Key Lessons to Start & Scale a Successful Accounting Firm

Starting and growing an accounting firm is no easy feat, but it can be an incredibly rewarding and lucrative endeavor for those with the right skills, strategy, and determination. In this in-depth blog post, we'll dive into the journey of Joe, an entrepreneur who built and scaled an accounting firm to over $10 million in annual revenue.

From Engineering to Accounting: Joe's Unconventional Path to Entrepreneurship

Joe's path to starting his own accounting firm was anything but traditional. With an engineering degree under his belt, he found himself drawn to the world of corporate finance, working at prestigious institutions like Goldman Sachs. However, Joe always had an entrepreneurial itch, and he knew that he wanted to start his own business, he just hadn't found the right idea – until he did.

In 2017, Joe launched Calculate, a firm that provided high-quality finance and accounting support to early-stage companies. Drawing on his experience in corporate finance, Joe recognized a gap in the market for the type of services he could offer. "Looking at my skill set, I said, 'Hey, I've developed a little bit of a skill set here, and something that a lot of early-stage companies were looking for – sort of higher-quality Finance and Accounting support,'" he explains.

Scaling to 45 Employees and $9 Million in Revenue

Joe's gamble paid off, and Calculate quickly gained traction in the market. Within just a few years, the firm had grown to 45 employees and was generating a staggering $9 million in annual revenue. "The rule of thumb is that my company generated generally like $200,000 per headcount in Revenue," Joe shares, "and so when we were 45 headcount, we were roughly about $9 million run rate business."

But Joe's success wasn't just about the top-line revenue – it was also about profitability. "Generally the market rule of thumb for a business like that is like 20 to 30% EBITDA margins," he explains. "Us, we were growing quickly and also investing and building our own software platform, so our margins without that sort of reinvestment were sort of in the mid-teens, higher teens, and then with that investment, you know, sort of ate up the rest of our profits. We were sort of in the mid-single digits in terms of margin, but generally like rule of thumb if you're growing at a modest rate, you know, you should be producing a kind of 20 to 30% profit."

The Power of Referrals: How Joe Built a Thriving Client Base

One of the keys to Calculate's success was Joe's focus on building a strong referral network. "I really built a big referral engine," he explains. "Talking with sort of and making relationships with the folks who have the same clients that I do – so, you know, corporate and startup attorneys, larger accounting firms were great, other consultants, things of that nature who are working with the same client base I am. Obviously, existing clients who are happy were great referral sources, and those would come in."

In fact, Joe estimates that over the lifetime of the business, only about 5% of their clients came from outbound marketing efforts. "Everything else was all referral inbound, new business," he says.

Pricing Strategy: Balancing Hourly Rates and Flat Fees

When it came to pricing, Joe took a balanced approach, offering a range of hourly rates and flat fees. "In the very beginning, I mean, my low-end rates for sort of basic bookkeeping-type work was $75 an hour, and then the higher-end rates were sort of like $150 an hour," he explains. "And then over our lifetime, we sort of doubled those, so the kind of low-end bookkeeping ended up being maybe $125 an hour, with the sort of higher-end strategic Finance work being more like $300 an hour."

Joe also experimented with flat fees, particularly for certain types of services. "We also did flat fees and stuff like that, but given a fast-growing client base and a sort of dynamic group of clients, we stuck mostly hourly over our time frame," he says.

Helping Clients Through Pivotal Moments: A Case Study in Client Success

One of the most rewarding aspects of running an accounting firm, according to Joe, is the opportunity to help clients navigate pivotal moments in their business. He recounts the story of one of his first clients, a recruiting firm, as an example:

"We did work for them for years and just sort of the monthly close and budgeting and things of that nature, and then they decided that they wanted to exit the business and sell. You kind of go from a kind of monthly controller into strategic, strategic M&A, CFO. So, you know, help them through diligence, help them build projections, help them build the story for what they're telling on the financial side of the business to their potential buyers. And so, yeah, super fun project. You have to do a handful of those, but I thought that was an interesting one, just like a really simple early client that we ended up helping."

Moments like these, where Joe and his team were able to provide strategic guidance and support during a critical juncture, were deeply rewarding and helped cement Calculate's reputation as a trusted partner for its clients.

Developing a Game-Changing Software Solution: The Birth of Amalgam

As Calculate grew, Joe and his team noticed a recurring challenge that many of their clients were facing: the time-consuming and manual nature of the monthly close process. "We noticed that there's just a lot of manual effort that goes around closing the books and preparing the financials every month," Joe explains.

In response, the Calculate team built their own internal software solution, which they later spun out into a separate company called Amalgam. "We actually built our own internal software that we spun out of this own company in 2022," Joe says. "We realize it was working so well for us that other folks could use it, and so spun Amalgam out as its own business."

Amalgam is a powerful tool that helps accounting firms and finance teams streamline their monthly close process by automating the consolidation and integration of data from various sources. "Amalgam facilitates that and ultimately allows you to spend less time on those manuals, those manual work items," Joe explains.

A Crash Course in Amalgam: Streamlining the Monthly Close Process

To give you a better understanding of how Amalgam works, let's take a quick look at a demo of the tool in action:

• Connecting Data Sources: Amalgam allows you to connect multiple data sources, such as Shopify, bank accounts, and accounting software, to consolidate all your financial data in one place.

• Automating Journal Entries: Once the data is connected, Amalgam can automatically generate the necessary journal entries to close your books each month, saving you time and reducing the risk of manual errors.

• Generating Reports: Amalgam also provides a suite of reporting tools, allowing you to generate custom financial statements, balance sheets, and other reports with just a few clicks.

• Integrating with Accounting Software: The tool seamlessly integrates with popular accounting software like QuickBooks, making it easy to upload your journal entries and other financial data directly into your general ledger.

By automating these time-consuming tasks, Amalgam helps accounting firms and finance teams focus on more strategic, value-added work, rather than getting bogged down in the manual aspects of the monthly close process.

Key Takeaways for Aspiring Accounting Firm Owners

Joe's journey with Calculate and Amalgam offers a wealth of insights and lessons for anyone looking to start or scale an accounting firm. Here are some of the key takeaways:

• Leverage Your Unique Background: Joe's engineering background and corporate finance experience gave him a unique perspective and skill set that he was able to apply to the accounting industry. Don't be afraid to take an unconventional path – your diverse experiences can be a competitive advantage.

• Focus on Building a Referral Network: Referrals were the lifeblood of Calculate's growth, accounting for the vast majority of their new business. Invest time in building relationships with other professionals in your industry, and make sure your clients are happy and willing to refer you.

• Experiment with Pricing Models: Joe's firm used a combination of hourly rates and flat fees, allowing them to cater to the diverse needs of their clients. Be flexible and willing to try different pricing strategies to find what works best for your business.

• Identify and Solve Pain Points: The development of Amalgam was a direct response to a challenge that Joe and his team were facing – the manual nature of the monthly close process. Keep your eyes open for opportunities to develop innovative solutions that address the pain points of your clients.

• Embrace a Consultative Approach: Joe's team didn't just provide basic accounting services – they became strategic partners to their clients, helping them navigate critical moments like mergers and acquisitions. Positioning your firm as a trusted advisor can be a powerful differentiator.

Starting and scaling an accounting firm is no easy feat, but with the right mindset, strategy, and execution, it can be an incredibly rewarding and lucrative endeavor. By following in the footsteps of entrepreneurs like Joe, you too can build a thriving accounting firm that delivers exceptional value to your clients.

If you're interested in learning more about Joe's journey or exploring the capabilities of Amalgam, be sure to check out the Controller Academy and the FP&A Academy – two comprehensive online courses that cover a wide range of topics related to accounting, finance, and business management.