How To Start An Accounting Firm

Accounting Firm

Starting an accounting firm is similar to starting any small business in that it needs a significant amount of effort. Accounting firms, on the other hand, are listed by industry and consulting firms as one of the single most profitable small businesses a person can start right now. Starting your own accounting firm allows you to define your own career path while enjoying the flexibility and control that comes with self-employment. Of course, there is a significant amount of study and labor involved in the process. You’ll want to be meticulous and well-informed when you make selections to start your accounting firm.

How To Start An Accounting Firm

Step 1: Comply with the Requirements to Start an Accounting Firm

The founder decides on several factors of founding an accounting firm, such as the business’s name, location, and entity type (sole proprietorship, limited liability company, professional corporation, etc.; see below for more information on business entity selection). However, as CorpNet notes, the creation process necessitates a number of additional steps:

  • Apply to the Internal Revenue Service for an Employer Identification Number (EIN), which is also called a Federal Tax ID, to identify the business for tax filing and reporting.
  • For a home-based business, get municipal business operation licenses, signage permits, or home operation permits.
  • Open up a new bank account.
  • Sign up for company insurance, such as a business owner’s policy (BOP), professional liability insurance, and data breach insurance, to cover your personal assets.
  • Examine all of the compliance requirements and timelines.

Is a CPA required to start an accounting firm?

Earning a certified public accountant (CPA) license isn’t essential to starting an accounting firm, but it can influence the sorts of accounting services a company may provide. According to Thomson Reuters, an accountant who isn’t a CPA can perform virtually all of the services that a CPA does, with the exception of auditing, attestation, and other assurance services. The Securities and Exchange Commission (SEC) of the United States mandates that certain statutory financial statements be submitted by a CPA. Of fact, only a business created or operated entirely by CPAs may call itself a “CPA firm.”

The following are the distinctions between assurance services and other accounting services: An accounting firm’s usual services include tax planning and preparation, company accounting, bookkeeping, payroll, and assurance services. According to Investopedia, assurance services are exclusively provided by CPAs and involve formal evaluations of a company’s financial documentation and transactions.

The distinctions between attestation, auditing, and assurance:

Attestation, according to S. Partners, is the verification of the validity of a company’s financial data for compliance, internal reviews, or financial reporting, whereas auditing focuses the review on a specific aspect of the organization’s operation to identify potential risks or compliance shortcomings. Assurance, on the other hand, is meant to improve the firm’s reputation for honesty, support business choices, and increase the reliability of the information provided by the organization.

Option To Start an Accounting Firm

Most people imagine establishing a business as starting from scratch however, this may not be the ideal option for every new accounting enterprise. As Home Business magazine points out, many professionals begin their journey to independence by freelancing. This helps you to create vital relationships among possible clients while still working full-time.

The following are the most popular options for establishing an accounting firm:

  • Begin from the beginning: According to Accounting Today, one of the advantages of starting a new accounting firm is not having to deal with legacy pricing, technology, or customer service issues. However, entrepreneurs must have a price plan as well as a marketing strategy.
  • Begin with a part-time practice: A common strategy for accountants to go from employee to owner is to pick up a few customers on the side while continuing to work as staff accountants. This helps them to gain a taste of what it might be like to manage a full-time practice without taking the risk of leaving their current work.
  • Look for a partner: With a partner, a firm may provide a greater range of services to attract a broader clientele; nevertheless, the chemistry between partners must be good, and all partners must compromise for the benefit of the business’s success.
  • Purchase an existing practice: While purchasing an existing practice may appear to be a simple way to establish an accounting firm, the market generally has more buyers than sellers. This allows sellers to select a buyer with substantial expertise to preserve the interests of the company’s existing clientele. Buying a practice entails inheriting a customer list and other assets, but it is also the most costly choice.

Making a Business Plan

The most crucial document for each new commercial venture is its business plan, which specifies the company’s aims, the services it will provide, and the market it will target, among other things. The business plan serves as the foundation for the firm’s proposal to potential consumers and is required for funding.

The following are some of the issues that should be covered in the business plan:

The precise aims of the company are determined by the expertise and talents of its employees.

The firm’s structure is as follows:

  • Sole proprietorships are the most basic form, yet they expose the owners’ personal assets to danger.
  • General partnerships, limited liability partnerships (LLP), limited liability corporations (LLC), and professional LLCs all provide more security to company owners.
  • S companies (S corps) are a common choice for solo accounting firms since they allow owners to be paid like workers, but they do need incorporation expenses.
  • Because they minimize the liability of owners and shareholders, C corporations (C corps) are the most prevalent type of business formation for businesses. However, running a C corp entails a slew of obligations, such as holding annual meetings and filing financial disclosure statements.
  • Capital needs and sources, as well as a breakdown of launch and monthly operational expenditures
  • Marketing and pricing plan depending on the services to be provided and the staff’s expertise Office, equipment, software, and staffing

Accountants can work from home?

One of the advantages of beginning an accounting business is the ability to be flexible. So, the basic answer is yes—many accountants can and do operate from home offices. All restrictions that apply to a physical site apply to virtual or home workplaces as well. As a result, the absence of a physical office does not hinder an accounting business.

In reality, working from home has become even simpler thanks to advances in technology and software solutions that enable you to consolidate critical components of your daily workflow into a single dedicated (and generally online) place. Thomson Reuters, for example, offers its CS Professional Suite of tax and accounting software as hosted online solutions and developed its Onvio products to function totally in the cloud.

It should be noted that an accounting company must have a different EFIN (Electronic Filing Identification Number) for each separate location where they execute services. So, if you have a physical location and operate from home, you should look into whether you need a second EFIN for the home office.

Step 2: Determine Your Accounting Specialization

According to FreshBooks, there are eight branches within the wide area of accounting:

  • Financial accounting records and handles company transactions, as well as keeping a record of them. 
  • Cost accounting is a type of managerial accounting that deals with manufacturing expenditures, specifically those associated with operations.
  • Auditing can take place either within an organization (internal) or as a third party (external). The former manages the company’s accounting operations, whilst the latter conducts an impartial audit of an organization’s accounting systems.
  • Managerial accounting gathers financial data and makes it available to corporate managers to help with budgeting, forecasting, cost analysis, and other choices.
  • Accounting information systems are concerned with the completeness, accuracy, and efficiency of a company’s accounting systems.
  • Tax accounting assists customers in developing a tax strategy and manages tax preparation and filing, ensuring that all applicable tax rules are met.
  • Forensic accounting is concerned with the investigation of legal situations such as fraud, corporate disputes, and claims resolution.
  • Fiduciary accounting controls a person’s or business’s affairs, such as property, estate concerns, administration, and guardianship.

In addition to the eight branches, there are three types of accounting specialties:

  • Tax accounting guarantees that a client’s tax records and filings are in accordance with applicable rules. Accountants that specialize in tax services ensure that a company’s accounting records are in compliance with the IRS. They also convert the tax information from the firm to the proper business tax forms.
  • Financial accounting ensures that a company’s tax records will satisfy potential investors or lenders. Financial accountants use generally accepted accounting standards (GAAP) to present an accurate picture of a company’s financial situation.
  • Budgets, product costs, cash management, and other financial processes are the subject of management accounting. Balance sheets, profit, and loss statements, and cash flow statements are all dealt with by management accountants.

The three specializations’ responsibilities may necessitate the use of talents from many of the eight accounting branches. A tax accountant, for example, may use elements of fiduciary accounting, financial accounting, auditing, and forensic accounting while servicing an individual client.

Specialty Accounting Firms’ Skill and Location Requirements

Many accounting specialties need specialized certification. The highest level of certification is CPA, which involves passing a test offered by the American Institute of Certified Public Accountants (AICPA) and a state license. Among the other accounting certificates are the following:

  • According to scholars, the Certified Management Accountant (CMA) qualification overlaps with the CPA certification. Financial analysis, organizational efficiency, budgeting, and strategic planning are all emphasized.
  • A Certified Bank Auditor (CBA) ensures that banks follow their own accounting standards as well as state and federal financial rules. They usually perform audits once a year, although they may do it more frequently if state or federal agencies request it.
  • An enrolled agent is an IRS-issued designation that shows an accountant is allowed to represent taxpayers in IRS proceedings. To become an enrolled agent, candidates must pass a test or have sufficient experience as an IRS employee; agents must also pass a background check.
  • The specialty of an accounting company is heavily influenced by its location. Accounting companies in rural locations, for example, are more likely to specialize in handling the accounting needs of agricultural-related enterprises. Similarly, a suburban accounting company is more likely to succeed in lawn care and comparable activities than an urban organization.

How much are an accounting firm’s continuous expenses?

A monthly office rent, utilities, high-speed Internet, staff wages, marketing expenditures, insurance, computer/software updates, and general office expenses must be paid by an accounting service. The monthly office rent for an accounting firm is determined by the size of the premises as well as its location. In general, renting an office will cost you between $600 and $1,500 per month. It is also feasible to work from home or another property that you own. Plan on spending at least $150 to $200 a month on utilities, including high-speed Internet.

A receptionist will earn between $25,000 and $35,000. A marketing professional may expect to earn between $35,000 and $60,000 per year or more. If you do not wish to undertake the accounting job yourself, you will need to engage one or more accountants. These specialists often earn between $40,000 and $80,000 per year.

Step 3: Obtain Clients for Your Accounting Firm

Once the beginning elements are in place and you’ve decided on a specialty, the following stage is to promote the business to grow your client base. According to the CPA Journal, positive word of mouth is the quickest and most dependable type of promotion. Request referrals from current customers and permission to use them as references.

Attracting Customers and Promoting the Company

Starting an accounting company includes expressing your talents through expanding your professional network, in addition to expanding your existing customer base:

Schedule a friendly meet-and-greet with prospective clients whenever possible.

Join a local business organization, such as the Chamber of Commerce, and think about getting involved in civic or professional organizations.

Pro bono activities are an excellent method to meet new business contacts.

Inform relatives, friends, and business partners that your company is looking for references.

Developing the Online Brand of the Company

Promoting your services on social media, the company’s website, and other online platforms are becoming increasingly important as more commercial activity and communication move online. The five elements of a consistent brand for a small accounting practice are described by CPA Practice Advisor:

The most recognized part of a brand is the company’s logo, which sets the tone for the company’s message to the rest of the world.

Its tagline is a brief phrase that expresses the most important aspect or attribute of the company.

Adopting a uniform color scheme that is utilized in all online and printed media aids in communicating the brand of the firm.

Also, utilize the same selection of typefaces for all online and printed correspondence. Make certain that the typefaces you use are from a web-safe library.

The visuals accompanying the firm’s online presence and correspondence should be consistent in terms of images, illustrations, and backdrops.

Prospective Clients’ Considerations When Choosing an Accounting Firm

Small firms are unlikely to require the services of a full-time accountant, but bigger organizations must determine whether to employ internal accounting or hire an outside accounting company, according to Inc. However, the basic characteristics that businesses want in an accounting firm apply to enterprises of all sizes.

Certifications: As previously said, CPA and CMA are the most prevalent accounting credentials, but others include Accredited in Business Valuation (ABV), Certified Valuation Analyst (CVA), and Personal Financial Specialist.

Expertise in the industry: Inform potential consumers about your present customers in the same or a related business. This implies that the company is aware of the prevalent challenges in the sector.

Size: While large accounting companies can provide more experience in a wider range of topics, some small businesses prefer to work with accounting firms that will not treat them as second-class citizens. Large accounting firms, for example, may delegate certain work to smaller businesses.

Complexity: Show prospective clients that your accounting business can satisfy all of their needs, whether they are simple year-end tax forms and financial records or more extensive financial planning and retirement counseling.

Finding the formula for success may be a trial-and-error process, and only a small percentage of organizations succeed. Climbing to the top of the accounting business requires the right workers, the right habits, the appropriate tools, and occasionally a little bit of luck. However, we hope that you will be able to learn from those organizations that appear to have discovered the secrets of running a successful accounting company so that you may apply these secrets to your own business and make it into the next major success story.

Finding the proper company structure for your accounting firm is crucial not just to guaranteeing success but also to reduce your tax load and risk. While the details of your incorporation will vary depending on your strategy, it is regarded best practice to incorporate immediately away owing to the legal protections it gives. Follow your guide and best wishes to start an accounting firm.