year," she says (meet "Getting Started With Direct Mail service and Telemarketing," page 56). Yous likewise can hire exterior consultants to practise the work for y'all or larn from consultants such as Duffy and Salman, who charge in the neighborhood of $2,000 to $2,500 for their services.
A tertiary alternative, of course, is to buy an existing practice and its client base, equally Echols did. Acquisitions toll money, though, and yous should be sure the clients yous're buying—and the services they require—dovetail with your experience and expectations, and that your purchase price, preferably spread out over several years, allows for adjustment if some clients leave.
In addition to hiring Duffy to assistance her, Blackness kick-started her new venture by hiring a 3rd-party vendor to comport a telemarketing campaign in the weeks leading up to tax season. She also drew on the talents of her hubby and business partner, marketing executive Shaun Blackness, to create a sleek Web site and set up a pay-per-click marketing program with Cyberspace search engine operator Google. She paid Google to accept her firm's Web site appear whenever someone searched on terms such equally "tax preparation" or "CPA."
| AICPA RESOURCES Conference CPE Publications Web site For more information, to register or to identify an order, go to www.cpa2biz.com or call the AICPA at 888-777-7077. |
On Your Own! How to Showtime Your Ain CPA Firm by Albert Williams (# 012641JA). "That definitely catapulted us to where we are today and ended upward being relatively inexpensive for the clients nosotros picked up," she says. Black & Associates LLP got about l clients in its get-go revenue enhancement season in 2005. After only one month of working from home, Black moved her practice into leased commercial space, and so 300 square feet of first-class office space and, finally, in November 2005 into a i,000-square-foot office.
Marketing can exist expensive, of grade, but it's less plush than failure. Duffy says that during their initial twelvemonth in business, CPAs who piece of work with him typically spend 50% to 70% of their revenue target on marketing. Some make do with far less, though, and in subsequent years, when clients are on the books and making referrals, reduce their marketing budgets dramatically.
Hall invested virtually $70,000 in her business its kickoff year, including the toll of converting two-thirds of her domicile into function space for six people. Blackness spent near $15,000 to launch her business, and she notes that having her husband handle most of the marketing saved "a ton of money." Those are relatively minor investments for businesses that, with the right marketing, oft begin to generate half dozen-effigy acquirement streams after only one or ii years of operation.
If going solo sounds highly-seasoned to yous, there's opportunity ample, limited only by your drive and imagination. "CPAs clearly can succeed on their ain," says Duffy. "The number of small businesses out there is very large, and many are being underserved. CPAs simply need to acquire how to sell their services."
"I've been doing this for 10 years," Salman agrees, "and in this last yr CPAs take been the nearly successful at establishing practices that I've ever seen." 
| Tips From Six Who Made the Leap I n business, nothing counts like feel, although most CPAs starting a practice take precious little cognition of running 1. To speed the process, we asked six CPAs who had recently launched their ain firms to share the virtually important lessons they've learned. Here are their answers: Decide whether you want to be a worker bee or a rainmaker. "The CPAs who burn out are the ones who endeavour to be both the worker bee and the rainmaker in their organization," says CPA Martha Hall, who, after just one year in exercise, already employs an administrator, a telemarketer and 2 bookkeepers. "Past trying to do information technology all themselves, they're not taking that risk of really marketing their firm and treating it like a business rather than a task." Provide outstanding service. Obvious though information technology may be, plenty of CPAs apparently forget this uncomplicated mantra. "What new clients oft tell me is that they are leaving their other CPA because they weren't getting the quality service they were promised," says CPA Stanley Pollock. "So that's what I strive to provide—good, responsive service." Don't underprice yourself. Information technology'south tempting to offer low fees to attract business concern when you're starting out. But you shortchange yourself—and jeopardize your chances of succeeding—if you lot don't charge a fair charge per unit commensurate with your feel and expertise. "I've tried to sell myself based on my big-firm experience combined with personal service, every bit opposed to selling myself as a bookkeeper, so my fee structure is pretty high," says CPA Jonathan Tannenbaum. "I am pleased with how things have worked out." Be honest and "own" your mistakes. "Whenever yous are faced with an awkward conclusion to acknowledge an error, recollect that people reply well to honesty and ownership," says CPA Robert Kober. "When you lot realize you've made a mistake—and we all do—tell the client, and and so fix it." Don't underestimate the time commitment. "If y'all think you can come in at 9 and exist on the golf grade at iv, you demand to stay where y'all are," says CPA Chris Echols. "When you go out on your own, you lot're commonly non going to have an authoritative staff. People underestimate the time it takes to do the payroll, the billing, that sort of stuff. That tin can eat up a solar day a calendar week." Exist passionate. "I encourage people to get out on their ain because I know information technology's very doable," says CPA Jelena Black. "But you're not going to exist able to sell anything, whether it'due south your services or yourself, unless you believe in what you accept to offer and have a passion for what you lot're doing. That is admittedly central." Qualify your clients. Simply finding clients isn't enough. You need clients who know what you can bring to their business and are willing to pay for the service y'all provide. "My biggest mistake was feeling I had to sign anybody who would sign with me," says Hall. "I ended up writing off thousands of dollars of piece of work last yr. At present I take more than intendance in determining which clients qualify. I ask what they really need." Screen your employees. Unless you're committed to running a 1-person store, you lot'll somewhen want to hire employees—but take your time and be thorough. "I've learned the hard way it'southward meliorate to hire no one than to hire the wrong person," says Kober, who once saw his full-time bookkeeper leave for lunch correct in the eye of taxation flavour and never come back. Only days later did she contact him, via fax, to say she had unresolved personal problems. Today, Kober screens prospective employees more advisedly and lets his 2 employees screen them as well. |
Source: https://www.journalofaccountancy.com/issues/2006/apr/startyourownpractice.html
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