[Recked]

So my current employer of 16-17 years who had paid me below market value with the promise for equity (verbal) is not delivering on the equity. We’re now approaching 5 months since I’ve been licensed, 6 months is my go/no-go date to start setting up a solo practice. I have already obtained an EFIN, and I have the seed funding for startup.

So I’m working on some budget figures and thought I might be able to get some input.
Specifically targeted for people who are currently self employed or have experience.

Running 3 different gross receipt ranges, figuring conservative of 70k but could be 130k or higher.
So I’m running 70k, 100k, and 130k. Currently $300/hour billable rate.

Current overhead figures.
Rent (700-1500, most likely about $1000/month) 12000
Insurance (Liability/ E&O and ballpark 5k for HD health plan in NY) 10000
Computer (Commercial use Dell with 3 monitors) 3000
Software (UltraTax PRP to start, e-file cabinet, quickbooks) 10,000?
Cable Internet $110/month 1320
Phone and Fax 1200
Copier/Scanner lease 2040
Security 300
Office Supplies (paper/toner/etc) $5000?
Advertising 1000?
Postage 2000?

Ballpark 47,860 with the above. net 22k, 52k, 80k

What am I missing?

[CS]

@ Recked Ah got you. We've never done hourly billing except for rare cases, and I feel that we are/have been undercharging. I've seen rates online from other small firms where it seems standard rates for 1120s for example are $ 750 – $ 1,000 (more of course if it involves cleaning the books up) so that's what I charge if it's an annual return and they provide revenue/expenses.

What size office are you looking at? I'm starting to look by my home in Long Island, and will be a one-man shop I think for a little while. I don't need a crazy amount of space but I haven't had a chance to check anything out, although it's more that the move won't be until after the next tax season most likely.

[Recked]

My rate is comparable in my area for someone with similar education, licenses and experience.
16 years in tax with a bachelors, CPA and EA. Partner level CPA's command $300 and up in my area, though I have heard of some that low ball their rates.
Keep in mind I graduated college in 2002, and was boxed out of the CPA exam in 2009 due to the 150 requirement. That is the only reason I am “newly” licensed.
I'm already estimating on the high side with the costs with some research to back the numbers, I am not sure adding another 50% cushion on top is necessary?
How many years of experience do you have and what do you think is a reasonable hourly rate?
****
@SBNY – I like to get at least $750 for an 1120, but generally target at least 1000-1500, depending on the work involved of course.
If you always sell cheap then your clients spread your name as the cheap guy to get taxes done. I don't want to be the cheap guy. I want to be the best service for what I think is a fair price.
I am currently looking at anything from 300-1200 sq ft. There is a 3 room basement office for $650/month below a law firm whom I have referred clients and they have done the same. I've actually used that firm for a few family estate type things. Another prime corner office space at a big intersection, that's about 700 sqft for $1000/month.
Kingston is cheaper than LI for sure, and also full of old historic buildings. Lots of converted houses into office spaces, and lots of old brick buildings. I've been browsing one room office spaces for a simple meeting area while working mostly at home, and then up to 3 room areas for the eventual expansion to add a receptionist, and have a meeting/conference room to host appointments or audits.
****
In other news – the Prof Liability with Cyber Liability came back about $1000/year for 1Mil/1Mil, $1000 deductible, and $250k response. More affordable than I had anticipated.
Downside, HDHP appears to be running about $6000/year instead of $5000 I originally estimated. Win some/lose some.

[j3cpa]

I work as an auditor for the past 9 years and I'm in Boston, MA. I asked how you achieved the $300/hour figure because I don't know how much is reasonable when I do decide to charge. If I come to you for an hour consultation and you charge me $300. I honestly don't know if I would come back to you. Am I just cheap? Can someone comment on this.

You sound like a smart guy and seems like you got everything figure out. I normally suggest 2x the budgeted cost, but I've been following you in this forum ever since I started to study for the CPA and you are very knowledgable and helpful. Hence, I only said 1.5x the budgeted cost. The only reason being in Business, we can predict for everything and still comes out short. You won't know for sure what you really need when you have 9-12 months in ….

And I agree that you should position yourself as a person with higher value. Don't low ball your price and attract unwanted clients, you'll get alot more headache that way for no reason. Remember the 80-20 rule and don't be afraid to fire your clients.

Study Material:
GLEIM
BEC - FEB/2012
AUD - FEB/2012
FAR - JULY/2012
REG - JULY/2012

[Recked]

All very good points.
I know CPAs and attorneys are about $300/hour in my small city.
The webinar I attended yesterday by a tax attorney, he charged $475/hour, based in NYC and New Haven CT.
My suggestion to you would be to watch for the industry papers to see if they show average hourly rates in your area. I have read lots of surveys on average tax rates charged for different tax forms etc, I am sure there are similar reports on hourly rates. Or call around to a few CPAs in your area and ask what their hourly rates are. I am always very upfront with new clients about what my hourly rate is, some find other solutions, some come in anyway.
Would I feel comfortable paying someone $300 an hour? Depends on my income level, and the problem I was currently facing.
When it comes time to set up my PC I am sure I could use legal zoom or one of those services, but I will gladly pay an attorney the $300/hour or $600 bucks or whatever the rate is to make sure its all done properly and bulletproof.
Penny wise and pound foolish if the legal zoom docs leave me exposed or take shortcuts on something that could end up costing me in the long run.
***
What does your boss charge per hour? Or what do they bill you out at per hour? 9 years with audit and no CPA I would bet they still charge $150-$200/hour for your time.
***
I had a family member question me one time about my rates, vs HR Block, and why would anyone come to me when they can get it done at HR Block for half the cost or whatever it was. I simply said my services are not for people like you. (Sub $40k annual income, no small business, no itemized, etc. just a W2 employee.) The very next year he walked out of HR Block to call me (during tax season) to confirm what the HR Block guy was telling him was true. I'll never forget that, what a douchebag.

[j3cpa]

1. Thank you for your suggestion. I will be mindful for the publications.
2. Basically the CPA/Attorney can charge however much they want if the customer think it's worth it. Based on value right.
3. I'm in government so the pay is very little, the only upside is the flexibility and stability. But the job has gotten stale and I will be a CPA by next May or so when I finish all my 150 hours. From then on, I plan to go work for someone to get some income tax experience as I don't have any.
4. I like that line “my services are not for people like you”. Position yourself as a person with extreme value, back it up, and you'll see your client list full of people who value you.

Study Material:
GLEIM
BEC - FEB/2012
AUD - FEB/2012
FAR - JULY/2012
REG - JULY/2012

[Recked]

I assume MA gov't pension system is similar to NY. My advice to you. Get the CPA, keep your gov't job.
Work for someone nights/weekends to get some experience, then start building your book of business and working for yourself on nights and weekends.
Keep your cake gov't job working 35 hours a week building that pension, and then add another 60-80k gross during tax season.
My sister's boss is a CPA working in gov't, with a solo practice on the side. It seems like the best of both worlds. 9 years into a pension system would be very very hard to give up.

[Anonymous]

Man, y'all are straight-up terminators with your work schedules and lifestyles. For the longest time I had this misconception that accountants only had to work 40 hours lol. But just landed my first job myself as staff accountant at a CPA firm, and yep, 60 hours is the norm for tax season. At least they pay overtime.

[CS]

@ Recked – That's definitely true, and for a while my boss would do a lot of extra stuff for free. I agree, you sell cheap, that's the customers you get, and definitely a ton of headaches, good point. I've gotten rid of a ton of clients over the past 2 years, it seems sacrilege and I certainly don't take client/relationships for granted, but I didn't have the time to learn anything, I couldn't devote time to my higher paying major clients and their partners, and no time to grow the practice as I was stuck doing nonsense work, and it's definitely paid off. That and most of them were on their way out of their businesses anyway so it made sense.

[Adam]

I think your costs are pretty far off base..you can get software and equipment much cheaper (Drake does a pay per return fee, Pro series is another better option but pricey)..also if you're on your own, office space shouldn't run 1,000 a month..you can get shared office space in Downtown Chicago for 600 a month..where you have your own office shared with other say another law firm or financial advisor etc..Some will include secretary services in the price that forward messages to voicemail for you.

On another note..I think you are headed for a world of trouble if you think you are going to just march out of there taking $100k of clients with no repercussions..as a CPA I would think you would understand that intellectual property (Client lists) is an intangible asset and you will likely be sued by the employer (see Uniform Trade Secret Act ) forcing you to pay large legal expenses right off the bat, as you would certainly need a lawyer. Your best form of action would be to sit down with him and write up a contract offering to purchase these clients at an agreed upon rate over a certain period of time, clearing you of any possible litigation.

I think you misunderstand what non-compete covenant is..They don't simply mean you can take clients if you don't sign one, they are used to limit access for employees to work for competitors within a reasonable area…Even if you are cleared of any wrong doing, you will be likely sued.

[Recked]

He can sue me, I have deeper pockets. I would like to avoid it but we had an agreement that I was building equity. For the last 3-4 years he has discussed multiple times leaving me 50% of the business in his will, but has never delivered on having the will redone. For the last 5 months I have continued to ask him how it was going to work, asking to contact the lawyer to write up the agreement, trying to work it out and he keeps ignoring me or putting me off saying we'll talk tomorrow or next week.
10 years tax experience with a bachelors in accounting and a relative got a job as a frito-lay merchandiser/truck driver making more money than I was.
He agreed to MATCH that salary (40s which was a substantial raise for me), and I agreed to stay under the condition that I was working towards something for the future.
I've already paid for my client list, I don't want to pay for it twice. I really am making every effort to make this work out.
Perhaps I am being short sighted in this, but I just feel like he's taking me for a ride at this point.
I do appreciate your words of wisdom, I think perhaps I will contact my attorney to get a real feel for my exposure on this before making the leap.

[Anonymous]

^ You are making 30-40k something as a CPA. I am going to be honest with you that is a JOKE. I am a senior in college making 27/ an hour or 56k a year and get over time and a half. RUN AS FAST AS YOU CAN.

[ayusdream]

This year I started my own business, I can tell you that, getting the revenue is the hardest part if you want to make a profit. Do not believe that your old clients will move with you, because they will not! unless you will charge them lower that what they are paying, and transitioning is hardest part. Your old boss will not cooperate with your new business, and the old boss will even bad mouth you to his clients!!

From my experience, I can tell you that, you will also need a part time job to fund your daily expenses besides business expense.

For the office, you should share with someone else. Luckily, I found a friend who is an attorney and can share the office rent (includes water & electricity), internet fee with me. I did most of my work in my laptop, and data is stored in cloud. I only go to the office if I need to see client. And I do most of my work night time anyway. And I have found another part time job to supplement the income from the self employed business.

Planning, budgeting is a good start, but do not have such high hopes that you will even break even within a year. Remember next year of new tax reform, you will have less income from individual clients.

[Author]

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