Will a CPA offer a start-up business free services?

I recently invited two young tech entrepreneurs to lunch. I wanted to know the role a CPA provided in the start-up of their various ventures.

I was somewhat deflated to hear that they had never consulted with a CPA when beginning their new ventures.  They did say it would have made sense for them to consult with a CPA and even said they wished they had had a CPA advising them from the beginning.

Yah …….but they didn’t actually do it, right?

So why didn’t they and does that mean there is no market for CPA services in the highly active technology start-up world?

I pondered the question and it seems the answer may be simple…….there was start-up activity but no real business start-up. There was a business idea, there was a decision to do market research, a decision to develop a business, a website launched, even product software design started…….but……there was no actually business started.   

These tech entrepreneurs may have formed a company, obtained a tax identification number, opened a bank account, spent money but unless they had repeatable sales of any significance or had significant sales contracts in-hand…….there is no business, there is no start-up business.  It’s a project, a bobby activity or a business in the making.

 This doesn’t mean they don’t need CPA services. They agree this was an important time to seek the advice of a CPA. However, the high cost of the CPA services, the need to conserve funds and the risk in the entrepreneurs mind that there may never be a real business means that a simple return on investment calculation in the mind of the entrepreneur fails the test and the decision to call on a CPA is deferred.

There are a growing number of extremely motivated individuals that are developing mobile software application so solve known and unknown problems. There is a tendency for the CPA anxious for new clients to interpret these efforts to be business start-up activities when they are not. Even when the developer has formed a company, opened a bank account, obtained an EIN and has a website that describes and announces the App, it is still far from a business.

 It most cases the software developer has no successful track record or even worked in a company that has developed and launched successful Software Apps.

However, all may not be lost for the CPA or the Entrepreneur.

A thinking CPA may be willing to provide some time to assisting the entrepreneur at no cost, such as a 1 or 2 hour presentation on  what is needed to start a business successfully. This might include tax implications of the different business legal structures, the importance of a business plan, how to price products and services, how to manage cash flow, the operational outsource cost model plus a whole lot more. The CPA may also be willing to invest a few hours of his time to outline general direction and provide reference sources. The CPA may also be willing to be on call when the entrepreneur or partners have financial questions.

The CPA is prepared to do this because he wants to acquire the future tax, accounting and consultancy work.  This work may be worth many thousands of dollars for a successful company over a number of years.  For the CPA the free time he or she is willing to invest has a positive ROI if he has confidence the entrepreneur has proven business start-up experience, a well articulated business model , necessary start-up funding and effective leadership that portends well  for success.

The CPA also has to feel that the entrepreneur will consider the CPA a very strong candidate to be signed-up for exclusive fee paying work down the road.

During this business development stage the CPA is unlikely to provide customized written work or advice that would be billable in the normal course of the firm’s normal business hours. However, as previously mentioned the CPA may often be willing to make a presentation and take short telephone calls, even respond with texts or a short email, be on an advisory committee or be a financial mentor.  These limited more generic services are valuable to the business start-up.

So there you have it…….forming a business is most likely not a start-up business. The CPA who is anxious for new clients can establish an early relationship with what maybe a potential client. The CPA can allocate limited time at little or no charge if the CPA has evaluated the entrepreneur and the new venture with a more likely probability of success than not. In this way the CPA improves his ROI on time allocated to the venture and is able to establish  an early relationship that very often will be sufficient to secure fee based work down the road.