Are fresher Chartered Accountants (CAs) shying away from setting up their independent practices?
Statistics from the Institute of Chartered Accountants of India (ICAI) suggest so.
According to ICAI statistics from April 2023, 77 per cent of the total number of Associate CAs (those who have under five years of work experience), ie over two lakh of them, did not have independent practices. This indicates that just 21 per cent of Associate CAs have their own practices.
Meanwhile, Fellow CAs, ie, Associate CAs who applied for a Fellowship with the ICAI after five years of experience, seemed to be more comfortable setting up independent practices, with 83 per cent of them having them.
Why does this disparity exist among CAs in having their own practices? EdexLive spoke to a few CAs to understand.
Inexperience, lack of capital a major factor
According to CAs, newcomers are not in a position to set up independent practices, as they lack the finances or experience to do so.
“A lot of new CAs prioritise gaining experience before setting up independent practices. As a result, they chase corporate jobs, particularly in the Big 4,” says Suraj Lakhotia, Co-founder & Director of IndigoLearn EduTech, an online platform for CA exam preparation.
He adds that after gaining experience in various fields of accounting such as auditing, taxation and finance, CAs apply for Fellowship with the ICAI, and eventually set up independent practices.
“It is not as if CA Fellows overwhelmingly have independent practices, but the other way around. CAs who are experienced enough to practice independently apply for Fellowship after five years of service, as it brings them certain advantages due to being a marker of higher experience,” Lakhotia explains.
In addition, many CAs agree that setting up independent practices is a viable option upon gaining a certain level of seniority.
“Most CAs join firms like McKinsey, Deloitte or any of the Big 3 or Big 3 as Associates. It would take them 10-12 years to rise to the level of a Partner. Establishing independent practices after reaching this level would give CAs a stronger start,” says Lalit Solanki, a Chartered Accountant and Fellowship CA aspirant. Please specify who are the Big 3
Moreover, corporate positions give CAs the financial stability they need at the beginning of their careers and help them build capital to eventually leave their positions to start independent practices.
“Many of us have several financial commitments, like taking care of our families. Starting your career with an independent practice is not financially viable, as it takes you years to even find and establish a steady clientele,” says CA and educator Moni Gupta.
She adds that many CAs migrate from their hometowns to bigger cities for work, and they need well-paying jobs for sustenance. “I hail from a small town and moved to Mumbai for my job. I need to support myself and my family, and I cannot do that if I had an independent practice,” she says.
She adds that through her corporate job, she can not only gain experience but also build the capital required to set up a CA practice of her own.
Nepotism and other barriers to entry
While the lack of experience is a factor dissuading new CAs from starting off independently, they have to navigate several other challenges in the sector.
One of them is the nepotism prevalent among CAs.
“If you are a first-generation CA, running an independent practice is an uphill struggle,” says Suraj Lakhotia, and adds, “Only second or third-generation CAs can afford to do so.”
Adding to this, Lalit Solanki says that independent CAs, owing to their experience and years in practice, have cemented themselves in the sector, with established clients and connections to sustain or even advance their careers.
In most cases, they choose their children or other relatives as their successors, he adds.
“In inheriting their parents’ practice, the children also inherit their connections and clients, who would continue to engage with them because of their associations with their parents,” he says.
He further says that due to this, coupled with restrictions on advertising for CAs, Associate CAs who want to start independent practices would struggle to find clients.
According to the Chartered Accountants Act of 1949, CAs are prohibited from soliciting clients through physical advertisements or communication like flyers, pamphlets, or interviews with the media. This clause was introduced so that CAs find clients through their reputation and not advertisement.
However, most CAs receive clients through indirect advertisements on digital and social media platforms, and word-of-mouth.
While the former requires capital to invest in, the latter requires industry connections, which only come with experience or being associated with established CAs, says Lalit Solanki.
Attesting to this, Moni Gupta says, “In my hometown, there are just a handful of accountants, but they are quite established. It would have been difficult for me to break through the market if I started my career with an independent practice.”
In addition, even if newcomers do start their careers with independent practices, they have to price their services competitively to attract customers, which adds a dent to their revenue, says Lalit Solanki.
