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The accountant, as a sole practitioner, operates with no professional staff other than himself or herself. The sole practitioner is owner of the business. Other office personnel could include a secretary, a typist, and bookkeepers. Often the practice is a closely held family business.

Sole practitioners, as a whole, are not a homogeneous group. Their clients vary from small- to medium-sized businesses and from service to retailing companies. Their areas of specialization vary from concentrating on certain related businesses to handling a wide variety of clients. Sole practitioners also vary as to the type of practice. Some engage primarily in write-up work (bookkeeping) using computerized systems, others have primarily a tax practice, and still others may provide a mix of services. The sole practitioner will not be able to compete effectively with specialist in larger firms for audits.

Some sole practitioners are certified public accountants (CPAs) and some are public accountants (PAs). The sole practitioner's chances for having a successful practice are greater if he or she is a certified public accountant.

It is difficult to estimate how many accountants are sole practitioners. In 1996, AICPA reported 26,830 sole practitioners in public practice. This figure did not include the number of sole practitioners who were not members of AICPA.


The successful sole practitioner needs certain personal qualifications, technical skills, management skills, and marketing skills.

High on the list of personal qualifications is integrity. The accountant, both CPA and PA, must abide by a code of professional ethics. Information divulged by the client is confidential, and the accountant must treat it as such. Patience is needed to deal with the many problems that arise. A nice personality coupled with a certain amount of aggressiveness is needed in serving the client's needs. The sole practitioner should enjoy working with people and have the self-confidence necessary to handle the wide variety of tasks encountered.

Sole practitioners are like family physicians. They are individualists who function alone because they choose to do so. They provide high-quality personal services to their clients. They tailor their practices to suit their personalities, family responsibilities, health, and life-styles.

Technical skills include being knowledgeable in (1) accounting practices and procedures, (2) taxation, (3) management consulting activities, and (4) computers. The accountant should be mathematically inclined and possess the ability to think logically in solving clients' problems. Equally important are oral and written communication skills. In working with clients, members of the community, and others, the accountant needs such highly developed communication skills.

From a management viewpoint, the accountant must be able to handle responsibility. The sole practitioner must use his or her own judgment in making decisions and must be willing to accept the responsibility for these decisions. Unless the sole practitioner has a one-person office, he or she will have employees to supervise. It requires organization and planning to develop and use the talents of the employees most efficiently. The sole practitioner must be a manager.

Last, but not least, marketing skills is necessary to help the practice grow. Marketing skills include dressing appropriately, the ability to sell oneself and one's talents, and some involvement in community activities. Participation in community activities is necessary to establish contact with bankers, attorneys, and other professional people who work within the community.


The sole practitioner, limited by the lack of accounting personnel within his or her own firm, can render services only for small- and medium-sized business entities. The services rendered will fall into one or more of the following areas:
  • accounting and write-up work
  • compilation and review
  • tax services
  • management advisory services
  • audit services
Accounting and Most small firms do some accounting and write-up work. Write-up work includes recording transactions in books of original entry (called journals), transferring amounts from the journals to a ledger (called posting), reconciliation of bank statements, monthly adjustments, financial statement preparation, and filing of sales and payroll tax reports. This write-up work, commonly called bookkeeping, does not command the higher fees that other types of service generate. Too much write-up work will require the sole practitioner to put in longer and longer hours to make a satisfactory income, not leaving time for the practitioner to build his or her professional competence. Today much of this work is computerized and, thus, the sole practitioner can train someone in his or her own or the client's office to do this work. Write-up work should be considered a stepping-stone to services requiring skills, such as tax work and consulting.

Write-up work often leads to the preparation of unaudited financial statements for clients. In past years considerable confusion existed as to what procedures should be used in issuing unaudited financial statements. How much work should the accountant undertake? What is his or her responsibility for these statements that he or she prepared? A number of lawsuits were brought against independent accountants. To answer these questions, the AICPA in 1978 appointed an accounting and review services committee to study the problem and issue recommendations on non-audit services rendered to business entities. This committee recommended that unaudited financial statements be replaced with compilations and reviews of financial statements.


A report must be issued upon completion of a compilation or review when financial statements are issued. Unlike an audit, a compilation report expresses no assurance about the financial statements, and a review report expresses limited assurance.

A compilation requires no audit procedures. Instead, the accountant performs accounting services for the client, such as adjusting the books and preparing the financial statements. As a minimum, the accountant must have a general understanding of the nature of the client's business transactions, the accounting records, and the format of the financial statements. He or she must also develop sufficient knowledge about the entity's industry in order to compile financial statements that are consistent with industry practice. The accountant's report should accompany the compiled financial statements (which should conform to generally accepted accounting principles). This report describes the scope of the work performed by the accountant, including any limitations. The report stipulates that the financial statements are the representation of management, that they have not been audited or reviewed, and that no opinion or other form of assurance is given on them.

A review contains a limited assurance that the financial statements contain no material departures from generally accepted accounting principles.

To give a limited assurance on the financial statements, the accountant must make inquiries and perform analytical procedures. Examples of some of the inquiries and procedures performed are:
  • Ensure that the entity has applied generally accepted accounting principles.
  • Review the procedures for recording the transactions.
  • Compare the financial statements with those of prior periods.
  • Review actions taken by the board of directors and the stockholders.
  • Review the financial statements for conformity to generally accepted accounting principles.
After reviewing the financial statements, the accountant prepares a report that a review was performed in accordance with AICPA standards and that the financial statements are the representation of management (owners). The nature of the review is described. The report should state that a review is substantially less than an audit. And finally, a negative assurance is given; that is, the accountant is not aware of any material departures from generally accepted accounting principles. If there are any such departures, they must be disclosed in the accountant's report.

Tax Services

Tax work usually accounts for a high percentage of the work performed by sole practitioners. Tax services include preparing and filing federal, state, and local tax returns for individuals and small business clients. Tax services also include tax planning, advising clients of legitimate means of reducing taxes, and estate planning.

Certified public accountants may represent their clients before the Internal Revenue Service. A public accountant may qualify by taking a special enrollment examination given annually each fall in an IRS district. An application with fee must be filed with the IRS prior to taking the two-day exam.

The sole practitioner who places heavy emphasis on providing tax services will work long hours during the tax season, which extends from January 1 through April 30 each year. Extensions on some tax returns will lengthen the tax season. Tax work, with its many complexities, commands a higher fee than write-up work.

Management Advisory Services

Management advisory services are services of a general business or financial nature not falling under one of the special categories. Some examples are designing and implementing a cost system, selecting and installing a computer system, improving the accounting system, assistance on hiring and training accounting personnel, assistance in obtaining a bank loan, and special analyses to aid the client in achieving certain objectives.

Audit Services

Audit services form either a small or nonexistent percentage of the sole practitioner's business. The practitioner will be able to undertake only small audit engagements that can be completed within a limited time frame. An example is the small business whose banker requests an audit prior to granting a loan.

An audit is a review of the accounting records of a business entity and the issuance of an audit report stating that the financial reports issued by the entity fairly present its financial position and are prepared in accordance with generally accepted accounting principles. For a fuller discussion of auditing, refer to Chapter 1.


The accountant starting his or her own practice risks an uncertain future. Sacrifices in time, in effort, and in finances are made. Financial rewards will build slowly because initially the sole practitioner will get those clients wanting time-consuming, low-paying bookkeeping services. The accountant building a practice will need time and effort to manage his or her own firm. The accountant enjoying new-found independence and the challenge of building a practice will require self reliance, self-discipline, and the ability to withstand discouragement.

Factors to Consider

Before starting a practice, you should talk with others who have opened a practice. The single most common cause of failure is lack of sufficient experience. You should be employed first by another firm and gain several years' experience before opening your own practice. The sole practitioner should have been employed by a corporation, a public accounting firm, or the government at a supervisory level.

Keeping in mind his or her training and experience, the accountant should consider the following factors:
  • The type of practice that can be built (tax, bookkeeping, financial planning, specialized clientele, or a varied practice).
  • The amount of revenue needed to replace earnings lost through leaving employment elsewhere.
  • The means of attracting and gaining new clients.
  • The amount of financing needed in the early years and how much borrowing will be necessary.
  • Where and when the practice should be opened.
  • The available market for accounting services.

It can be very difficult for the accountant to forecast revenue for the first year. Theoretically a budget should be prepared based on the estimated number of billable hours multiplied by established hourly rates for the different services to be rendered. Unless the accountant has a major client or several good clients when starting out, however, billable hours are really an unknown. According to a survey made in 1996 by the Texas Society of CPAs, a beginning practitioner should expect less than 1,400 billable hours at an average billing rate of $30 to $50. This is an average of the lower rate for write-up work and the higher rate for tax work. In practice, many factors will operate to prevent normal billing. Some of these factors are un-billable review and research time, lack of experience, low-level clientele billed at the lowest rates, clients who do not or cannot pay, clients who dispute billings to obtain low fees, and hours written off on first-time clients. Accountants with more experience can charge higher rates. The Texas Survey showed rates top out around $150 per hour.

Business expenditures will be made for furniture, fixtures and equipment, and for operating expenses. Operating expenses include rent, insurance, a tax library, utilities, telephone, supplies, the salary of receptionist-typist, professional dues and license, and continuing-education seminars. Furniture, fixtures, and equipment can cost from $2,000 on up. Operating expenses can be normal if you work out of your home, or they can range from $4,000 to 7,500 a month, if you start up your own business and work from an outside office.3 Establishing an office in one's home does not give a professional image, but it may be an economic necessity for a year or two.

Revenue minus the costs of buying furniture and equipment and minus operating expenses leaves very little for living expenses. The accountant may need to borrow during the early years of starting a practice.

Some options are (1) renting equipment rather than buying, (2) sharing office space with another professional, and (3) earning supplemental income by teaching a night class in accounting at a nearby university. The rule of thumb is that it takes five years to become self-supporting. Some accountants have accomplished it in three years.

Sources of Clients

The individuals opening a new practice must let friends, professional people, and other contacts know about it. An announcement containing a business card should be sent to current clients, lawyers, bankers, business acquaintances, friends, organizations, former associates, insurance agencies, and real estate agents. Most clients are obtained through referral from someone else. Criteria considered important in building and maintaining clientele include personal service (attention), reputation, experience, and the range of services offered.

Some involvement in community activity is desirable. The sole practitioner should also be active in a professional organization at the local level to maintain contact with other accountants.

2Texas CPA Society 1996 "MAPS" Billing Survey, Standard Average Hourly Billing Rates. 3 On Your Own, AICPA, 1990.

The sole practitioner should have good communication with his or her clients. This communication may be strengthened by sending newsletters and tax tips, and by telephone calls. An open line of communication often leads to additional services. It may prevent the loss of a client because of recession, bankruptcy, and other causes. Clients are lost because they outgrow the services offered by the accountant, they are bought out by a larger company, or they require services the accountant cannot perform due to lack of staff.

Location and Time

The office preferably should be in an area where other business units are located. Location is an influential factor in a client's choice of an accounting firm. Location in a good business district provides contact with potential clients.

An alternative, should such a location be too costly, is to share space with another CPA, an attorney, an insurance agent, or another professional person.

A community should have a population over 5,000 and a minimum of 50 businesses to support a small accounting office. Smaller the community, the less opportunity for growth of the practice. In a larger community, the growth of one's accounting practice is limited only by one's potential and ability.

Early fall, September and October, is the best time to open a new office. The accountant has time to furnish and establish an office, send out announcements, make contacts, and get ready for the tax season. Many new clients are obtained during tax season, January 1 to April 15, when tax returns must be filed.


The sole practitioner has the advantage of determining the quality of his or her work life. An unhurried life-style, freedom to be one's own boss, personal involvement in all areas of accounting, the challenge of managing a practice, and more time to enjoy life are the most common rewards cited for operating as a sole practitioner. A practice can be designed to fit one's health limitations without inconveniencing anyone. An individual practice can provide flexible hours for the person entering accounting who wishes to have time for family.

The sole proprietor has a personal involvement that is becoming increasingly rare in the accounting field. He or she becomes trusted friend and consultant to many of the small-business owner clients in the community. This role goes far beyond balancing the books and preparing financial statements. Examples of consulting services performed for clients may include advice in:
  • buying or selling a business
  • providing for succession of ownership
  • pricing of products or services for sale
  • financial statement analysis resulting in improved profitability
In a small town the accountant's role can be very broad.

The practitioner's income level may be lower than that of the accountant in industry or in public accounting. He or she may drive a smaller car, own a less pretentious home, and take less exotic vacations. On the other hand, the practitioner with high-level clients in sound financial condition can enjoy the rewards of economic success: car, home, and social status.

Disadvantages and Dangers

There are many disadvantages of having one's own practice, and the most common fall into three basic categories:

  • Limited business growth.
  • Lack of shared responsibility.
  • Lack of a balanced life-style.
The growth of the practice is limited by the owner's knowledge, billable hours, and energy level. The owner takes on all the decision making and the management of the practice. The owner must take time to keep abreast of tax law changes, keep up with a growing number of technical and professional rules and guidelines, gain expertise in new areas, learn new methods, and acquire new equipment. Reading and monitoring the new rules, plus running the office, can take up more than 50 percent of the sole practitioner's time. All this reduces time spent on billable accounting services for clients. Only so much can be delegated to a secretary-typist. The sole practitioner also loses billable time when attending seminars and conventions. The total cost for such days equals the cost of the seminar plus the loss of billable services.

The job can be physically and emotionally draining from January through April. The practitioner often works 100-hour weeks. Clients call at all hours of the day and night with business and family crises.

Sole practitioners will face difficulties due to compulsory continuing professional education requirements, the costs of peer review, the cost and unavailability of liability insurance, increased marketing costs, and problems attracting and retaining qualified staff. A practitioner with a practice that is not state-of-the-art might have difficulty selling the business at retirement.

Sole practitioners have no one to turn to for advice and discussion of problems that emerge. They have no one to review their work, no one to delegate responsibility to and no one to help take on opportunities. They must plan for a successor in case of illness, disability, or death. The successor may not possess the necessary skills to carry on the accounting practice.

It will be difficult for the practitioner to separate business and home life. It will be difficult to take a vacation and leave someone else to manage the office. It will be difficult to be efficient, stay well, and keep some personal time. Handling stress and living a balanced life are necessary to maintain high productivity.

Growth and Survival

In the past, individual practices, like many small businesses, have experienced growth without a lot of planning. This growth rate may be slowing because of a changing economic environment. Since most individual practices are primarily a combination of write-up services and preparation of tax returns, they are vulnerable to the competition offered by large organizations with computer facilities such as banks, service bureaus, and tax service organizations. Rivalry from these non-accounting sources introduces price competition and a shrinking market.

Small firms are often "wedded" to their small clients. If the accounting firm grows, it will do so more because of its clients' growth than because the firm has acquired a greater number of clients. The quality of service rendered is very important, as is the personal interaction between client and firm.

Small firms must plan for growth. They must take the same advice they give to clients. They must practice management skills, marketing skills, and anticipate the needs of the business environment. Good administration is essential to a successful practice.

The individual practitioner of the future may need to develop a specialization. The specialization might be in computerized systems, divorce cases and complex settlements, cash flow and budgeting, financing methods and opportunities, pension plans, estate planning, insurance adequacy studies, or accounting for professional athletes. Technical specialties will arise within the accounting profession. The accountant of the future will be more of a thinker and less of a doer.
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