Whether you’re a finance major fresh out of college or have been working in an accounting firm or department for years, I’ll bet you’ve thought about being your own boss. There’s a lot to consider when exploring how to start an accounting business. Let’s dig into the necessary steps and mistakes to avoid.
Starting an accounting business offers an opportunity to chart your own professional course and enjoy the flexibility and control of self-employment. Of course, there’s plenty of research and work involved in the process. You’ll want to be thorough and well-informed as you make decisions while taking steps to start your accounting business.
Seven Steps to Start an Accounting Business
1. Choose a Business Name
This sounds like an easy-breezy decision to make, but a lot rides on your choice of a business name. It’s what clients will associate with your brand, and it will be on every piece of marketing content and communications that you produce. Some business owners choose to include their first and last name in their business name (for example, “Amelia Torres, CPA”). Or, they decide to get a little more creative and choose a trade name (e.g., “Horizons Accounting Services”). I recommend doing a corporate name search to ensure no other business is already using the desired name. Knowing this as soon as possible allows you to rethink your name before you’ve spent money on registering the name and creating your marketing materials. A trademark search is also a smart move if you expect to expand your business into other states sometime.
CorpNet’s free trademark search tool is a great place to start. Our Comprehensive Trademark Search Report goes deeper, providing information about federal registered and pending trademarks, data from trade journals and associations, and internet domain names. The United States Patent and Trademark Office’s database is an excellent resource, as well.
After you’ve decided on your name and verified that it’s available, CorpNet can help you do a business name reservation or register your business name as you form your business entity (more on that in Step Number 2).
2. Choose a Business Entity Type and Register Your Accounting Business
The business structure has legal and tax implications for an accounting business. One-person accounting businesses and small firms often choose to form either an LLC (Limited Liability Company), PLLC (Professional Limited Liability Company), or PC (Professional Corporation). If starting an accounting business with more than one owner, accountants often consider the LLP (Limited Liability Partnership) structure. All of these offer some degree of liability protection for the business owner because they are considered a separate legal entity. So, unlike operating an accounting business as a sole proprietorship or general partnership, the accounting firm owner’s personal assets aren’t typically at risk in the event of lawsuits or financial hardships of the business. However, note that business owners are personally responsible for their own acts of wrongdoing or negligence.
Business entities are state constructs, so the requirements and costs to create them vary from state to state. Also, realize that some states will restrict which types of business structures an accounting firm may be. For example, California does not allow accountants to form an LLC. It’s important to review your state’s specific rules. Ways to do that are by looking at the appropriate state agency websites (such as the Secretary of State office) and talking with an attorney.
After you’ve made an informed decision about the legal entity you want for your business, CorpNet can assist you. We can serve as your registered agent (a requirement for LLCs and corporations) and file your business registration paperwork with your state as you start your accounting business.
3. Apply for an Employer Identification Number
An Employer Identification Number (EIN), also called a Federal Tax ID Number, identifies your business for tax filing and reporting purposes. Businesses that have employees or that operate as a corporation or partnership must obtain an EIN. Most banks will require that a business has an EIN before they will open a business bank account for the company.
4. Get the Necessary Business Licenses and Permits
Certified Public Accountants must pass a CPA exam to qualify for a CPA certificate and license to practice. Also, states have their own set of education and experience requirements before they will allow someone to provide services as a CPA. The State Board of Accountancy in your state can provide details about the professional requirements.
State and local municipalities might also require other licenses and permits, too. Possibilities include the following items and others:
- General business operation license
- Signage permit
- Home occupation permit (if operating a business from home)
CorpNet can help you identify your business license and business permit requirements, or you can check with your local government office.
5. Open a Business Bank Account
As an accounting professional, you know this already, but I think it’s worth repeating the importance of keeping personal and business finances separate for both legal and tax purposes. For LLCs and corporations, separation of personal and business financial assets is required to uphold the “corporate veil” that protects business owners from the liabilities of the business. After a company is registered with the state and has obtained its EIN, it should have all the information required to open a business bank account and credit accounts.
6. Protect Your Business with Insurance
Forming an official business entity (LLC, LLP, PLLC, PC) limits an owner’s liability related to business debt and lawsuits, but it will not protect personal assets if action is brought against the business owner as a result of that individual’s own actions. An insurance policy can provide additional protection and deliver peace of mind. A knowledgeable and reputable insurance agent who understands the needs of businesses in the financial services industry can help guide you in the types of policies that may be a good fit. Here are some policies that they might discuss:
- Business Owner’s Policy (BOP)
- Professional Liability Insurance
- Data Breach Coverage
7. Put Your Business Compliance Responsibilities on Your Calendar
After starting an accounting business, there are ongoing requirements to fulfill to stay in good standing with the state and local governments. For example, LLCs, PLLCs, and PCs in most states must file an annual report each year and show proof of a valid certification. An accounting business registered as a corporation will have more compliance obligations than an LLC. Besides annual reports, they must hold annual meetings, prepare meeting minutes, uphold bylaws, and follow other rules. The business compliance requirements for each entity type vary by state. To take the mystery out of what needs to be completed and the deadlines by which filings are due, consider using the CorpNet’s Compliance Portal. It’s a free monitoring tool designed to help you keep track of your upcoming state filings and fees.
Other compliance duties that most accounting businesses must complete include:
- Renew business licenses and permits.
- Keep business and personal finances separate.
- Maintaining a registered agent in every state where the business is registered.
- Renew business insurance policies.
- Formally record major company changes via Articles of Amendment.
Five Mistakes to Avoid When Starting an Accounting Business
As you navigate how to start an accounting business, you may be wondering about the potential pitfalls that come with the territory. Here are a few snafus that have tripped up other business owners.
1. Rushing into Choosing a Business Entity Type
A hasty decision may have negative legal and financial effects on the company. Therefore, it’s important to get expert guidance from an attorney and research all the pros and cons. Review our Business Structure Chart for a nice comparison table of options.
2. Underestimating Funds Needed to Get Through Slow Times
Accounting businesses have uptimes and downtimes, just like other businesses. As you know, the industry is rather cyclical (think tax time!). Starting an accounting business comes with no guarantees of success. It may take some time to build a base of clients and gain a consistent flow of work. To minimize the stress of money issues, have enough funds available to fall back on when business is slow or you encounter unexpected expenses. The amount you need will depend on various factors (e.g., ongoing operating expenses, loan payments, etc.). Use your financial expertise to crunch the numbers and determine how much of a cushion you’ll need to get through slow periods.
3. Having a Build-It-and-They-Will-Come Mindset
Competing within a crowded field of accounting companies requires more than just existing. Your level of service and expertise may be superior to others in your area, but you will need to find ways to communicate that and raise awareness of your value. Find opportunities to build relationships with other business leaders and community members. Involvement in organizations such as local chambers of commerce, Rotary Clubs, and other networking groups can help you establish a name for yourself and build trust. Another way to demonstrate your industry expertise is to look for volunteer opportunities with business nonprofits, like SCORE, that might welcome presentations on tax tips and other finance subjects.
Leveraging the word-of-mouth power of the internet can help build your brand, too.
4. Ignoring Opportunities to Leverage Synergies with Other Businesses
Although it can be tempting to go into a “survival of the fittest” mentality, accountants can benefit from leveraging partnerships with businesses in complementary areas of focus—and even with direct competitors. Attorneys, bookkeepers, office furniture consultants, business coaches, and other accountants may be viable sources of referrals. You may be thinking, “Nellie, why would I ask for clients or refer clients to other accountants?” Great question! Perhaps you and the other accountant have different specialties or prefer working with clients in diverse industries. And what if either of you is too busy to take on new clients? Wouldn’t it be nice to have a trusted resource to direct prospects to?
Also, consider free CorpNet’s Partner Program as a way to expand your revenue stream. By either signing up as a Referral Partner or a CorpNet Reseller, you will provide additional value to your clients while adding income to your bottom line. You get a commission, and your clients get expert business formation and compliance filing services at great rates.
5. Submitting Compliance Paperwork That Has Errors or Is Late
As I mentioned earlier, ongoing compliance filings and other responsibilities must happen accurately and on time to keep a business in good standing. When business owners fail to pay attention to detail or drag their feet in submitting filings, they may face fines, penalties, and even suspension of their businesses. That’s a less than ideal situation! Don’t let it happen to you. Sign up for the free CorpNet online monitoring tool so that you’re always on top of upcoming requirements and their deadlines. And, to ensure that your paperwork is completed correctly and submitted to the correct agency, ask us about our business filing services.
Other Resources for Getting Started
Some other authoritative websites and organizations that offer insight into different aspects of how to start an accounting business and how to be successful include:
Let CorpNet Help Set Your Business Up for Success
Contact CorpNet for help with all of your business formation and compliance needs. Our expert staff has experience in assisting businesses in all 50 states with business registration paperwork, registered agent requirements, EIN applications, business licenses and permits, and more.