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The Danger of Starting an Accountancy Practice from Scratch

Start-up accountants urged to opt for purchasing an existing accountancy practice rather than risk going it alone.

Start-up accountants are urged to proceed with caution when setting up a new practice during the recession. Jeremy Kitchin of APMA was asked about the effect that the economic downturn has had on the accountancy profession. Mr Kitchin, who has served the profession for 39 years, stated that buying an existing practice that is already successful was a better option and less of a risk than buying a start-up franchise.

With a start-up you have two main challenges; developing the service offered and enticing clients away from their existing accountants or trying to attract them from cold. With the first option, you could do this by undercutting the fees charged by the clients‚ existing accountants which stores up problems for the future in trying to get your fees up to a realistic level. For many reasons, the probability of success is best when you buy an existing, profitable accounting firm.

Buying an existing practice does not mean that it will cost you more. In fact, many times it is less expensive than launching a start-up. You will have far more flexibility when negotiating the purchase of an existing practice or franchise, especially if the opportunity is not yet on the open market. Plus, with the right information you can negotiate the deal in terms that are sympathetic to your cash flow requirements. Historically, APMA’s clients have found it easy to acquire seller-financing for the acquisition of an established, profitable practice, often with no security required.

When you buy an existing accountancy practice you will have the benefit of a built-in infrastructure. You will inherit active clients, suppliers, employees, equipment and systems and, hopefully, a reputation. This will allow you to focus on building the practice as opposed to a start-up or new franchise where you would start with nothing.

During the first five years up to 50% of all accountancy start-ups fail to deliver an income which matches the salary the practice owner could have earned in the employment of an established firm. Recent statistics show that, due to the recession, accountants are under valuing their practices. Many regret not selling when the economy was in better shape and believe, wrongly in Mr Kitchin’s view, they will get less for their practice now.

Once you buy a good existing practice you will hit the ground running and have a foundation already in place from which you can really grow the business, said Mr Kitchin in his closing remarks. For many, owning a practice is a dream. But, if you intend embarking on this life-changing venture, you will need all the help you can get.

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