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Can your new firm be profitable in its first year?

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Is it really possible to create a profitable firm within the first 12 months of trading? Will Cole chats with Mark Telford on how he reached the £100,000 milestone in year one and how others can do the same.

3rd May 2022
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Making the decision to set up your own firm can be daunting for accountants working in practice and those who may have grown comfortable with the corporate experience. In a recent Any Answers thread, user SNS83 put this dilemma to the community, questioning whether moving away from a 12-year stint in industry to strike out on their own was really viable.

While members were happy to offer their advice, SNS83’s “£40-50k” first-year income estimate triggered a spirited debate among users on the financial realities of going solo. 

Cloud-cuckoo land?

Any Answers regular Moonbeam advised approaching the challenge with more realistic expectations: “Setting up on your own is very hard work indeed if you’re looking for small businesses to work for – you need to build up a good six months worth of savings, if not more.”

Many users agreed with Moonbeam’s assessment, with others believing that such an estimation was optimistic for someone starting from scratch with no investment into marketing and sales.

Heather Townsend, founder and author of the Accountants Millionaires’ Club, argued that: “If you want a fee bank of £40-50k in your first year then you need to brush up on your sales/marketing. Ideally you need to start building your profile with your target audience now rather than wait.”

Others were even more sceptical of the original poster’s income projections. “As everyone says, you’re being way too optimistic,” cautioned Calculatorboy. “People just don’t knock on your door – I don’t think you’ll make a penny in the first year.”

An achievable goal

Mark Telford, founder of Telford’s Chartered Accountants and formerly known around these parts as Kent Accountant, took a more positive stance on income potential in the first year of business. 

His firm surpassed £50,000 turnover in its first year by a substantial margin and Telford was keen to emphasise that becoming profitable within the first 12 months was achievable. 

“If somebody takes the right approach when it comes to setting up a profitable practice, you can definitely smash through it. I was able to make far more than that in my first 12 months of business,” Telford said. 

From the outset, he prioritised generating a stable income, as his savings would only carry him so far.

“I was in a situation where I was moving from a full-time role where I had been on a six-figure income. My overriding driver was I needed to get my income up to that level as soon as possible because I didn’t have loads of savings. So it came down to really asking how I could do that.”

Rethinking the model

While able to smash his targets in such a short amount of time, Telford said the early success was down to a good business model, especially when it came to remaining cash solvent: “The main way I stayed afloat in the beginning was by not working on this traditional accountancy type model from day one, which was ‘I need to get x amount of clients, whatever it might be, and build a base from there.’”

Instead Telford focused on transitioning to “subcontractor consultancy type work for one, two or three days a week to allow me to pay the bills”. This subcontracting and consultancy lifeline gave him peace of mind in the short term while generating cash to help him build the practice on his own terms. “A subcontract or part-time role while building up your accountancy practice makes things much more manageable. It avoids you taking on those clients that really aren’t a good fit, allowing you to be a bit more selective.”

However, while reconsidering the traditional route was a key driver for Telford, he noted that individuals moving from industry are in a unique position to achieve success. “Somebody moving from industry has a lot of different skills compared to somebody who’s only ever worked in practice,” said Telford.

Selling yourself

Leading on from the Any Answers community, Telford agreed on the importance of investing in marketing, arguing that a key area he focused on when starting out was to ensure he utilised every contact he had to get his firm’s name out.

“The main thing was making sure that I told everybody that I’d ever worked with what I was doing,” Telford said, adding that he would contact everyone “from customers and suppliers, to old work colleagues”. 

And it is this network, Telford believes, that helped drive the more long-term marketing goal of reference and referral, something which his firm prides itself on to this day. 

“Primarily, most growth comes through referral and recommendation. When you do get those clients, make sure they're completely happy with the service you provided, and then ask if they know other businesses that would benefit from working with you. That type of approach still does work.”

Rounding off our chat, Telford brought things back to basics by putting a real emphasis on the planning stages of starting a firm. While understanding that this may seem obvious to many, he noted that a lot of the time, new firms haven’t laid the groundwork required for sustainable success.

“Plan for it,” Telford said, adding: “You can’t plan enough when you’re setting your business up. Having clarity and a good idea of what your ideal clients look like and really understanding what it is you want to achieve – that’s key.”

Replies (12)

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By Winnie Wiggleroom
03rd May 2022 10:03

Working as a sub contractor for a few days a week while you build up your practice is not the same thing as starting a full time practice from day one. In fact I did exactly the same thing I had a decent part time wage while I built up my practice which by the way took about 3 or 4 years, and even then I needed a boost to push me over the line by buying fees.

The real question to Mark would be "how much of the smashed targets was attributable to your sub contract work? Or are you saying that you did well over 50k in year one excluding the SC work?

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Replying to Winnie Wiggleroom:
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By Hugo Fair
03rd May 2022 11:51

Similarly, whilst I totally endorse the statement that "most growth comes through referral and recommendation" ... there's an interesting follow-up question that doesn't seem to have been asked:
* "How did you identify/pick the groups in which networking is a common feature, and so likely to be productive for you?"

In my experience, there are three broad types of such groups ... a) those for a recognised profession; b) those in a sub-group of the public sector; c) those who are related to each other through familial ties.

All three groups are culturally used to exchanging opinions amongst their cohort - whereas other groups tend to regard each other as competitors (so are not as likely to pass on helpful recommendations), which leaves you relying on ad-hoc referrals (unreliable, unqualified and to which you can only react).

Whereas my suggested 3 groups are more amenable to being pro-actively 'farmed' (they are happy to learn together - providing opportunities to give talks or even host get-togethers).

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Replying to Hugo Fair:
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By Hugo Fair
03rd May 2022 11:58

I probably should have said that my experience is based on targeting reasonable sized businesses.
If you are more interested in the OMB size, then it's harder to be that targeted (although operators within a single trade do often exchange tidbits of info) - so you will be more reliant on the ad-hoc referrals that result (including those that you'll possibly wished had stayed with MDTP)!

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By MCV71
03rd May 2022 10:21

The word of mouth referral is key, in fact I've got to the stage where I keep getting these but don't want any more. Hard to turn away though when it's come through another client

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paddle steamer
By DJKL
03rd May 2022 15:19

I think becoming profitable depends if you are including a salary for self. I was initially a part time sole trader, I was certainly profitable every year, including year one, but frankly with virtually no overheads it is pretty hard not to be; I think at peak my annual costs struggled to even reach £2,000 pa.

"Can your new firm be profitable in its first year?" should maybe more be "Can I earn earn a living and keep the wolf from the door in year one?" because frankly starting a practice from home and with no salary to pay oneself it is near impossible not to be profitable.

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FirstTab
By FirstTab
03rd May 2022 15:58

The problem is verifying the highly positive claims made by the contributors in this article.

I have a £1m fee bank. It is achievable. You need to follow my model, please get in touch I will tell you how.

You need the right mindset and follow my tried and tested model.

BTW my fee is £500+VAT PCM. You need to show commitment, to make my time worthwhile.

I currently have only one space left.

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Replying to FirstTab:
FirstTab
By FirstTab
04th May 2022 13:38

"You need the right mindset and follow my tried and tested model.

BTW my fee is £500+VAT PCM. You need to show commitment, to make my time worthwhile.

I currently have only one space left."

Please note my comments above were tongue in cheek. I am drafting this response as a result of a PM I received.

I do not offer a service of the nature outlined. PLEASE do give your time and hard-earned money to anyone who offers this service.

There is no precise (formula) way to improve your client base/profits. It is down to you trying out various marketing options and luck.

They are many good articles/books/videos. Most of these are free. Use the free resource. You are unlikely to need anything more than YouTube.

Please do not buy into award winners/shortlisted, Sift's star article writers and practice gurus.

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Replying to FirstTab:
Glenn Martin
By Glenn Martin
05th May 2022 11:36

If you base your business development on trying stuff and luck I would suspect your progress is likely slower and less focussed than those that invest in external support and advice.

External consultants can bring much to bits you are not good at and provide some external accountability which is often lacking in a sole director business.

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Replying to Glennzy:
FirstTab
By FirstTab
05th May 2022 12:25

So much of life is based on chance/ luck. Where you are born, the parents you ended up with etc etc. It plays a major part.

I did not say it 100% all luck. What I am saying is accountants should be very mindful of practice advisors and award winners/shortlisted etc. It is always about them and not you. Promoting themselves is their hidden agenda.

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By eppingaccountant
03rd May 2022 20:12

In all honesty, this is a non-article. What does it tell us? That somebody sheltered themselves from throwing themselves in at the deep and by taking on three days a week subcontract work and taking on new clients. Big deal, that's simply re-inventing the wheel.

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By nlb
04th May 2022 10:17

Entirely possible, I did just shy of 100k in first year entirely from new client fees on subscription. However as others have stated a really good plan and skills in marketing or the funds to acquire them are essential as is having a bit of a network to support you. You will also need an element of unproductive time for training and up skilling in areas you need if you have not done the complete end to end before. I came from industry so it was very much same same but different.

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Glenn Martin
By Glenn Martin
04th May 2022 12:07

100% you should be profitable in your first year, it also should be the most profitable period of your practice.

The only thing I would do differently before leaving employment, is have a big chunk of working capital to go at from day 1, and I don't mean money to live on whilst you win work you need that also.

There is common image of accountants setting up on their kitchen tables for £500 but if you want to grow quickly you need more than that.

I would pay for branding, a good website and maybe commit to 6 months professional marketing up front. Hire an office and some outsourced bookkeeping support.

That way you you could quite easily deal with 2/3 new clients per week and you could just focus on onboarding them etc.

I had to grow a bit then spend some money as self funded everything but I think with the correct amount of funding at the start I could have got to where I was after 3 years, in 12 months.

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