Practice Management Thoughts

Part Two: Growing Your Practice

James Southward, EA and Elizabeth Huff, EA

In our last article, we discussed purchasing or starting a practice “from scratch.” As you make progress with the management of your practice, you may find it advantageous to purchase another practice.  Before you make such a momentous commitment, you need to have a good idea of exactly what you are buying.  Conduct your due diligence and evaluate your risk.  You may also wish to have a professional appraiser independently value the business.
Doing due diligence entails determining the business’ probability of future success. You may have to relocate your existing practice. If office space is included in the contract, you will need to inspect it and review the terms of the lease, if applicable. Find out whether there is any special action required to either assume the existing lease or negotiate a new one. Inspect the equipment you may be acquiring.  Look into the client base to determine if it will mesh well with your own. Is the firm’s pricing comparable or more than your existing price structure?  Will you need to make adjustments accordingly? 

Check the financial position of your proposed acquisition.  This includes tax returns, balance sheets, cash flow statements, sales records, accounts receivable and payable.  It is often the case that it may be more prudent to simply buy a client list than to take on the assets and liabilities of an existing business. See if this is an option if you don’t have need of space or equipment.

When you are ready to make an offer, engage a business broker to prepare the documents.  This is a legal matter.  Your offer must be complete the first time.  It must include any necessary conditions, so you may withdraw it (without penalty) if the seller does not meet all of the agreed-upon conditions. Your offer should describe exactly what you are buying.  Are you buying a client list, or the whole business including assets, lease, real estate, a corporation, or something else altogether?

As your practice grows, you will face new and exciting opportunities to make decisions that will improve and enhance your business.  You might find it necessary to trim your client list.  If so, look around – choose those who use up a lot of time for little income, or those who don’t appreciate your value to them, or those who are simply a pain.  You may also take this time to evaluate your pricing structure.  It is advisable to raise your fees by a small percentage each year.  You may still have some clients who are paying much too little for the work you provide. These may be candidates for a letter explaining the basic economics of your situation and offering them a choice of paying more or finding a new preparer.  Be prepared for the possibility that they might leave. Calculate the risk to your bottom line if you lose too many.

To keep up with the increasing workload, you might add staff.  The first person to add would be someone at a lower skill level who can do all your simple tasks which do not require a great deal of skill and who are easy to teach and monitor.  I’m thinking here of filing, scanning, assembling paper returns, answering phones, greeting clients, etc. A student or someone returning to the workforce may be a good candidate.  As the job expands, they may wish to expand with it, or you can add additional staff.
There will come a time when you have more tax work than you can handle.  At this point, you will need to hire another Enrolled Agent.  Here is another example of the benefits of your membership in NAEA, CSEA, and your local Chapter. These organizations exist to assist you in your search.  Finding the right fit in temperament, knowledge, ethics, and personality are all important.  Do you want someone who has the same strengths as you?  Do you want someone who has different strengths to complement your own?  Once you have decided, the hunt can begin.  We feel confident that you will find the right person for your position among the many qualified Members of our professional group of Enrolled Agents.

James Southward, EA has over 37 years of tax experience and is the owner of Southward and Associates in San Carlos, CA.  He is a Past President of the California Society of Enrolled Agents and is currently serving on the CSEA Board of Directors from the Golden Gate Society of Enrolled Agents.  

Elizabeth Huff, EA has over 12 years of tax experience and holds the position of Senior Tax at Norman M. Golden, EA in San Mateo, CA.  She is currently serving on the Golden Gate Society of Enrolled Agents Board of Directors.