Starting your own accounting business sounds like a lot of work. Why would I want to start an accounting firm?
Starting an accounting firm is like starting any small business – it requires a lot of work. However, industry and consulting firms list accounting firms as one of the single most profitable small businesses a person can start right now.
Here are a few questions to consider when starting a firm:
- Do you want to be a cog in the machine or own a firm? Frankly, there isn’t a wrong answer to this question, but rather a preference. However, going out on your own comes with one significant benefit: you’re getting the profit from the firm, not just your wages. You go from employee to owner.
- What’s my business purpose? While perhaps a bit esoteric, defining your business’s purpose is crucial. Why am I doing this? What’s my goal behind this? It’s not just a philosophical exercise. Knowing why you’re starting a firm can help you define your target market, whether it’s helping small businesses, real estate, or another service area.
- Do you want to be nimble and cutting edge? Small firms tend to be much more agile and have a greater ability to do new things. From adopting new technology to discovering and implementing new software or other efficiency creating tools, running your own firm lets you make the decisions about what makes your business unique—and profitable.
- Should you start a legal entity? For some, a sole proprietorship won’t require incorporation – especially if the work is centered around less complex tasks such as basic tax preparation. However, there are certain liability protections by becoming an LLC, including limiting risk for your business. Assets become owned by your business and are distinguished from personal assets. When a business is not incorporated, it becomes harder to draw that line and the entire enterprise becomes at risk.
Most CPAs start an accounting practice using the following entry strategies:
- Starting from scratch: Starting from ground zero allows you to begin without any legacy issues like old pricing, old software, and past-client service issues. To effectively market your services and price properly, you should enroll in a practice marketing and development program to learn marketing, pricing, selling and practice management. You should also be fluent with QuickBooks, which is how many small businesses manage their bookkeeping function.
- Part-time practices: Many accountants start picking up clients on the side as a part-time practice. This lowers the risk and enables them to assess whether they might enjoy starting a full-time practice.
- Finding a partner: This can help expand the services of the firm, so you can cast a wider net. This generally requires chemistry and compromise. While the startup expenses are shared, so are the revenues. We seldom recommend this approach.
- Buying a practice: This entry approach sounds easier than the other options but has challenges as well. First, the process takes quite a bit of time because there are more buyers than sellers. This enables the seller to be very picky and will generally prefer selling to an existing practitioner. Second, this is the most expensive option. Third, the attrition rate is generally higher than you project.
Pricing to Keep Clients Coming Back Again and Again:
It’s basically like a subscription to work. And the monthly fees are all-inclusive:
- Quickbooks review
- Monthly statement production
- Unlimited access for questions
- Tax planning
- Business tax return
With this, clients aren’t worried about the big bill coming in the mail. They know exactly what they’re paying and what they get.
Draft a business plan.
Writing a business plan is a necessity if you need funding. Lenders will only extend a loan after looking at your business plan. However, writing a business plan is also a great exercise on its own because it forces you to focus on the nuts and bolts of your business. Your plan should have the following parts:
- Executive summary. Write this last but put it first. It’s a one- or two-page summary of your entire business plan.
- Company description. Explain your business structure and how it fits into the accounting industry. Also identify your goals or objectives.
- Products and services. Describe your accounting services and anything that makes you unique.
- Marketing and sales analysis. You need to identify your competitors and then analyze their business, pointing out their strengths and weaknesses. Also create a profile of your ideal client. Consider age, income, education, location, etc.
- Organization details. If your business is large, you can provide an organization chart of departments and key employees. Also provide background information about your management team.
- Financial plan. You should project your finances for the next several years. Financial projections are particularly important if you need funding.
Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
In most states, it is necessary to obtain an accounting license. Certain state permits and licenses may be needed to operate an accounting business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Certificate of Occupancy
An accounting business is generally run out of an office. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to an accounting business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your accounting business will be in compliance and able to obtain a CO.
In order to provide accounting services, you may need to be certified (a Certified Public Accountant). This certification allows you to perform services that would otherwise be illegal to provide without certification.
Be sure to create a services contract. The contract should make it clear exactly which services you offer, how much you will charge, and what will happen in case of any contingencies–for example, if your client is audited, will you be responsible?