- Sole practitioners must be able to work on the business, not just in it
- A good business plan will help identify areas of weakness
- Many sole practitioners choose to work from home, but this isn’t necessarily the easy option
- Sole practitioners need to think of their brand profile and market the practice accordingly
Nicola Draper outlines the key considerations accountants should make before setting up as a sole practitioner.
Thinking of becoming a sole practitioner? Whatever your reasons for setting up on your own, it’s important to understand the difference between the skills needed to run a business and those needed to do the work of the business. When setting up on your own, you’ll need to work on your business and not just in it, which means learning how to get to grips with marketing, as well as the usual business skills of cost control, billing, meeting deadlines, client interfacing, managing systems, IT, and networking.
A professional accountancy qualification provides little preparation for running your own business, so it’s worth taking specific training. There are many training courses available from professional bodies and training organisations, as well as locally based courses offered by Business Link.
Make a business plan
Most start-ups are told to draw up a business plan and this advice is no different for accountancy practices. Your plan (which should be drawn up and refined before you take the leap), is not set in stone but will focus your mind on what you can do, how, and when to do it.
You will definitely need a plan if you intend to borrow money. Set yourself realistic targets and, once you’ve started working towards them, review and refine the plan every six months or so to see if your practice is going the way you want. If not, look at the weaknesses. A lot of sole practitioners fall into the trap of working in the business, not on it. If you spend all day looking at columns of figures, how are you going to find new clients to grow the business? Can you reach your targets if you do all your own typing, answering the phone etc.?
Home or away?
It’s important to weigh up all the pros and cons of every aspect of your practice; will you work from an office or from home? What type of clients do you want and how will you find them? What marketing skills will you need and which IT and software will you opt for? (It’s also worth considering what technical support you’ll have, as you may have got used to having this whilst working for a larger firm). You will need to invest in letterheads, a website and possibly a decent car if you plan to travel around seeing clients. You will need a mobile phone and a dedicated landline if working from home, especially if you have toddlers in the house who are liable to answer the phone!
If you are planning to work from home, do you have a dedicated room where you can close the door at the end of a working day? Could you build a garden office or convert the garage? Working from home can keep costs down but it also has disadvantages. It might be better to find an office nearby, preferably where you can rent by the month. It would be unwise to take on a longer lease when you don’t know if the practice will work out, as you would still be liable for the rent if it doesn’t. Beware of full repairing leases as well.
It’s also worth considering whether you can meet clients at home or if you always need to meet them in a lego-free environment. Can you always go to them or to a meeting room in a mutually convenient hotel? Working by yourself from home may sound liberating but in reality it can be lonely and de-motivating. You may miss those water cooler chats and the ability to ask someone else for advice. You may also find that pruning the roses wins more of your time than a self-assessment form.
Remember that running your own business will affect your whole family too. You must make sure that your spouse/partner is equally committed. Is he/she prepared for a drop in income (hopefully only for the short term future), which is usually the case with start-ups? Is he/she happy for you to be around the house all day, every day?
Finding clients
The best way to get business is, of course, referrals. The best are from existing clients, so do ask them to refer you (you will be amazed at how many don’t). If you haven’t yet got any clients, ask family and friends to mention to their contacts that you are open for business. Form alliances and network with complimentary service providers – solicitors, bank managers, IFAs etc. A brochure and website are musts, as are listings in local and web directories. The more your name is out there, the better it is for possible future business. If you hate the idea of marketing and networking, consider employing someone (even once or twice a month) to do it for you.
You could try and get a few clients while still working elsewhere (if your contract allows it). Going freelance and offering an outsourcing/subcontract service can be a good way to start.
Billing
Make your terms very clear on your invoices. In this age of fixed fees, try and get a standing order, which will help with cash flow and obviate chasing fees at the end of the year. Even if you have a small monthly fee this way and there is surplus due later, you will have got something.
Get back up
What happens if you are ill? One of the biggest problems with owner managed practices is that they rely heavily on the proprietor. Documenting procedures down to every last detail allows your work to be easily delegated, keeps clients happy and if/when the practice is sold, will make it a more viable and valuable practice.
If possible, it’s advisable to get an assistant to deal with administrative tasks like typing, taking phone calls etc., and appointing an alternate (preferably someone local) to act as a back up if you are unable to do the work.
Under an umbrella
Another possible way of starting up (although it won’t necessarily get you clients), is a buying into a franchise/consolidator. There are upfront and ongoing costs but you should get the benefits of marketing, technical and compliance support, access to an advice line, all under the umbrella of a national brand, which could help your credibility.
You will need considerable capital to go down this route and will probably be expected to provide premises and staff to maintain the image of the franchise, but it might be a good way to hit the ground running.
The accountancy world seems divided on whether franchises and consolidators are good things. Some say that the back-up they receive with advice on tax matters, software, marketing and compliance is worth every penny of the fees charged. It can give your clients value added services that may not be available to a sole trader. Others think that they are a waste of money, with nothing offered that they cannot get from their institute or even from forums on AccountingWEB.co.uk.
Some say they find it hard to extricate themselves if they decide to leave or sell their practice and are offered a lower price than if they sold as an independent. You may be able to crystallise goodwill, as the consolidator may wish to buy you out (often in a mixture of cash and shares) if the consolidator is listed on the stock exchange, but this may not suit your wishes.
Some people do well with a consolidator but others sink without trace. You should bear in mind that they charge an upfront fee and an ongoing fee based on your turnover. Talk to others who have gone this route and perhaps post questions on this site’s forum to find out what experiences people have had.
Purchasing blocks of fees
Another option is to buy a block of fees or a compatible practice. Of course, this requires capital but it usually repays itself very quickly. A good business plan is essential to raise the money if you need to.
Whichever route you decide, you should also save up as much money as possible before you take the plunge, as you will have costs and it is likely to be several months before any fees come in.
You as a brand
Sole practitioners should also consider their image and think about themselves as a brand. A well designed letterhead, business card and a clean and unfussy website will reflect well. Tell the designer about your hoped for client profile now and in the future. Your logo and name should be adaptable, so they are still appropriate as your business grows. Check with 123 Reg or a similar domain registration site that the business name you chose is available as a domain name and buy it, not forgetting to renew it in when due. Ensure your name, logo and website appeals to different ages, sectors and both sexes.
When compiling a brochure, website or any other marketing information, always remember that your reader is asking ‘what’s in it for me?’ All your marketing should answer that question. If in doubt about your writing ability and proof-reading skills, use a professional freelance writer. There are lots advertising their services on LinkedIn, or you can ask them to bid on PeoplePerHour.com. You also need to think about getting the right SEO keywords for anything you publish on the web in order to get yourself ranked highly on search engines.
Think carefully about your ideal client list, as this will help you to target your marketing efforts. Do you want to specialise in one industry area? Will anyone make your client list or do you only want to deal with high net-worth people or a specific business sector, for example? Planning like this is often more successful than a scatter-gun approach. Have template marketing letters, agreements etc., that you can easily tailor to each client without starting from scratch. You also need consider whether you can charge enough in your location and to your clients to make it work.
There’s a lot to lose when you first become a sole practitioner – no more paid holidays, company PMI, pension, death in service cover and other perks. Before taking the leap, accountants should think carefully about whether they have the temperament, determination and discipline to make it work. If it does work out, it could be the best step you have ever taken.
Article written by Nicola Draper from Draper Hinks.
To contact Nicola Draper please email her on n.draper@draperhinks.co.uk