remember it’s a new business.
by ed mendlowitz
101 questions and answers: managing an accounting practice, the complete 2-volume set
q: i am thinking of adding financial services to my practice. what are your thoughts?
more: selling your practice is not a retirement strategy | thirteen things to know before selling your practice | 10 reasons clients don’t pay
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a: for starters, “financial services” means selling investment products or managing money. this is different from adding financial planning, which i see as an extension of and a next step to sound tax planning for clients.
getting into the financial services business requires tremendous effort, training, licenses and a long startup period until a critical mass can be attained where there will be a reasonable cash flow and profit. this business involves the ability to sell and then deliver. many large organizations thought cpa practices could be fertile ground for additional business, and companies such as american express and h&r block acquired cpa practices to get access to the tax clients who would need “product” or investment management. i only know what i read, but they seemed to be glad to get out of this business because they sold the practices they bought at big losses. i can only assume the model did not work – accountants weren’t able to sell these products and services.
i also get many calls – as many from financial planners in brokerage and insurance firms inquiring about opportunities to work in cpa firms. some of them, after working a dozen or more years, weren’t earning reasonable incomes for their stage of life and they know they would have done better had they started out in, or not left, public accounting, and now want to get back in.
many accountants ask me this because they believe they can make more money. my first bit of advice if they want to make more money is to try to do more of what they are already doing in their current practices.
however, not to beat a dead horse – here are some specifics to consider.
1. prepare a business plan and think about:
- how much revenue will be received during the first 36 months and whether you can make profit on it
- where clients will come from, how many and revenue per client
- how you will deliver the services – will it be done internally with existing resources or outsourced?
- which partner will be in charge and will oversee the new business
- who on your staff will be able to perform these services
- if an investment is needed, how much and how it will be funded
2. what will happen to your existing practice, or the part of the practice where the partners and staff moving over to the financial services had been performing?
3. do you have the expertise internally?
4. what licenses and credentials are needed, what type of entity will be formed, or will it be part of your present practice, and what type of liability insurance will be needed? whether you know it or not, you are starting a new business.
5. try to imagine how you will feel and respond to clients if you are managing money and the market takes a freefall.
6. find products you think clients most likely would need and find out your commission structure and whether clients would buy them in adequate volume.
7. if you are to offer true financial planning along with the sale of products, will you have a wide enough knowledge of competing and alternative products so that your clients won’t be pigeonholed into one provider’s merchandise?
8. many financial services clients expect financial planning and possibly tax preparation as part of the overall service, at no additional fees. if this is so, you might lose revenue you are currently receiving.
9. if you are so interested in this area, have you attended a reasonable number of conferences and cpe programs so you have an adequate exposure to the arena, or will this be a new “just got the idea” type of venture for you?
10. you should compare this new venture with using the same effort to expand services you are presently offering your clients.
good luck!