Can a small CPA practice be profitable?

Which work produces the revenue?

Recurring accounts, individual tax jobs, business tax jobs and advisory hours are modeled separately. Recurring work provides $201,750 of base first-year revenue, or 55.8% of the total. Tax work is concentrated in illustrative early-year and autumn periods; these month labels describe demand hypotheses, not a statutory filing calendar. Revenue includes only jobs the preparer and owner can complete. Requested jobs rejected by capacity are retained as unserved counts, without an invented backlog or later invoice.

Recurring fees are $750 per client-month; individual and business standard fees are $500 and $1,800. Job/advisory price realization is 96.0%. The modeled 0.5% expected collection loss is a separate expense, so price write-down and nonpayment are not silently merged. Prices, wages and fixed budgets grow by an assumed 2.5% per year; client counts and job quantities do not automatically grow by that percentage.

Which costs remain when demand falls?

The first preparer costs $5,939 per month at the starting wage/burden, even in a quiet tax month. The owner costs $10,080 monthly including burden. Once recurring demand triggers the second permanent preparer, that employee remains in payroll. Only the bounded seasonal overflow varies with actual productive hours. Treating permanent salaries as per-job variable labor would overstate resilience.

Monthly fixed cash expenses also cover rent, utilities, internet, insurance, broader software, marketing, CPE/renewals, IT support and other overhead. Tax software is prepaid before launch, amortized across the service year, and renewed at each year end for the next modeled year. The final forecast month does not buy software for an unmodeled sixth year. Hardware replacement is a cash investment in month 37 and a new depreciation vintage, rather than a repair expense.

California entity tax uses the stated 1.5% book-income proxy and $800 minimum after the assumed qualifying first year. Initial-year startup expenses reduce the book proxy. FTB rules are the starting reference; deductions, loss carryforwards, elections and actual tax-book adjustments need separate tax work. The simplified payment schedule cannot substitute for estimated-payment instructions for an actual incorporation date.

What do the unfavorable and busy cases reveal?

The lower case starts with 8 accounts, adds 1 per subsequent month, loses one account in five specified months each year and caps the book at 24. Prices are 90.0% of base, task times 125.0% of base and requested tax demand 75.0% of base. Tax/advisory receipts stretch across three months. Staffing and owner salary still have to be paid. No profitable recovery occurs within the forecast; its cash deficit is a signal to revise commitments or reject the launch assumptions.

The higher case starts with 14 recurring accounts and caps at 42, with 3 requested additions after the opening month. Tax demand is 125.0% of base and fees 105.0% of base. More demand does not guarantee more output: 65 requested first-year tax jobs cannot be accepted within the modeled preparation/review limits. The case assumes the second preparer is immediately available at the hiring threshold, a material operational assumption that needs a recruiting and training plan.

When could the funded investment be recovered?

Base project recovery occurs in month 16. The calculation compares cumulative operating cash before financing interest/principal, after the projected entity tax and replacement investment, with all startup funding including the reserve. It does not assume sale proceeds or release the reserve at the horizon. Base equity recovery occurs in month 13, comparing cumulative cash after debt service and replacement investment with the owner’s initial equity.

These definitions answer different questions. Equity recovery is potential retained cash, not a promised distribution: no dividends are paid in the model. The tax proxy still reflects the financed case, so project recovery is not a completely unlevered tax valuation. Under the lower assumptions, neither threshold is crossed within sixty months. Use the cash exhibit and assumptions together; a single recovery month hides both the initial cash trough and exposure to a permanent staffing step.

How much does the owner actually receive?

Gross owner salary is an operating commitment, not the firm’s residual profit. It starts at $9,000 monthly for 160.0 paid hours, with 120.0 available for client work after management, administration and professional duties. Payroll burden starts at 12.0%. Salary escalates annually; the owner is paid through the lower-case losses. Pre-opening paid owner hours appear separately in startup uses.

Firm EBITDA, net income and cash therefore remain separate measures. Net income includes noncash depreciation but does not subtract debt principal; cash pays principal and replacement assets. Owner personal income taxes, household living costs, health/pension benefits and dividends are outside this case. Add those owner requirements explicitly before concluding the practice supports a household. The unit guide shows how to allocate paid productive time for engagement pricing without deducting those salaries a second time in the firm statements.

Compare cash with the work calendar

See the full sixty-month path and values

All sixty modeled month-end cash balances, USD

Month	Base	Lower	Higher
1	$49,560	$42,894	$54,374
2	$48,823	$30,565	$61,979
3	$59,735	$22,616	$80,121
4	$75,877	$24,193	$97,625
5	$85,162	$26,406	$106,349
6	$83,526	$19,591	$109,228
7	$82,331	$7,990	$112,136
8	$81,790	−$3,472	$117,269
9	$85,295	−$13,921	$133,360
10	$95,705	−$20,967	$158,182
11	$103,372	−$22,505	$176,569
12	$102,377	−$31,481	$184,037
13	$106,276	−$40,713	$195,719
14	$115,221	−$51,000	$215,579
15	$135,552	−$56,510	$243,929
16	$160,004	−$56,515	$270,568
17	$176,533	−$53,021	$288,012
18	$180,329	−$56,667	$297,300
19	$184,676	−$65,345	$307,694
20	$189,022	−$73,881	$318,087
21	$197,444	−$82,977	$336,995
22	$213,230	−$88,583	$362,543
23	$228,024	−$88,396	$380,802
24	$229,685	−$95,887	$388,056
25	$235,463	−$103,743	$400,054
26	$244,891	−$112,386	$420,433
27	$265,753	−$116,116	$449,516
28	$290,829	−$116,845	$476,839
29	$307,794	−$116,798	$494,743
30	$311,694	−$121,409	$504,281
31	$316,172	−$128,833	$514,958
32	$320,650	−$136,393	$525,634
33	$329,306	−$144,479	$545,038
34	$345,509	−$148,716	$571,247
35	$360,697	−$149,144	$589,987
36	$362,411	−$157,314	$597,441
37	$359,143	−$173,811	$600,547
38	$368,829	−$181,992	$621,459
39	$390,236	−$185,874	$651,292
40	$415,959	−$186,870	$679,319
41	$433,371	−$186,799	$697,693
42	$437,387	−$191,493	$707,488
43	$442,000	−$199,080	$718,455
44	$446,613	−$206,806	$729,421
45	$455,509	−$215,070	$749,334
46	$472,141	−$219,390	$776,221
47	$487,731	−$219,806	$795,452
48	$489,508	−$228,150	$803,113
49	$495,626	−$235,592	$815,765
50	$505,578	−$243,955	$837,223
51	$527,543	−$247,911	$867,825
52	$553,927	−$248,902	$896,570
53	$571,798	−$248,806	$915,427
54	$575,932	−$253,586	$925,485
55	$580,683	−$261,340	$936,748
56	$585,435	−$269,236	$948,012
57	$594,576	−$277,683	$968,445
58	$611,647	−$282,088	$996,028
59	$627,650	−$282,492	$1,015,764
60	$633,563	−$286,942	$1,027,707

Download the exact scenario cash CSV. This educational export is separate from the planned personalized Excel workbook.