Step 2: Information and Tools - Thinking About Success
Starting an accounting practice takes planning, foresight, time and effort, total personal involvement, and, if applicable, family commitment. To start on the right foot, you need to know the competitive environment, the product, the costs, the investment and financial requirements, and, most importantly, yourself. You need to be fully cognizant of your abilities, your strong and weak points, your past performance, and how you intend to develop yourself.
A Chartered Accountant (CA) may enter into practice by purchasing an existing practice or by starting a practice themselves.
It is important to recognize that even though a CA practice is a professional practice, it is also a business and is subject to the same challenges as any business. Sure you know accounting, but a small practice environment requires that you develop and apply a range of general management competencies.
Are You Experienced?
Previous practical experience in public accounting is a prerequisite for anyone planning to start a practice. Although the amount and extent of experience is somewhat difficult to define, and can be established only within rather broad limits, some of the defining aspects of experience are quality, diversity, and duration.
Quality will be determined in considerable measure by the type of office in which your experience was obtained, by the qualifications of your supervisors, and by the character and ability of you, the Chartered Accountant. Unless you plan to devote your time to a specialized field from the outset, your experience should be diversified since your clients will expect the provision of technical services involving accounting, auditing, taxes, and management advisory services. In addition, you must be prepared to administer your office (which may include many aspects of human resources) and handle promotional activities to further the growth of your practice. Further, experience in dealing with clients and their many problems on a person-to-person basis is essential.
The length of time required to obtain sufficient experience will vary with the quality and breadth of that experience. It is unlikely, however, that this experience can be gained in less than five years.
Do You Have the Financial Wherewithal?
If you hope to establish your own practice, you need to determine, as accurately as possible, your financial requirements for the early period of the practice. The time required for a new practice to become self-supporting will vary with circumstances. This is a critical analysis that can make or break your practice.
A new small practitioner should expect to need financial support (internal or external) for at least the first few years. As the staff grows, you should plan to put in fewer chargeable hours yourself, because administrative and executive duties will consume much of your time.
Should it become necessary in the early stages of the practice's development to supplement your income as a small practitioner, care should be taken to engage only in activities that are compatible with the practice of public accountancy and that will enhance your professional image. Chief among these are per diem work for other CAs and teaching. Be aware that private employment as a part-time bookkeeper will tend to detract from a practitioner's professional stature. Such employment should not be confused with compilation engagements.
Compilation engagements can be profitable if organized and administered efficiently, especially if combined with the rendering of professional advice and assistance. This is a useful service and often the first one needed by a new client. Moreover, this work can be organized so that it can be performed economically without consuming too much of a CA's time.
Note, however, that you should not become so involved in write-up work that it interferes with the development of your practice or impairs your professional development. You should avoid becoming "too busy" to read or study, to attend professional meetings or courses, or to recruit and train good staff.
The SWOT Analysis
Apart from whether your personality and motivations are conducive to a small practice, it is important to honestly assess the opportunities and risks associated with your environment. Using a Strength-Weakness-Opportunities-Threats (SWOT) analysis may be the best way to do so.
A SWOT analysis is a strategic method for identifying your business's strengths and weaknesses and to examine the opportunities and threats in the wider environment (market, profession, local, and global situation).
The SWOT Definitions Diagram
(Roll over the "S," "W," "O," and "T" in order to view the definitions.)
In this process we want you to use two tools:
A SWOT template, to help you define your strengths, weaknesses, opportunities, and threats.
A SWOT worksheet, to help you work through tactics in the strategic areas that emerge from the SWOT template.
The template and worksheet are designed to be used together and provide you with a point of reference for the other portal content. Print off the SWOT worksheet. The SWOT template will help you identify four strategic dimensions: strength/opportunities, weaknesses/opportunities, strength/threats, weaknesses/threats. You will then use the SWOT worksheet to identify specific areas of focus in each functional area.
We strongly urge you to complete the SWOT analysis, as we will be referring back to this when we discuss other management issues like marketing and human resources.
How the SWOT Analysis Relates to the Other Parts of the Site
The other parts of the site relate directly to your SWOT analysis. Think of the SWOT as the strategic starting point for your practice. The management choices you make in your practice are all about highlighting your strengths, downplaying your weaknesses, pursuing opportunities, and negating competitive threats. Your decisions around budgeting, marketing, human resources, information technology, and capital management are all related to this analysis, so keep the SWOT analysis handy as you work through this site.
Your SWOT and a Provisional Budget
Of course you need a provisional budget. Your budget should reflect your SWOT analysis in a number of ways. The revenue items will reflect your existing client base and your strengths in certain areas. The expenditure line items will reflect how you plan to build on your strengths, downplay your weaknesses, pursue opportunities, and negate threats.
Although you may understand this concept strategically, we thought it might help to compare your provisional budget with that of other small practitioners. Biannually, the Institute surveys firms on their salaries, charge-out rates, practice management, and computerization. The results are available free of charge to those firms that participate in the survey. The most recent survey results should be viewed as additional sources of information in your business analysis.