Discussion:Starting a CPA Practice
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Discussion Forum Index --> Business Growth Community --> Starting a CPA Practice
| 23 August 2006 | |
| I have decided to partner with another CPA. We were both sole proprietors until now. Has anyone else done this? I would like feedback on how the income should be divided. She is bringing more clients than I have but I think I work a lot faster and can do more tax returns. Should we divide the income equally or should we get a % of the revenue we each bill out? Any suggestions would be helpful. | |
| 23 August 2006 | |
| Karen,
The firm I am at provides guaranteed payments to the partners at 40% of the revenue they generate. The remaining income(loss) is split. This way you don't feel as though you are working for or coasting on your partner. | |
| 24 August 2006 | |
| Also did this. 2 partner firm. We each get 100% of the revenue we each bill out. Split most expenses in half except for labor, auto expenses, entertainment, cell phones, education and a few more expenses. It works great. E-mail me at DZCPA@yahoo.com if you want to more info. | |
Mtmckeecpa (talk|edits) said: | 24 August 2006 |
| I am a sole proprietor...
but I think I would take DZ's approach...100% of revenue and split expenses. | |
| 24 August 2006 | |
| Not on subject, but if you haven't considered it yet, also think about the form of organization (does your state allow limited liability partnerships, etc.) You must know and trust this person well, but sometimes things happen. Last thing you want is to be on the hook for another partner's gross negligence, etc. And of course, you'll not only have to agree on the division of profits, but a host of other matters such as what happens if a partner wants to leave, what happens upon a partner's death, buy-outs, restrictions on transfers on partnership interests, how capital will be distributed upon a dissolution, how can a new partner be admitted, etc. I would suggest talking to a good business planning attorney, and getting a thorough partnership agreement drafted to make clear these important matters. | |
Death&Taxes (talk|edits) said: | 24 August 2006 |
| Write an agreement between yourselves; if you decide to form an S Corp, use your corporate minutes to set the course you each can refer to when disputes arise. I assume a near equality of billing, but if not, go slow on fringe benefits like health insurance or build this into the percentage, ie, if A contributes 100K and B 75K, you do not want to pay 100% of each health insurance since B will get a greater percentage of receipts than A. | |
| 24 August 2006 | |
| I am also considering what course to take as I am at my max and need someone else to help with and supplement my practice. What I am anticipating doing is to not partner with, but to essentially have two separate firms within one location (my office space is large enough to accomodate this - and BTW Asheville is beautiful...). I will need this other individual to be a CPA but still have the other details to work out. Income, I believe s/b 100% to the one generating it and either a split of expenses or a portion of overhead. Still haven't worked out those details. I just feel like having this set-up, two separate firms, we will protect one another and still have the advantages of a partnership. I'd love to know others thoughts on this. | |
| 24 August 2006 | |
| I go along more with what Captcook said. The salary does not necessarily have to be guaranteed payments, it could just be substanially equal draws in the early years; supplemented by some kind of bonus calculation, and then a split of net profits. It's not set in stone, and can be changed. If you merely split expenses, you might as well call yourselves two sole proprietors under the same roof. There is not that "pulling together" that can energize growth & leverage when you think like true partners. If you can get to a good law library, look at some of the older partnership agreements in partnership law books. There are new texts coming out on this now as the LLC/LLP boom is generating more interest in the partnership-like forms. If you can find a good fit with a partner, then you will sleep better at night knowing that you can help each other during the rough patches (in sickness and in health), and, unfortunately, the sickness will come! If you're lucky, it will just be a two week flu, but, life throws curve balls. | |
Roaringcpa (talk|edits) said: | 1 July 2009 |
| I want revive this old discussion because 1) I am also 'at my max' and tax season really beat me up this year (I can only do so many hours), and 2) I have discussed with a fellow CPA the idea of partnering.
Ultimately my goal is go have a life AND make a living. I don't care how I do it. But the idea of partnering, seems appealing. But we are accountants and probably analyze everything to death. I think our problem is that our practices are so different right now. My practice is the typical 'retail' CPA firm...alot of 1040's and small business clients...growing about 20-25% per year. His practice is basically 70% part-time CFO work. Even personally we are different...he is married with kids, I am single no kids. My perception is that he technically stronger (tax-wise), while I am a scrapper and learn as I go (his background includes working as a tax manager with a reputable firm; my background is primarily composed of CFO/controller/finance management positions). In essence, I think we can 'ham and egg' our strengths to make a tremendous team. Anyone else go through this with success stories? Or regrets? | |
Roaringcpa (talk|edits) said: | 1 July 2009 |
| And it would be nice to hear any other ideas regarding allocation of revenue and expenses. I have a hesitation to 'give away' my practice, because I have more clients right now. | |
| 1 July 2009 | |
| Allocate the revenue to yourself. Allocate the expenses to your partners. Now that's an idea worth looking into. | |
| 1 July 2009 | |
| How about getting an employee for tax season or year round if needed. That way you don't split the profits. | |
| 1 July 2009 | |
| I go with Blrg's ideas, but if you are going to do this, treat this the same you would if a client asked you about partnering up. Taking on a partner is like entering a marriage, except you spend more time with a partner.
some of the thoughts above are more akin to a strong association with a sharing of expenses than a true partnership. If you go the partnership route then you both should be determined to grow the business together. Yes, you will each have your own book of business, but the firm would still be both of yours. You need to first examine each partners role in the firm and develop an multi-level allocation of income strategy. The reason we partner is because together we are a better firm than if we are separate. What I mean by multi-level allocation of income is that each of you may have different roles and each of you may contribute different amounts and work different hours and also bring in different clients. First off, you might want to set up base salary structure for both partners for the expected number of hours to be worked/billed. Then for amounts over that, each partner might get an hourly commission. If different contribution amounts, consider each contribution as a loan and pay interest on this amount. For new clients, you could pay a commission to the person who brings them in, say 10 to 20% of billings for the first three years, then it is a joint client. Now, like a marriage, there will be ups and downs and to be successful, you should plan for these moment before they occur. What you need to do is establish a pre-nup and figure out all the ways your partner might piss you off and vice versa. Like the hours worked thing, if one partner works 40 hours a week and the other 65 hours, that would be unfair to take the same salary, that's why base salary plus commission based on hours worked <or some other method>. For each way you might get annoyed, figure out a way to minimize that issue via a positively written agreement. Also, make sure that agreement includes the procedure for a disbandment of the partnership and how the client pool would get separated. Just some quick thoughts on the partnering deal. If it is a too much work issue, I would seriously think of just paying someone really well to be your employee. Taking good care of a valued employee will breed loyalty, yet not a partner, so control still stays with you. Good luck | |
Southparkcpa (talk|edits) said: | 2 July 2009 |
| This industry is so difficult when a majority of our work is in 4 months.
Have you though about ....instead of merging, analyze your net/gross ratio??? I have come to agree with the following from a practice management course "You should net no more than 60 percent of the gross". The idea is that you hire help as you grow etc.... A good business model that I have tried to follow (explained to me by a CPA in NJ) is that a sole practitioner should be able to bill out 200 to 250K and more on his own with some part time help during tax season and a full time office person. So if it is just you, evaluate your billing etc... and maybe removing older, slower clients is the right move. I almost merged a few years ago and the model they used is a partner controls 450K with himself (herself), a senior accountant, a fulltime administrator and a seasonal tax preparer. That netted the partner in the 225 to 250K net range. | |
| 2 July 2009 | |
| A much better expansion of my last paragraph. Especially if the partnership is strictly a workflow issue.
If you are merging to create synergy, that is a different story, but in that case, referrals adn sharing of expenses seems a more logical scenario. | |
Roaringcpa (talk|edits) said: | 2 July 2009 |
| I got some chewing to do...thank you Fstein & Southpark for the input. Good stuff.
Life continues to be humbling. | |
