Hi Moe! I did what you are planning quite some time ago - in 2005 - so this may or may not help much…
>> Experience – How much experience did you have before starting out? Looking back, how much is really needed?
My thoughts on the matter is not how long have you been doing it for but if you are preparing returns yourself can you get 95%+ of the returns past your reviewer without any questions or issues that indicate you missed something - even minor somethings - that would have gone out wrong if not for that review. I would not recommend you go out on your own until you have had at least a year of reviewing junior preparer returns and that you can then get the files past the partner without any questions or issues. Review is much different and much harder than preparation because you have to anticipate where they have made mistakes or could have made mistakes when doing the preparation. From my own experience, someone with a year of experience is able to make a good attempt at pretty much anything that comes through the office but still makes a fair number of mistakes and has a lot of questions along the way. By the end of two years is usually pretty good and they might only missing things that are not documented in the file that the client told the partner, things that changed due to changing tax regulations or things that they have never seen before that are not intuitively obvious or easy to research. By the end of three years they are generally at the point that they get 95%+ past the reviewer with few to no issues. They should be reviewing by this stage and this generally results in things missed for a while as junior tax preparers can make some pretty creative mistakes. I personally started at an accounting firm in January 1996, attained my CA in Jan 1999 and went out on my own in January 2005 so 9 years from start to finish. Your 6 to 7 years sounds reasonable but it depends on relevant experience and your attention to detail.
>>Time commitment – How many hours a week do you typically spend on your firm? Did you get the flexibility you hoped for?
I am very flexible in when and how I work. I average probably 600 to 700 hours a year in billable time over the course of a year and another couple hundred in non-billable admin type time. So maybe half time on average but I specialize in personal taxes so am really busy - full time plus sometimes in March and April, maybe 3 quarters time in Jan/Feb and May/June and 25% or less in July to December. I had more corporate work when I first started out so it was more like 50% year round.
>>Revenue/clients – What does annual income look like for a true solo? Roughly how many clients, and what’s the mix of T1s vs corporate?
I make $50 to $60k/yr before expenses usually but I only work about part time and also I haven’t been increasing my fees nearly as much as I should have. That said I usually recover about $100/hr after expenses for files I prepare myself and closer to $200/hr for files where my assistant prepares the files. I usually charge $250/hr for one off departure counseling meetings with clients.
>>Start-up costs – What should I realistically budget for getting set up?
Start up costs are minimal if you work from home which I would recommend at least at first. My annual expenses run about $10k/year (20% of invoicing basically) for things like software, annual dues, insurance, office supplies etc etc. True start up costs may be minimal as you probably already have a computer set up and furniture you can use while working. The major problem is you need living costs until you build up enough clients to pay your expenses and living costs. The first two years I was on my own I didn’t have enough clients so I hired out to Collins Barrow in Mar & Apr (6 weeks each year) for some insane hours at $100/hr reviewing the junior preparers work and handing over completed files to the partners for a final gloss over review. They loved me after the first year so I got a raise to $125/hr and by the third year I had enough of my own clients that I didn’t need the 6 weeks of work. I had a look at my billings and the first year was $28k from Collins Barrow (6 weeks mind you) and $19k from my own clients for the rest of the year for a total of $47k and that grew to $30k (not so insane hours) and $35k from my own clients. By the third year I was at $46k of my own clients. And had a newborn at home… That threw a huge wrench in how much I could get done. I worked evenings and weekends a lot when my husband could look after our son and my mother did a lot of babysitting that year during tax season.
>>Billing – Do you bill hourly, fixed fee, or a mix?
I do fixed fee for the most part. I track hours just to make sure that my fixed fees work out to a reasonable per hour basis amount paid to me and my assistants but don’t usually charge those extra hours to the client unless they are excessive and the clients fault. Like one that I normally spend 15 hours a year on but this year it was 40 hours and it was due to the client thoroughly screwing up their bookkeeping and I had to help sort it out long distance.
>>Technology – What does your tech stack look like? I’m considering Caseware Working Papers, Jazz-It, TaxCycle, TaxDome, Microsoft Office, and Adobe, but open to recommendations. Also how do you handle storage?
I don’t do reviews or audits and only very limited T2 tax engagements so I use excel for my working papers, Adobe to create and crossreference my working papers, TaxCycle (Cnd software), ATX (US tax software), Clickup - to organize my work flow and Dropbox for data storage. I use Bill4Time to do invoicing.
>>Client development – How did you get your first clients? Referrals, networking, ads?
Word of mouth from happy clients, referrals from my mother who was a bookkeeper so she referred a lot of my earliest clients. My website helped a lot. Craigslist for ads from people looking for accountants. Announcing at continuing education seminars that I was a personal tax accountant specializing in US and international taxes got me a lot of referrals. These days accountants are in short supply so I’d recommend that you give your name, areas of specialization and contact info to all the local accountants that are your “competitors” and I’d be willing to bet that you’d get a ton of referrals along the lines of them telling new prospects calling them up “I am too busy to take you on as a client but Moe is just starting out on his own and can likely handle this just fine and is taking on new clients.” I do that with local accountants around here - I have a list of names to send people to as until I get more help I can’t take on more clients. Your current employer is likely to do this assuming that they like the quality of your work.
>>Challenges – What were the biggest challenges in your first year, and what would you do differently if starting over?
I had a good first year. I made enough money at Collins Barrow to cover my costs for the year and could putter around getting my own clients. I’d probably charge more however.
>>Practice model – Do you run fully virtual, hybrid, or in-office? Any regrets about your choice?
I work from home and always have. Most of my clients are not in the city I work in so even if I had an office I’d rarely see anybody there. I have a few (maybe 5%) that want to come drop stuff off and pick it up in person but mostly I am virtual.
>>Growth – Do you see long-term sustainability as a solo, or is it better to eventually add staff/partners?
Staff. If you are sick or can’t work for a bit (ie vacation) you have no income coming in. I worked on my own until I had enough to hire part time staff. As I specialize in personal tax it is mostly only one part time helper from January to about May or June which makes it difficult to get the same person to come back more than one year but it does occasionally happen. I train from scratch pretty much every time. Lately my youngest has been helping me out and they started at age 12 doing data entry for slips only tax returns on weekends during tax season for about $10/hr. They just turned 16 and are up to $35/hr or so and able to do pretty much any Canadian personal tax return from start to finish. Better than my university hires. I am about to explore a merger by teaching an experienced CPA US taxes via zoom (he’s in a different province than me) this up coming tax season and then see if we can merge - I can bring him referrals and he has the staff year round to help me out during tax season so that together we can service the new clients.
Clients sign off on the summary. It cuts down on issues down the road.