10 things to consider before you decide to start in practice
When you are starting up in practice it is important that you are aware of the options to consider. Often the first steps are the most difficult ones. This resource will help by pointing you in the direction of answers to some key questions.
1. Are you entitled to be in practice?
It is important that you have a practising certificate before you start. You have to have two years’ relevant post-qualification experience and need to apply for a practising certificate. If you are not entitled to one, you cannot enter public practice while a member.
2. What is public practice?
It is clear that accountancy, audit, tax, insolvency work all are 'accountancy activities'. However, it can be more complex than this. The ICAEW statement on engaging in public practice clarifies when you will need a practising certificate and, by definition, when ICAEW considers you to be in public practice. Once you have decided to set up in practice, you will need to notify us of your firm. This may simply mean notifying us that you are a sole practitioner and the name of your sole practice. If we don’t know that you have set up a practice, we can’t monitor you and supervise you for anti-money laundering.
3. Is practice right for you?
It is important to ensure you are comfortable with the responsibilities and challenges of being in practice. That may be particularly appropriate if you have come from a non-practice background or a larger firm where compliance, marketing, etc. were dealt with by separate departments. Now you will be responsible for everything.
4. What do you wish to obtain from being in practice?
Typically, people might wish to manage their own business and 'be their own boss' because they have a variety of lifestyle preferences. These can include bringing up children and growing a business with hours increasing as children grow up, go to school and find their own feet or in tandem with, say, two days employment plus three days as a sole practitioner.
There is also working a number of days per week as a pure lifestyle preference - 'I only want to work three days a week'. Create a business plan as your starting point and revisit it periodically to keep yourself on track. It should not be over-engineered. It is key that you identify pinch-points in the year, where work will give you pressures and also highlight possible times when external resources may be needed.
5. What do you need to obtain from being in practice?
Assess this at the outset, rather as you would if you were applying for a job. You know what your financial requirements are and what they will be in the future. You alone, therefore, know what you will need to earn from your practice.
Put together a financial plan and cash flow to ensure that you will be able to achieve your required income level based on certain assumptions of income/charge-out rates/recovery rates per day.
Clearly you will need to have flexed turnover thresholds as you won’t know yet how reasonable your projections are. But you may be able to assess income based on your previous experience in practice. What sort of income could you bill on a weekly/monthly basis assuming your future client base is similar?
Most practitioners have a period before they are close to being fully utilised. Some fill this by taking appointments as sub-contractors for other firms or starting their practice in their spare time if this does not conflict with the contractual terms of their employment (see ICAEW helpsheet 'Subcontracting - acting as a subcontractor'). Others take teaching posts at colleges or teach evening courses. If you believe that you will take some time to grow the practice, it will give you peace of mind to consider a short-term appointment to provide you with some regular income. However, this will reduce your ability to obtain, service and meet clients throughout the week and needs to be taken into account.
6. Have a financial plan
It is vital that you have a financial plan. Make sure it includes time for training, marketing and illness. You cannot assume that you will be fully utilised (although it may soon feel like that). And don’t forget to plan for holidays. Ensure too that your financial plan works out the cash-flow effect of the billing arrangements you will enter with your clients. This is discussed in 'What do you need to obtain from being in practice?'.
7. The roles you will fill
Your roles will include managing director, finance director, compliance director, technical director and money-laundering reporting officer. They will extend to client-facing roles as well as accounts and tax preparation. And they then extend further to the more esoteric areas such as health and safety for example. So everything is now your responsibility. If it has a deadline, diarise it!
What is certain is that you will review this list thinking 'I haven't done the majority of those tasks before.' Do not be put off! You probably have experience of many of them (even if indirectly) and they are manageable.
Focus and prioritise difficult tasks to prevent them becoming real problems. For example, there are practitioners who can provide an excellent service but do not like the challenge of chasing outstanding debts. Not surprisingly, clients may take an exceptionally long time to pay. The effective management of such an issue is important for those practitioners.
8. Don't be afraid of inexperience - learn how to manage
When we hold setting up in practice presentations, it is clear that a lot of attendees are concerned as to whether their relative inexperience will be a problem. People learn how to manage the problems they face (and we discuss and advise below how to manage the typical issues).
Although this might sound counter-intuitive your inexperience may actually be a benefit! If you have always done something in a particular way you might assume it to be the correct way. If you have no experience in an area, you are more likely to be open to considering alternative methods of doing things.
9. Know your limitations
Build a bank of specialist support. Never be afraid to say no if you are unsure of the technical difficulty or risk perspective of potential work, for example if you have a client seeking investment or legal advice.
Know your own limitations and ensure that, if you need technical input from colleagues, you have support from specialists you can refer work to or call on. Always ensure that your terms with them are clear. If they act as your subcontractor for a complex area that you are unfamiliar with it may be that your professional indemnity insurance will bear a claim in the unfortunate event that they make a mistake. Or will you refer your clients on to them to advise, with them taking client engagement responsibilities for this area? How such referrals are contracted (from the client's perspective) can be extremely important. Be careful that your referral basis works for you and that you can manage it well.
10. Where do you want to end up?
Some practitioners do not want to employ staff. Their desire is to remain a solo practitioner. Others are planning to start small but end up in a larger firm, possibly with business partners and certainly with staff. Where you want to end up will shape your objectives and lead to many other decisions becoming clear, such as office location and marketing.
Consider whether or not you will need staff. If you do, plan to recruit them well in advance to ensure you have the right people at the right time. Recruitment is not necessarily easy and may be more difficult depending on your location. If you have the lure of a large city drawing staff away, you may find it more difficult.
If you are engaging staff, don't forget the human resource implications of being an employer (PAYE/NI and employment law), the ICAEW guide to employment basics is a useful resource that you can refer to.
Some firms recruit with sub-contractors working from their homes to assist in busy periods, giving flexibility and enabling deadlines to be met. This may be your interim solution. But you need to be happy at delegating the completion to someone who may be doing the work at different times to yourself. If you are using sub-contractors enter into a sub-contract agreement with them. ICAEW has helpsheets explaining some relevant considerations and one with a proforma sub-contractor’s agreement.