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A step-by-step guide to starting a new CA firm

  • Highlights

  • The GST market is an expansion avenue

  • Understand why you want to start a CA firm

  • Draw up an in-detail business plan

  • Choose the right source of finance

Having your independence at work, choosing your own clients, providing services in your area of specialisation and interest are few reasons to start your own chartered accountancy practice. In a scenario where more and more CAs are entering into practice, it is opportune for you as well to fulfil aspirations of establishing your own firm.

The trend of setting up one’s own practice or consultancy in India has seen a recent spurt. GST has become a major service and business opportunity for CAs, as the biggest taxation reform of the country requires more enterprises to pay taxes, and ensure compliance with taxation laws, rules and regulations.

The steady globalisation of the Indian economy offers continuous opportunities in practice for CAs, in areas like knowledge process outsourcing, IFRS compliance, and forensic accounting. The traditional areas of practice include financial reporting, taxation, audit expertise, and insurance advisory.

As immense are the opportunities for CAs to grow and excel in practice, as daunting is the idea of establishing one. There is no denying that like any business, it would require patience, planning and process. So where do you start?

Before starting your practice, it is important to do your research and ask yourself questions so that you can gain a sense of direction and purpose.

Additional Read: How chartered accountants can protect their practice against cyber security threats

Some things that you should ponder over include:

1. Do I have the experience to handle a business and employees?
2. Do I have the capital needed to start a firm?
3. Do I have a clear vision for my accounting business?
4. Do I have the motivation required to succeed?
5. Do I have support from family members?
6. How will I set my practice apart from those of other entrepreneurs like me?

Once you have answered these questions and know that you are starting an accounting firm for all the right reasons, you can follow this simple step-by-step guide:

Step 1: Create a detailed business plan:

•   Define your practice values:

Before starting a CA firm, it is important to establish the mission of your firm and its overall values. For example, a CA firm’s mission could be to provide holistic support to clients, integrity of performance and constant innovation in tackling matters related to accounting. Laying down the core values of your firm and what it stands for, will help build the very USP that differentiates you in the market. This helps your firm in client acquisition in the starting phase, and in the long run, builds client relationships and establishes your firm’s goodwill.

•   Have an entry strategy:

When entering the industry, you will have to decide on which sector your firm will specialise in. For example, will your CA firm deal with specialised areas of accounting or will it be a general practice. To arrive at this, it is important for you to examine your skills and identify what you’ll be able to do best. Usually, these areas include taxation, audits or mergers and acquisitions. Apart from this, your entry strategy should also involve deciding whether to start your own practice or to take over another practice. You can also merge with a practice or enter a partnership.

Additional Read: Tips to expand your CA firm

•   Create a client strategy:

Once you’re sure of the service(s) your firm would provide, the next step is to target your audience. Your area of expertise enables you to segment the market and identify your prospective clients. Then comes the dynamic process of acquiring them, where your business development skills come into play.

Yes, word of mouth and references would help grow your business. However, in the digital age, e-Service is the next big thing. This requires you to develop your firm’s website, where you can market your services and have potential clients post queries and get in touch with you.

Research indicates that the concept of Virtual Service Provider will generate 40% of the overall income for professionals. In the coming years, services like LLP formation, statutory audit, company audit, MCA compliance, GST and legal consultation will be provided virtually, end to end.

You should also build an online presence of your firm on social media and other online CA portals, where you can connect with new and emerging enterprises. Once you get your networking right, you are on track in building your initial clientele.

•   Draw up a pricing strategy:

A pricing strategy will determine the rate of client acquisition. It is important to decide how you will charge your client. You can choose from a variety of fee systems like a time-based fee, performance-based fee or a fixed fee. Whatever option you choose, ensure that you charge the client the correct fee that helps you cover your costs and work towards your financial targets. Bear in mind that while under-quoting will cause financial problems, over-quoting will drive clients away to your competition. So, it is important to set an optimal rate that will enable you to earn profits while matching the client’s expectation, following ICAI norms on pricing of assignments could help you achieve this.

Step 2: Prepare a financial plan:

Understanding the right financing option

While starting your practice, you need to evaluate sourcing options for your capital. If you are considering self-financing by investing your income and accumulated savings, it is wise to be prudent as you need to take care of your household expenses, and retain insurance cover that you may have availed.

External financing, on the other hand, can be a better mode of financing your practice. You can avail a greater amount of funds, utilise them as required and preserve your own capital to respond to other short-term needs. You can go for a customised loan for CAs which takes your professional qualifications into account and gives your faster loans with a better deal.

While personal financing is convenient, it can be risky to invest all your funds in a business. External financing keeps your personal finances separate from your business funds and also gives you access to more money. If you are on the fence, you can opt for a mix of the two.

Business Loans for Chartered Accountants: Features and Benefits

Step 3: Make a breakup of the costs

Identifying the nature and measure of costs is critical to ascertaining how much capital you require, and how much should be the desired returns.
-  Office space (buying which would require a considerable cash outflow and give your firm a valuable asset; renting which would entail a regular expense for your firm and prove a safer option till it establishes retained clients and sustained income)
-  Infrastructure, which encompasses furniture and fixtures, internet connection, workstations and office equipment (desktops, photocopiers, scanners) that you can buy or rent

-  The right software solution that enables you in assisting your clients
-  Hiring and training personnel; you can choose to hire qualified CAs, trained professionals, or articled assistants, based on the service you provide
-  Marketing costs like branding, website development, social media campaigns, print advertising

A business loan for CAs can help you meet all the costs and ensure that your practice runs smoothly.

Step 4: Making your cash flow grid:

As a CA, you understand the importance of documenting finances and projecting cash flows. Prepare a cash flow grid that predicts the long-term profitability of your firm and allow you to better plan for the following years. A specimen of the same is presented hereunder.

Year Cash Outflows(A) Cash Inflows(B) Net Cash Flow(B-A)
1 Furniture       ₹ 2,00,000

Rent ₹ 1,00,000

Staff              ₹ 30,000

Miscellaneous ₹ 20,000
₹ 2,00,000 ₹ (-1,50,000)
2 Rent     ₹ 1,00,000

Staff              ₹ 40,000

Miscellaneous ₹ 30,000
₹ 3,50,000 ₹ 1,80,000
3 Rent ₹ 1,50,000

Staff              ₹ 50,000

Miscellaneous ₹ 50,000
₹ 6,00,000 ₹ 3,50,000
4 Rent   ₹ 2,50,000

Staff              ₹ 1,00,000

Miscellaneous ₹ 1,00,000
₹ 10,00,000 ₹ 5,50,000
5 Rent ₹ 3,00,000

Staff ₹ 2,00,000

Miscellaneous ₹ 1,00,000
₹ 15,00,000 ₹ 9,00,000

A 5-year projection of the cash flows, as illustrated above, reflects the financial viability of your firm, helps plan capital and regular expenses better and thereby, assures you that the actual returns stay in line with the projected returns.

You can also opt for a CA loan in a flexi format which helps you borrow as and when a need arises and prepay as you have extra funds with you. A unique offering, it comes with several benefits.

Working for self always seems to be more appealing than working for someone else. In addition to creating a work-life balance, you live and fulfil your own dreams. With the indirect tax system in India being completely revamped in India with a host of clients looking for consultancy on GST, there is no better time than today to consider setting up your own CA firm.

Additional Read: How to finance your CA firm?

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