Accounting practices, like all businesses, require funding to start, operate, and grow. The funding requirements of practices vary depending upon whether they are a new practice, established practice or an expanding practice. The practice funding can be provided by the practice owners from their personal savings and assets, through debt financing, or a combination of the two.
With new practices funding is required to cover the initial practice set-up costs. These costs include the office fitout, office signage, furniture, equipment, computers, software, licences, etc. and are typically $10,000 to $30,000. As new practices are building a client base from nothing the income will lag the expenses for the first year or two. These operating losses will need to be funded. Thirdly, often it is only in year two or three that a practice will start paying the practice owner a ‘wage’. Until this point is reached the practice owner’s private living expenses will need to be funded.
New practices are normally funded by the principals from their private funds, by a bank overdraft, or a business loan. As new practices are in a start-up phase and have limited revenue, bank financing typically requires the principals to provide residential property as security for the finance.