As the tax industry continues to evolve, the prospect of becoming a solo CPA, or establishing a small tax firm, can be increasingly appealing. Not only will it provide the autonomy to grow your career in the way that works best for you, but it will also offer the opportunity and flexibility to potentially earn more income than you could in a salaried role at a larger, more established firm.
In this guide, we explore strategic approaches to scaling your independent accounting practice that can help you increase your revenue and develop your skill set, and how Harness Tax can be your catalyst for growth.
Table of Contents
- The Salaried Path: A Brief Overview
- The Solo Path: Opportunities and Challenges
- Earnings Potential: Salaried vs. Solo
- Rate Setting: Strategies for Success
- Harness Tax: Your Catalyst for Growth
The Salaried Path: A Brief Overview
From desirable pedigree, steady income and employee benefits, extensive resources, and a structured career path, working in a salaried position at a well-established accounting firm can provide a myriad of benefits. However, large companies have significant overhead. On average, accounting firms spend around 25% of all revenue on operational and administrative expenses, leaving less money for compensation.
In addition, large tax firms have a hierarchical structure that leads to incredible competition, especially as you work towards the partner tier. All of this, combined with limited work-life balance from demanding billable hour requirements, and a lack of ownership over your client base, could lead many in this position to wonder if perhaps charting their own path could lead to more satisfying career advancement.
The Solo Path: Opportunities and Challenges
Embarking on a solo path or establishing a small tax firm opens up a realm of opportunities, but not without challenges of its own. While you will gain the autonomy to set your own rates, choose your own clients, and manage your work on your own terms, you will lose the backing and stability of a larger firm. You’ll need to attract and retain new clients, build your operational framework, grow your team, and spend significant effort managing the operational layers of your new business.
Starting your own accounting firm is no easy task, and it’s not for everyone. But through analytical comparison, it becomes clear that charting your own path can not only open the door to greater financial opportunity, but it can also allow you to live a more balanced life.
Earnings Potential: Salaried vs. Solo
To offer a more comprehensive comparison of the earnings potential in both salaried and solo careers, let’s look at salaries and hourly rates side by side.
Note that the figures are approximate and can vary based on many factors, including geography, firm, years of experience, and area of expertise.
|Position||Salary (source)||Potential at Harness*|
|Manager||$90,000 to $125,000||$287,000|
|Senior Manager||$140,000 to $180,000||$315,000|
|Director||$190,000 to $242,000||$350,000|
Already, we can see that by going solo, your annual income could far exceed what a salary could offer. At Harness Wealth, our advisors operate on a combination of annual fees and billable hours, which are on average $1,000 per client and $250 per hour, respectively. Based on the national average of 1,400 billable hours per year, even at the lowest rate of $250 per hour, that would amount to $350,000 per year.
However, achieving 1,400 billable hours per year, which translates to around 30 hours per week, is an unreasonable expectation for most solo CPAs, and this is where Harness Tax comes in. Our in-house support team can take operational work off your plate, freeing up your schedule to focus on what you do best: providing high-quality accounting services.
Rate Setting: Strategies for Success
When setting your own rates, it’s crucial to consider several factors to ensure the financial viability and success of your firm. For one thing, you will need to plan ahead for tax obligations, overhead, and the general costs of running your own accounting firm. You’ll also need to set your rates based on income and lifestyle goals. And lastly, you’ll want to make sure that your rates are competitive and fair based on the market conditions. Price your services too low, and you may attract low-quality clients. Price your services too high, and you might find yourself struggling to attract and retain clients.
Harness Tax aids advisors in setting the right rates. We have established a minimum per-client fee of $1,000 per year, and we have set pricing for ad hoc and other services. Not only does this offer the potential to build predictable income for your tax practice, but it also aids in maintaining your rates, so that you don’t sell yourself short.
Let’s go into the various expenses you’ll need to account for when setting the rates for your accounting firm.
Setting your income goals
This is the first target you should establish when setting your rates. Start by taking the salary you last had before leaving to start your own firm, and calculate the number of billable hours it would require for you to meet that number. In addition, keep in mind that as a solo CPA, you’ll need to set aside income to cover your own benefits, such as health insurance and retirement savings.
Accounting for overhead
Next, you’ll want to factor in any tax obligations, operational, software, or other overhead costs. Ideally, especially if operating solo, you won’t have too many expenses in running your tax firm, but you’ll want to make sure that any business expenses you do incur do not take away from the amount you pay yourself
Building a runway
Lastly, focus on setting aside some amount of revenue for the long-term growth of your business. Saving even a small percentage of your revenue can make it easier for you to grow your firm over time and provide you with a financial cushion to fall back on during slower periods of growth.
Advisors who join Harness Tax gain valuable support in rate setting. Not only are rates of Harness Tax Advisors publicly listed on our website, but our advisors are also coached and provided resources on how to set the best rates that reflect the services they offer. In addition, accountants who join Harness Tax gain access to a community of like-minded tax experts, providing ample opportunities to stay on top of industry trends in compensation.
Harness Tax: Your Catalyst for Growth
At Harness Tax, we offer a comprehensive suite of software solutions, marketing, and operational support, and a robust community of tax professionals to help you manage your firm and build a foundation for success.
- Operational Support: From scheduling calls to assisting with tax return e-filing, the Harness Concierge team will provide the assistance you need to run your firm efficiently, allowing you to focus on what you do best – serving your clients.
- Modern Software Access: Harness Tax provides you with access to industry-leading software to ensure you have everything you need for tax planning and compliance needs.
- A Community of Experts: Harness Tax Advisors bring a wide range of specialties, including crypto taxes, equity compensation, and more. Whether you’re looking to network or get expert advice on tax topics, you’ll have the support you need.
- Marketing Support: The Harness Marketplace can help your accounting firm get introduced to prospective clients, and the Harness Blog helps introduce people to Harness and learn about the many services we offer.
Starting your own tax firm is an incredibly nuanced process. If you’re interested in learning more about how Harness Tax can be your catalyst for growth, schedule a call with our team today.