The world will always need accountants. If you’re trained in accountancy, enjoy helping people and businesses organize their finances, and see an opportunity, starting an accountancy firm could be a good move for you.
What’s more, while the technology boom has affected traditional accounting services, it has opened a lot of opportunities for more tech-savvy accountants and accountancy firms. New accounting technologies allow accountants to provide in-depth help to clients faster and more accurately than ever before.
If you are considering starting a new accounting firm, where should you start?
Basic Requirements For Starting An Accounting Firm
Before we get into the specifics of setting up your firm, let's take a look at the basic requirements you'll need to get started:
Accounting Qualifications
While it is theoretically possible to set up an accounting firm as a manager/proprietor and hire accountants to do the actual accounting, it'd make much more sense if you understood accounting yourself!
The most successful accounting firms are run by people who genuinely understand and enjoy the accounting life. So ideally, you should have accountancy qualifications at a degree level or higher.
These qualifications will give you the knowledge you need to run your firm successfully and reassure potential clients that you know what you're doing.
Accounting Experience
Qualifications are not the same as experience. Having at least a few years of accountancy work under your belt is beneficial before you strike out on your own.
Again, experience is very reassuring for potential clients. It's also invaluable to call on prior knowledge when handling tricky cases.
“Most clients I encounter first ask how long I’ve been a practicing accountant. I think clients value experience because they want an accountant who can identify and stop potential wrongs before they become a major problem that could add expenses to the business. Also, an experienced accountant gives a client confidence that they can handle the growing needs of the business over time, which is the goal for every small business.”
- Miles Brooks, Director of Tax Strategy – CoinLedger
An Employer Identification Number and Tax ID Number
If you plan to employ accountants, HR staff, cleaners, administrators, and so on, you will need to register as an employer. A tax number is essential for all businesses. These are easy to obtain as part of the business registration process.
Some Funds
The exact amount you will need to get your firm up and running depends significantly on the scale of the operation you're planning.
Setting up an accountancy firm for relatively little initial outlay is possible, especially when you use software subscription services rather than purchasing software outright.
We'll go into startup costs in more detail later, but it's worth thinking about your startup budget as early as possible in your process.
How To Start An Accounting Firm
Let's go through what you need to do when starting an accounting firm:
Conduct Market Research And Analysis
Market research and analysis show you the level of need for your services, gaps in the market, who your major competitors will be, and the kind of service your potential customers both want and need.
What do the people in your target area most want? Tax advise? Payroll accounting? Analytical accounts advice? Market research can reveal all for you.
Market research also helps your fledgling accounting firm to connect with new audiences and potential clients. For example, research could reveal local business networking events which you could use to promote your new business and make useful contacts.
So, don't stint when it comes to market research. Send out surveys, hold focus groups, look into local business reports, check out competitor websites and social media, and so on.
Choose An Accounting Specialization
Specializing has a lot of benefits. While you'll need to understand the basic functions of accounting thoroughly, specializing allows you to cater to your own strengths and passions. In addition, it helps you to differentiate yourself from competitors, lets you move into and dominate a particular market niche, and makes you valuable to clients who want more than a generalist.
There are several accounting services to choose from. But, most fall under one of three major branches:
Tax Accounting
Every business and many private individuals need the help of a good tax accountant. Tax is a massive field with a lot of opportunity.
As a tax accountancy firm, you will need a good understanding of tax laws, the workings of tax offices like the IRS in the USA or HMRC in the UK, and so on.
If you intend to set up as a fully-fledged tax accountancy firm, there are several services you may consider offering, including:
- Tax advice
- Tax management
- International tax advice and management
- Tax analysis
- Business bookkeeping
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Assurance and Auditing
Assurance and auditing firms focus on fighting fraud and making sure that everything is legal and above board with accounts. Governments and large businesses often employ them to comb through a company's or individual's accounting records and check that no fraud or other deception is being committed.
Assurance firms may also provide evidence and expert testimony when an organization gets audited.
As an assurance/auditing firm, services you may offer include:
- Financial auditing
- Internal auditing
- External auditing
- Assurance management
- Forensic accountancy
Analytics
Accountancy analytics focuses on a company's financial workings and decision-making. For example, an analytical accounting firm might use client account data to forecast future profit, advise on future spending, and create models to inform financial decisions.
As an accounts analytics company, you may offer services like:
- Financial analysis
- Finance management
- Quarterly predictions
Choose Technology And Information Systems
As a modern accounting firm, your technology and information systems will be crucial tools. Therefore, one of the first things that potential clients will want to be assured of is that you are using top-of-the-range, secure, sophisticated, and trustworthy accounting tech.
Expense Management Software
An expense management tool will let you track billable expenses, configure budgets for each project and track spend against them, and define project rules and policies to ensure compliance.
That's not all.
As your accounting firm grows and you acquire multiple clients, an expense management system can also ensure that you don't spend hours every month sorting clients' expenses and pushing them into the accounting system.
Instead, it helps you and your clients collect receipts, approve them, and automatically push them into the client's accounting system.
“As a new accounting firm, you’ll need to be as frugal as possible with your resource. An expense management software can help you keep track of your spending across different categories like marketing, office supplies, or travel. This information can help you make informed decisions about where to allocate your resources.”
- Adam Pippington, CFO at Freedom Dividend
Practice Management Software
This will help you streamline workflows, automate tedious admin, and generally keep your practice's day-to-day well organized.
Project Management Software
This can help to track client accounts and ongoing tasks, manage systems, assign responsibilities, organize documents, and more.
CRM
Client Relationship Management platforms help to keep client accounts organized and clients happy. They are also an excellent repository of client data, which you can use to keep up to date with market trends and client needs.
Niche-Specific Software
You may need specialized software for your particular niche specialization. For example, if you plan to open a firm specializing in UK tax accounting for e-commerce, VAT accounting software will be very useful. If you want to go into analytical accounting, data forecasting software is a good choice.
Determine a Legal Structure And Registration
Your firm's legal structure will make a big difference in how you operate. For example, should you be a limited company? A general partnership? A corporation? The legal structure of businesses varies worldwide (and, in the USA, from state to state).
But, no matter where you are, determining your legal structure is vital to registering your new firm with the proper authorities and beginning to trade.
Common business structures for accounting firms include:
- Sole Proprietorship: This is the simplest structure, suitable for solo practitioners. It’s easy to set up and offers complete control to the owner. However, the owner is personally liable for all business debts and obligations.
- Partnership: If two or more individuals are starting a firm together, a partnership might be suitable. It allows for shared management and profits, but partners are jointly and individually liable for business debts.
- Limited Liability Partnership (LLP): This structure offers the benefits of a partnership but with limited liability for the partners. Each partner is protected from personal liability for the negligence of other partners, making it a popular choice for professional services firms.
- Limited Liability Company (LLC): An LLC provides liability protection to its owners (members) while allowing flexibility in management and taxation. It can be a good choice for small to medium-sized firms that want to protect personal assets. This structure can be advantageous as owners (members) can act as their own registered agents, potentially reducing costs.
- Corporation: A corporation is a more complex structure that offers the highest level of liability protection. It’s suitable for larger firms with multiple shareholders. However, it involves more regulatory requirements and potential double taxation (unless it’s an S corporation in the U.S.).
- S Corporation: In the U.S., an S Corporation offers the liability protection of a corporation but allows profits and losses to pass through to the owners' personal tax returns, avoiding double taxation. It’s often chosen by small to medium-sized firms.
The choice of structure should be made with the advice of a legal or financial professional, considering the firm’s goals, size, and the legal requirements in the firm’s jurisdiction.
Build A Human Resources Team
To be truly successful, an accounting firm needs more than accountants. You will also need a human resources team.
The number of HR roles you need to fill depends a lot on the size of your operation. In many cases, HR software solutions can cover a lot of HR tasks alongside a few HR professionals to oversee and step in where needed. In addition, HR software can streamline operations for your HR team and handle everything from leave management to onboarding to tracking staff performance.
Larger firms, on the other hand, may need a more fully-staffed HR department.
It's more than the size of your firm that determines how many HR professionals you need.
Suppose you are dealing with a lot of sensitive information and complex protocols. In that case, you may need more HR staff to ensure everyone behaves appropriately and that company standards are upheld.
Develop A Marketing And Branding Strategy
Marketing and branding are vital for building and maintaining a solid client base. Through a good marketing and branding strategy, you can:
- Build awareness about your accounting firm.
- Spread the word about your values, mission, and aims.
- Develop a distinctive and recognizable brand identity.
- Communicate with potential customers.
- Raise your market reputation.
- Maintain and improve relationships with current clients.
It can be tempting to market on the go, with the occasional press release or social media post as the opportunity arises. However, a comprehensive and coherent marketing and branding strategy is really a good idea. Through strategy, you can grow your business and reputation a lot faster than would otherwise be the case, with far less risk than would otherwise be the case.
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The Estimated Cost Of Starting An Accounting Firm
The cost of starting an accounting firm depends on highly variable factors, including where you are in the world, prevailing marketing conditions, and the services you intend to offer.
Costs to consider when estimating your startup output include:
Incorporation Costs
Incorporating your firm as an LLC or LLP typically costs between $150 to $250, plus state filing fees and annual fees. This ensures that your business has the proper legal structure from the outset.
Software and Services
Modern accounting firms require robust software to manage client needs efficiently. Comprehensive accounting platforms, such as CCH Axcess or SurePrep, can cost between $10,000 and $20,000 annually. Additionally, CRM platforms might range from $2,500 to $15,000 annually, and invoicing platforms like QuickBooks or Xero start at around $450 annually.
Business Insurance
To protect against potential liabilities, you’ll need insurance such as Errors & Omissions (E&O) insurance, which costs around $800 annually for $1 million in coverage. As your business grows, additional insurance like Employment Practices Liability Insurance (EPLI) and workers' compensation insurance will add to your expenses.
Premises Rent and Overheads
The cost of renting office space varies significantly depending on location and size. If you choose to rent, you'll need to budget for utilities, cleaning services, parking, and office decor. Alternatively, working from home or in a coworking space can reduce these costs.
Recruitment and Wages
Initial recruitment costs can be substantial, especially if you plan to hire full-time staff. Expect to pay a Tax Assistant between $50,000 and $100,000 per year, depending on experience and location. As your firm grows, additional employees will add to your payroll expenses.
Licenses and Accreditations
Depending on your jurisdiction, you may need specific licenses or accreditations to operate legally. Ensure these costs are factored into your budget from the start.
Branding and Marketing
Effective branding and marketing are crucial to attracting clients. Costs can range from simple pay-per-click (PPC) advertising to more complex branding strategies involving custom logos, websites, and promotional materials.
Overall Estimate: Considering all these factors, the cost of starting an accounting firm could range from as little as $2,000 to over $200,000, depending on the scale and complexity of your operation.
That said, for most startups, it’s likely to be on the lower end of this scale!
Can You Start An Accounting Firm If You’re Not A CPA?
The answer to this depends greatly on what you plan to do with your firm. For example, all CPAs (Certified Public Accountants) are accountants, but other kinds of accountancy do not require a CPA certification.
The difference between a CPA and a ‘regular’ accountant is that a CPA can conduct audits and assurance services. These are valuable services but may not be relevant for your remit.
Getting a CPA is often a good idea even if you don’t plan to offer audits and assurance services, as it’s an excellent and very professional qualification. In addition, the CPA certification process will give you valuable insight into the broader world of public accounting, which may stand you in good stead during your accountancy career.
It’s also worth noting that CPA rules differ from state to state, so check out what’s required in the state you’re planning to operate.
How to Start a CPA Firm With No Experience?
Starting a CPA firm with no experience might seem daunting, but its possible with the right approach. Here’s how:
Get the Necessary Education and Certificates
While you may not have hands-on experience, having the necessary education and certifications is non-negotiable. Pursue a degree in accounting, finance, or a related field and pass the CPA exam to become a certified public accountant.
Partner with Experienced Professionals
If you lack experience, consider partnering with or hiring experienced professionals who can help guide your firm in the early stages. This can help you build credibility and provide high-quality services to your clients.
Start with Simple Services
Focus on offering simple, straightforward services initially. For example, start with basic bookkeeping, tax preparation, or payroll services. As you gain experience and confidence, you can expand your service offerings.
Invest in Continuing Education
The accounting field constantly evolves, and staying up-to-date with the latest developments is crucial. Invest in continuing education courses, attend industry conferences, and seek mentorship opportunities to enhance your knowledge and skills.
Build a Strong Online Presence
Without experience, your online presence can help you establish credibility. Create a professional website, share valuable content through a blog or social media, and engage with your target audience online. Building a solid online presence can help you attract clients and build your reputation.
How To Price Your Accounting Firm?
Accountancy rates vary widely. Average pricing is affected by many factors, including location, services offered, experience, expertise, and competition.
Currently, many accounting firms are choosing a fixed fee pricing structure rather than an hourly rate. This is clearer for clients and can lead to faster business growth when you calculate your profit margins correctly.
The important thing is that you are giving your clients value for money without starving your business of cash flow. Figuring out the pricing structure to achieve this isn’t always easy, but luckily, an accountancy firm is better placed than most to work out money matters!
What Do Clients Look For When Hiring An Accountant?
“In my experience, clients are usually looking for someone who will listen. Someone who takes the time to teach and explain. I believe clients no longer want to just drop off their tax documents and pick up a completed return for signature. Today clients have questions they want answered, and the stories they read on Google they would like to discuss, which makes them feel heard or supported.”
- Wendy Barlin, CPA
Clients want a trustworthy accountant with a strong work ethic who has their best interests at heart. A proven track record of happy clients is definitely a bonus.
Word of mouth is the most common way for accountancy firms to acquire new clients, as trust and reputation play such an important part in accountancy. However, there are ways to ensure that word gets out about you and your firm. For example:
- Establish a known presence in your community through professional speaking engagements, offering sponsorships, thought leadership campaigns, and generally getting your face out there.
- Engaging with social media. Social media marketing can effectively bridge word-of-mouth and a more comprehensive marketing strategy when done right. Social media allows you to showcase your brand values and experience without being too ‘soulless’ and alien.
- Asking for referrals. Friends, family, and clients are all great places to start when gathering new clients. Ask them to spread the word!
What Should I Look for When Hiring an Accountant?
Most accounting firms look for a combination of technical skills, experience, and soft skills. Some key factors include:
Qualifications and Certifications
Firms often prioritize candidates with relevant qualifications, such as a CPA (Certified Public Accountant) or equivalent certifications, depending on the country. These credentials demonstrate a strong understanding of accounting principles and regulations.
Experience
Previous experience in accounting, especially in a firm setting, is highly valued. Firms look for candidates who have a proven track record of handling financial statements, tax returns, audits, and other accounting tasks.
Technical Proficiency
Knowledge of accounting software and tools, such a Quickbooks, Netsuite or Sage, or specialized tax software, is often required. Familiarity with data analytics tools is also becoming increasingly important.
Attention to Detail
Accounting firms need meticulous and detail-oriented professionals, as accuracy is critical in financial reporting and compliance.
Problem-Solving Skills
The ability to analyze financial data, identify issues, and propose solutions is crucial. Firms look for candidates who can think critically and handle complex financial scenarios.
Communication Skills
Strong verbal and written communication skills are essential for explaining financial information to clients and collaborating with colleagyes. Firms seek individuals who can translate complex financial data into understandable terms.
Adaptability
The accounting landscape is constantly evolving, with changes in regulations and technology. Firms prefer candidates who are adaptable and eager to learn new methods and technologies.
Cultural Fit
Beyond technical skills, firms look for individuals who align with the company’s culture and values. This includes teamwork, integrity, and a client-focused approach.
For a more in-depth analysis, go through our guide on How to Hire an Accountant for Your Company: A Step-by-Step Guide, written by CFO Andrew Lokenauth.
Can Accountants Work From Home?
Yes, accountants can work from home, and in fact, many accounting tasks are well-suited to a remote work environment. With the rise of cloud-based software, secure communication tools, and remote collaboration platforms, running a home-based accounting firm has become increasingly viable.
If you choose to work from home, you’ll need to consider the following:
- Secure data handling: Client data is sensitive, and security is paramount. Ensure that your home office is equipped with the necessary cybersecurity measures, including encryption, firewalls, and secure backup locations.
- Client communication: Maintaining clear and professional communication is essential. Consider investing in a reliable video conferencing tool or a secure messaging platform to stay connected with clients.
- Work-life balance: Working from home offers flexibility, but it also requires discipline. Establish a routine that allows you to separate your professional and personal life effectively.
Many successful accountants operate entirely from home, providing services to clients globally. The key is to set up your home office as a professional space and ensure that you have the tools and processes to maintain high service standards.
What Should I Know About Starting an Accounting Firm from Home?
If you plan to start your accounting firm from home, here are a few tips to help you get started:
- Designate a dedicated workspace: Having a dedicated office space in your home enables you to stay organized and productive. It also ensures that you can maintain a professional environment during client calls or virtual meetings.
- Invest in high-quality equipment: Your home office should have reliable technology, including a fast internet connection, a high-quality computer, a backup power supply, and any specialized accounting software you need.
- Consider licensing and zoning laws: Depending on where you live, specific regulations may govern home-based businesses. Check local zoning laws and ensure your home office complies with legal requirements.
- Market your home-based firm effectively: Just because you’re working from home doesn’t mean you can’t present a professional image. Invest in a professional website, utilize social media to reach potential clients, and consider joining online networking groups to promote your services.
Starting a home-based accounting firm offers flexibility and the opportunity to build a business around your lifestyle. However, it’s essential to approach it with the same level of professionalism and commitment as any other business venture.
Start Your Accounting Firm Off On The Right Foot
There’s a lot to think about when you start an accounting firm. But by taking note of the advice in this article, you can get your new accounting firm off to a flying start. Conduct thorough market research, choose your niche, invest in the right technology, hire a good HR team, and plan your market strategy. Once you cover these bases, you’ll be ready to start building a name for yourself in the accounting world.
