How to start an accounting firm: Your checklist for successfully starting a firm

Starting your own accounting business sounds like a lot of work — why would I want to start a 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 innovative? 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 centers around less complex tasks like basic tax preparation. However, there are certain liability protections to becoming an LLC, including limiting risk for your business. Assets become owned by your company and are separate from personal assets. When a business is not incorporated, it becomes harder to draw that line, and the entire enterprise becomes at risk.

What are the requirements for opening an accounting firm; what do I need?

Starting an accounting firm is no different from starting any other small business. While there are accounting-specific requirements, it’s important to remember that you’re starting a business first.

Begin by figuring out your purpose, goal, and market. Doing so will influence many other decisions, including the function of the services you provide, whether you want a physical or virtual location, your target demographic, and the location of your business.

Once you’ve selected a location and determined your goals, it’s time to consider the nuts and bolts of owning a business.

You’ll need to:

• Obtain an Employer Identification Number (EIN) and Tax ID number
• Investigate employment laws
• Determine startup costs
• Develop a pricing structure for services
• Decide on the legal structure of your business — S corp, L corp, LLC, partnership, C corp, etc.
• Look at business insurance
• Create a business bank account
• Develop internal policies and rules
• Hire employees

Additionally, you’ll have to think about the day-to-day needs of running a business, including managing risk, basic administrative tasks, and general questions about how and where you will meet clients. 

Will I need to get a new EIN from the federal government?

In most cases, owning and running an accounting firm necessitates an employer identification number. However, the IRS website provides an in-depth explanation of who they require to have an EIN and when. A good rule of thumb is if you plan on hiring employees or plan to do so in the future, you’ll probably need an EIN.

That said, even if you don’t think you need one — or the website says it isn’t a requirement — most businesses are probably better off acquiring an EIN.

Luckily, the online process is fast, easy, and free. 

If I’m not a Certified Public Accountant (CPA), do I need one to open an accounting firm?

It depends.

While all CPAs are accountants, not all accountants are CPAs. There are differences between the two, including education, experience, and certain opportunities. However, the answer goes back to the question, “What services do you want to offer?”

An accounting firm can do almost everything a CPA firm can — except for audits and assurance services. So, if that is a part of your goals or target market, then it’s probably wise to consider the steps needed to become a CPA.

However, if you want to focus on the multitude of other services accounting firms provide, it’s likely not a necessary credential to start. While there are certain state-by-state exceptions about what can and cannot be undertaken by a CPA, they are not required to start an accounting firm.

However, if you want to call yourself a “CPA firm,” you will need a CPA.

Can accountants work from home?

One of the benefits of starting an accounting firm is flexibility. So, the simple answer is yes — many accountants can and do work from a home office.

Working from home is even easier with modern technology and software solutions that help bring vital aspects of your daily workflow into one dedicated — and usually online — space. For instance, Thomson Reuters makes its CS Professional Suite of tax and accounting software available as hosted online solutions and designed its Onvio products to run entirely in the cloud.

It’s important to note: an accounting firm must have a dedicated electronic filing identification number (EFIN) for every separate location where they perform work. So, if you have an outside office location and also work in a home office, you’ll need to investigate whether you’ll need a separate EFIN for the home office.

When considering a home-based business, it’s important to think about the unique challenges and opportunities involved.

These include:

• Shared work locations. There are myriad co-working locations across the country, many of which include space for professionals to perform their tasks and a professional, on-demand space to meet with clients. While there is usually a monthly fee to use these spaces, the benefits they provide are often worth the cost — and are significantly cheaper than leasing or purchasing office space.
• Low costs. New businesses often struggle with overhead. As you build your client list, keeping costs low is a priority. Not only does it allow you to see a profit early, but it also allows you to adjust your service menu to attract clients with lower-than-normal prices.
• Liability issues. If you choose to meet clients in your home, liability and zoning can be an issue. If a client gets hurt inside your home office — or suffers a fall outside of it — it’s vital to know the laws surrounding liability.
• Zoning laws. Most cities and counties have zoning regulations. Make sure you investigate and comply with any laws to ensure your home-based business isn’t operating illegally.
• Turning limitations into unique opportunities. While not having a physical space can be challenging at times, it can also be an advantage. Consider visiting clients onsite, which solves space concerns and communicates a message to the client — you offer a higher level of service.

What are the key services offered by accounting firms?

In many ways, you can answer this question by looking at your goals and target market again. What are the principal services needed by that population? How can you serve them better? Still, while the specifics of your clients and their business will dictate many of your services, there are a few fundamentals most accounting firms offer, including:

• Tax
• Accounting
• Assurance services
• Bookkeeping
• Payroll

While these are typically the core offerings — and the ones that will provide consistent business in most accounting firms — it’s also essential to investigate emerging and buzz-worthy services that are attracting bigger and more progressive accounting businesses.

From advisory services to outsourced chief financial officer (CFO) services — serving as the embedded strategic financial decision-maker for a client — taking a cue from the larger firms and anticipating which trends might trickle down to smaller and independent businesses can increase the clients you serve and put you steps ahead of your competition.

What should I know about running an accounting firm?

Starting a business is filled with new and challenging decisions. However, once the business is up and running, it’s common to be unprepared for typical day-to-day operations. Anticipating — and planning for — these concerns helps make sure you’re working as efficiently as possible.

Common questions and concerns include:

• Acquiring and developing talent. Frankly, finding and keeping staff is a significant challenge, which is why hiring always leads industry surveys regarding common needs and concerns. Even if you aren’t ready to hire a team, it’s wise to start developing a strategy early.
• Going beyond the seasonal business. Every year, it gets harder and harder to operate a seasonal accounting business, especially if you’re looking to offer a variety of services. Unless you’re doing just cookie-cutter tax prep and avoid complex returns, you won’t be able to operate on a seasonal basis. That said, prioritizing the season and maximizing your efficiency and your profits during the heavy times are critical to finding success.
• Keeping on top of regulatory changes. Staying current on major regulatory changes can be challenging, especially if you add staff. Find a solution that helps minimize the burden and risk that otherwise exists to help stave off the constant onslaught of new information.
• Rethinking the traditional role of the accounting firm. Conventional accounting firms used to meet with clients just once a year to do their tax returns. More progressive firms are moving to a year-round schedule, which allows them to expand services for current and future clients and implies a partnership relationship beyond the one-touchpoint-per-year model. 
• Putting technology to work for you. Today, most accountants are harnessing AI-powered tax technology to automate mundane tasks like data entry, increase accuracy, and unlock proactive insight that can help them provide more personalized advice to clients. Look for integrated tax software tools that harness the latest AI technology and put them to work for you.

How much should an accountant charge per hour, or should accountants charge a fixed fee?

In many ways, the answer to this question is unanswerable because the only reliable advice to give is, “It depends.” Every context is different and swayed by factors such as competition, location, service offerings, and level of expertise.

However, even though there isn’t a standard fee, most accounting firms are moving away from an hourly fee structure and choosing to institute a fixed-fee model that allows better value for clients, a more manageable business plan, and — eventually — an increase in earnings.

Again, every context is unique, and there are certain situations when an hourly fee structure is best. These include:

• When you’re gathering information to develop a fee structure
• Gauging profitability in a newer firm and trying to determine the hours you need to work and remain profitable
• Early in your career, when you need more time to complete basic tasks

Outside those circumstances, a fixed-fee or value-based pricing approach is recommended and preferred. As your skill and expertise grow, so will your ability to complete tasks quickly. With an hourly fee, this means having to take on more clients to maintain — and hopefully increase — your profits.

A fixed-fee structure is about value. The expertise and skill you bring to service are of more importance than just an hour of work for clients. Pricing your abilities based on knowledge is not only good for your business but is ultimately valuable for your clients as well.

How should I price accounting and bookkeeping services?

While there is still a debate surrounding hourly versus fixed fees in some aspects of the business, accounting and bookkeeping are not one of them.

Accounting and bookkeeping services — as well as other service lines, such as simple tax preparations — are almost universally charged as a fixed fee, and there is a market expectation for that pricing structure.

When determining a fee structure, many accountants call other firms and ask for quotes. They use the average of those quotes to determine a fair and competitive price for their services.

Other resources are local and national affiliations and associations. Many larger ones, like the National Association of Tax Preparers, will distribute recommended price structures and other useful information. 

Seasoned tax professionals often rely on a proven methodology to position and price themselves accordingly in a changing landscape. With essential tools such as proposal templates, pricing calculators, and checklists, along with personalized consulting and support, Practice Forward equips tax professionals to make the profitable shift from traditional tax compliance to client advisory services.

How much should a CPA charge for taxes?

While you do not have to be a CPA to prepare or file taxes, the training and expertise required to gain that credential matters. Simply put, you’re a CPA and deserve a premium for your services.

When trying to structure fees, it’s crucial to set a minimum job value. By setting a minimum job value at, say, $500, you won’t get mired in lower-level work that you likely don’t want to take on. Plus, that work can take up time and pull you away from more valuable work you’d rather be doing.

Knowing what you want to charge — and identifying the value you bring to your clients — is critical. You are providing a service to your clients but also giving them value based on your credentials and experience. So, it’s up to you to set the standards and have them choose between lower costs — them doing it themselves — versus the value of having a CPA prepare your taxes.

That said, there’s a balance.

Many CPAs “write down” certain services because they know their hourly rate for larger projects can quickly become untenable for a client. Not only does the client see this as a discount, but it also allows you to create a fixed-fee structure for your services and show the clients the savings and value they receive.

If they need more staff, what do accounting firms look for when hiring?

When hiring, accounting firms are like many businesses; they’re looking for a combination of credentials, experience, and the ability to perform the necessary tasks. However, in an increasingly competitive hiring market, many firms are beginning to look at soft skills as valuable for new hires.

For decades, accounting firms have focused primarily on credentials. Increasingly, it’s less about certification and more about aptitude. For the most part, it’s easier to train accounting knowledge than it is to build customer service skills. When hiring, it’s essential to look at the qualities a candidate can bring to a firm — not necessarily just their credentials.

Of course, experience and credentials do matter, especially when the experience set for an accountant is specific and narrow. What types of tax returns have you prepared? What specializations do you carry? Credentials such as CPA, EA, attorneys, and state certifications — when required — are all still attractive to firms looking to hire.

How much does it cost to start an accounting firm?

Startup costs can range from $2,500 to $25,000. Your location and your goals will determine the price in several ways, including whether you want to start a traditional brick-and-mortar firm or are looking to create a virtual office environment.

It’s important to remember that, besides physical or virtual space, accounting firms need to find and install the necessary equipment and technology to help their practice run more efficiently. That, in many ways, is the first step for a new entrepreneur. Once they’ve found a tax solution to help them achieve their goals, they can begin tackling the other day-to-day tasks and questions of running a business.

What’s the best business structure for accounting firms?

Finding the best business structure for your accounting firm is a critical part of not only ensuring success but also helping to minimize both your tax burden and your risk.

While the circumstances of what your incorporation looks like will depend on your approach, it is considered a best practice to become incorporated right off the bat due to the legal protections it provides.

Popular options include:

• Partnership
• S corporation
• C corporation

If you’re running a solo firm, you’ll likely be looking at an S corp, which allows you to pay yourself as an employee. However, if you are working with other partners, a partnership might be more preferential, as it provides a little more flexibility with payment. You are permitted to take draws or distributions, and it doesn’t necessarily require a payroll department because it’s not considered wages, per se.

Whichever structure you choose at the beginning, know that it will likely evolve throughout the maturity of your firm. For instance, a firm might accept the risk and start as unincorporated to avoid the incorporation fees, and then they might transition to an S corp. Over time, as additional owners move into the entity structure, the firm can add additional shareholders or reorganize as a partnership.

It’s better to have a separate legal entity than not and better to have separate federal filing than not.

How do I get accounting clients?

The consensus is word of mouth. However, while a strong work ethic, exceptional service, and competitive pricing will undoubtedly attract clients, a successful business always requires more than just good luck.

Here are a few tips on how to increase your client base:

• Be a business owner, not just an accountant. Doing so means focusing on solid business practices and looking for ways to ensure both stability and growth.
• Market yourself. Marketing goes beyond starting a business and hoping people show up. Look for ways to partner with other companies and firms, as well as networking opportunities in the community. The local chamber of commerce is an excellent resource.
• Don’t forget about friends and family. While they won’t be able to maintain your business over the long haul, friends and family are a great starting place for initial clients and also referrals.
• Take advantage of easy and cheap technology. To help drive local searches for your accounting firm, Google Ads can make for productive investments.
• Be in the community. Look for professional speaking engagements that you can offer to local groups for free. Create thought leadership presentations, teach community education classes, and provide a venue to show your skills and knowledge.

You’ll find other ideas in our blog post on finding new clients.

How about social media and online presence for accountants — are they worth the effort?

Websites, social media, and other online presences are a great way to establish credibility in the market.

For the most part, a simple online presence is relatively easy to start with minimal startup costs. While an online presence won’t guarantee increased exposure, not having one can negatively impact you and discredit you to a potential client. In many cases, a website and social media become an augmentation to your word-of-mouth referrals. Most people won’t simply call a number without the opportunity to do some basic online research, so be sure your website is search engine optimized to help prospective clients find it.

Some firms focus on a specific accounting specialization; should I consider a niche accounting service?

Put simply, the more specialized you are, the more profitable you are. However, it’s not as much a question of should you but can you.

Many — if not most — firms will start as generalists and then slowly become a more niche practice. Sometimes, a firm will intentionally build clients in one area. Others realize they have, for example, many construction clients and then move to that particular niche.

If moving toward a niche practice, consider:

• What’s your timeline? When should you plan to transition to a specialized practice? When is the right time to stop chasing general clients?
• Partnering with more generalist firms. That way, they can help take on other client needs while you tackle only the niche side of their business.
• Gaining professional affiliations is important. They can help distinguish you in a competitive market and further signal your niche work.

What’s the most popular accounting niche?

Like many things, niches are often dependent on location, interest, and understanding where there is a need across different businesses. However, some of the most successful niches are the ones serving fellow professionals such as doctors, dentists, and attorneys.

Services-based niches, as opposed to manufacturing based, are also on the rise. For example, real estate professionals, landscapers, and farming clients are becoming a more prosperous and unique way to do business.

However, it’s important to remember that you have to target businesses where you have the right location and the right skills. For example, the farming industry has particular needs and goals. If you can fill them, you have a highly valuable specialization in that market.

What do prospective clients consider when choosing an accountant, and what do they look for in a CPA?

What are the things most likely to influence a client’s perception of you in the little amount of information they can get from a flyer, website, or social media? While “first impressions matter” may seem cliché, they still matter to your clients. As a result, making sure your communication is direct, pleasing, and engaging is crucial.

Some important deciding factors include:

• Aesthetics. What’s the aesthetic of your website? Is it mobile-compliant? Does it seem modern? Do your documents use color and seem to be professionally designed? Take care to control new prospective clients’ perceptions of you and what they see in you.
• A professional place to meet. Whether you operate a brick-and-mortar business or a virtual one, having a suitable place to meet with clients is essential.
• Clients want comfort and assurance. Clients want the assurance that if the IRS or another regulatory authority comes after them, their firm will be their defender and stand up for them. Extending that sense of comfort is going to help influence clients.
• Knowing your target market. Understand your market’s needs and make it very clear that’s what you can provide them. 

Get started on building your accounting firm with professional accounting software that combines write-up, trial balance, payroll, financial statement analysis, and more. Check out Thomson Reuters Accounting CS today.