Accounting businesses have long been an evergreen source of income for entrepreneurs and small business owners. While software like TurboTax has certainly decreased some of the demand for their services, accountants still remain incredibly important for millions of Americans who have complicated tax returns. As such, with the right strategy, starting one’s own firm can be a highly lucrative endeavor.
This blog article will guide you through everything from a business plan to establishing a company to gaining a grasp of taxes and laws, successfully promoting yourself, and developing pricing models, all while allowing for the potential for development within the sector.
Steps to Start an Accounting Business
Accounting services are one of those industries that never run out of business. Accounting services are used by both individuals for their income taxes and other accounting needs as well as businesses of all sizes and kinds that need to maintain accurate records of their revenue, expenditures, tax payments, and other financial data.
Professional accountants provide individuals and business owners with an accurate view of their financial situation, assist customers in the development and execution of plans to reduce their tax liability, and offer a wide variety of additional financial advantages for their clients.
Meet the Proper Qualifications and Experience Requirements
Not just anyone can open an accounting practice and begin working with clients. Each state in the United States requires accounting firms that provide public accounting services to have a license. In each of these instances, the owner and/or manager of the accounting firm typically must have a CPA license or some other form of license. Further, they will be required to apply to the state board of accountancy.
While a CPA license is not always required, the type of license you have will impact the types of services you can offer. Services like auditing, attestation, and other types of assurance services are limited to those with CPA licenses. CPA licenses are also becoming much rarer as degrees like MBAs have become more popular. As a result, it can be a really top-notch license to have, and even if your accounting firm doesn’t work out, having a CPA will no doubt make you very employable. However, in general, without a CPA license, accountants can still offer a wide range of services to clients.
At a minimum, in order to be a CPA and take the CPA exam, you must have a bachelor’s degree, and most states will require 150 credits (hours) of business and accounting education. As a result, the bar to opening an accounting agency is not low.
Advantages of Being a CPA
As an accountant, achieving the Certified Public Accountant (CPA) designation provides the opportunity to have a much wider scope of services available for clients. Those who are not CPAs are limited in what tasks and services they can provide to their clients.
Some of the additional privileges that CPAs have include preparing audits, reviews, and compilations of financial reports, as well as issuing opinions on these reports. Furthermore, CPAs are responsible for tax planning and preparation in addition to providing testimony in court relating to certain matters that may arise with respect to accounting standards and regulations.
Having a CPA license is definitely beneficial for an accountant and puts them far ahead when it comes to finding professional work in the field. If you feel you have the ability to pass the intense examination required, it is definitely worth considering.
Devise a Strategy
For an entrepreneur to be successful, having a detailed strategy or a business plan is necessary for any new business. This allows you to ensure that you are not operating in the dark or making decisions on the fly. Instead, it can help you determine a qualified road map for the launch of your business that makes sense. The following are some significant factors to take into consideration:
What is the initial investment and what will be the continuing expenses?
Who exactly is your intended audience? How will you market to them?
How much money will you charge each of your customers? What products are you offering and what pricing schedules are associated with them?
What is your growth or expansion strategy? Where will you go to obtain your first clients?
These are all questions that will need to be answered early on.
Choose a Name for Your Company
Although picking a name for your company can seem to be a simple and uncomplicated task, there is really a lot riding on this decision.
It is what consumers will associate with your company, and it will appear on each piece of marketing material and communication that your company generates. Some people who operate businesses choose to include both their first and last names in the name of their company. We strongly advise doing a search on the intended name for the company to make certain that no other company is already using the name.
If you are aware of this information as soon as it is feasible, you will have the opportunity to reconsider your name before you commit financial resources toward registering the name and developing your marketing materials.
If you want to eventually grow your company into other states, doing a search for trademark infringements is another prudent measure to make.
Form a Legal Entity
The sole proprietorship, the partnership, the limited liability company (LLC), and the corporation are the most frequent forms of organizational structures for businesses.
If your accounting firm is sued, having a legal business organization as a limited liability company (LLC) or corporation prevents you from being held personally accountable for the debts of the business.
Apply For EIN
Your company may be identified for the purposes of tax filing and reporting with the use of an Employer Identification Number (EIN), which is also referred to as a Federal Tax ID Number.
An Employer Identification Number (EIN) is required to be obtained by all businesses that either employ people or are structured as corporations or partnerships. Before opening a bank account for a corporation, the majority of financial institutions demand that the firm first provide them with a valid EIN.
Open a Bank Account and Get a Credit Card for the Company
It is vital to have separate banking and credit accounts for one’s company in order to secure personal assets.
When your personal and corporate finances are combined in this way, you put your personal assets (such as your house, your vehicle, and other valuables) in jeopardy in the event that your company is sued.
Insure Your Accounting Company
The formation of an official business company and the type of business (LLC, LLP, PLLC, or PC) reduces an owner’s responsibility in relation to business debt and litigation.
Nevertheless, this does not always protect the owner’s personal assets in the event that legal action is launched against the owner as a consequence of the owner’s own activities.
A good business insurance policy may provide not just extra protection but also a sense of relief and security.
You may benefit from the advice of an experienced and well-respected insurance agent who is familiar with the requirements that firms in the financial services sector must meet and who can assist in steering you toward the sorts of policies that may be a suitable match for your company.
Design a Website for Your Business
The next thing you should do after deciding what your brand stands for and designing a logo for it is to design a website for your company.
Even if the development of a website is a necessary step, some people may worry that it is beyond their capabilities since they have no prior expertise in the field of website construction.
Although it was possible that this was a valid concern a few years back, significant strides have been made in web technology over the previous few years that have made the life of small business owners much easier. There are many services that make building a website quick and easy, like Squarespace.
In addition to this, you should move towards having a social media presence to reach out to the maximum number of people. It will enable you to be visible to your target market and locate new clients. Platforms like LinkedIn and Facebook can be of great value in this respect.
How Much Capital is Required to Start an Accounting Business?
You can often establish your own company from the comfort of your own home for around $2,300 if you already have your CPA certification and a dependable computer.
It will cost you around $12,000 if you need to take the CPA test, wish to rent an office space, and buy a computer all at the same time. In order to sit for the Certified Public Accountant test, you will need to demonstrate that you have the necessary education and experience.
However, as noted, you do not necessarily need a CPA license, so costs will vary based on what services you are looking to provide to your clients and what certifications and licenses you desire. These sorts of decisions will play into your business’s ability to generate capital in the early stages and in the long run.
What is the Expected Revenue for an Accounting Firm?
About $200 per hour is the usual hourly rate for a certified public accountant. When you work from home, you should aim for a profit margin of roughly 90%. Working from home for ten hours per week may result in an annual income of more than $90,000 in the first year or two.
Which Financing Options are Available for an Accounting Business?
The most frequent form of financing for small and medium-sized enterprises comes in the form of loans. Take into consideration the fact that every lender provides a unique set of benefits, such as individualized customer service or flexible repayment options. There are also many different types of loans, including term loans, lines of credit, and more.
It is in your best interest to look into a number of different lending options and settle for the one that caters to your individual requirements.
Since bringing ideas to light is not always a simple task, government organizations provide assistance to private-sector businesses. It’s possible that you’ll have access to this financing, which may assist you in covering costs like research and development, marketing, personnel, equipment, and even improvements in productivity.
There are also Small Business Administration (SBA) loans, which are backed by the federal government and therefore are easier for borrowers to qualify for. Their signature loan is the SBA 7(a) loan. As such, you should always consider your SBA loan options whenever looking for a loan for your small business.
What Should Accounting Business Owners Expect?
When the owners of an accounting business first begin the startup phase, they may find themselves feeling overwhelmed by the number of tasks and decisions that need to be made.
A major factor that will affect their success is preparation – they should make sure they understand the basic principles of running a business and have a clear plan of action in place.
They can expect to spend much of their time establishing business relationships, reaching out to potential clients, and arranging finances. In this way, a business entity may achieve recognition by word of mouth.
The owners should also prepare for any eventualities by setting up an emergency fund and creating an effective asset protection strategy. They should stay informed about relevant laws and regulations that could impact parts of their operations.
Above all else, establishing sound financial habits can go a long way towards ensuring success; tracking expenses regularly will keep them on track with their budget while allowing them to assess their performance efficiently.
Furthermore, it’s important to consider ways in which the owners can scale the business in order to grow over time. This could include developing new products or services which are in demand or leveraging technology solutions such as online payments or cloud-based accounting software.
Finally, networking with other businesses in the field can be valuable as they share experiences and tips on how to run successful businesses.
Pros of an Accounting Business
A career in accounting offers job security. The demand for accountants is always high, no matter what the state of the economy is. Companies need accountants to keep track of their finances and make sure that they are complying with government regulations and individuals need accountants to handle their tax returns. Small businesses in particular often cannot afford to have an in-house accountant, and therefore must outsource the work to firms in order to save money.
Another advantage of working in accounting is that it pays well. Accountants are typically paid a salary that is higher than the average salary for other professions. The same goes for those running their own practices. Run right, an accounting firm can provide you with a long-term source of income that is well above the national average.
Variety of Work
Accountants get to keep their job interesting by offering a wide range of services to their clients. That way, they are not always doing the same thing each and every day. Plus, they get to interact with a lot of different clients, oftentimes including both individuals and businesses. This can help expand their network long-term by generating a word-of-mouth reputation.
Another benefit of working in accounting is that it offers a flexible schedule. Many accountants work part-time or from home, which gives them the flexibility to choose when and where they work. This flexibility is especially beneficial for those with families or other commitments outside of work.
Cons of an Accounting Business
The biggest con of starting an accounting business is that it can be quite time-consuming. It is a full-time business structure and can become very time intensive if you want to really scale and expand your practice. You will need to keep track of your client’s finances, prepare their taxes, and file their paperwork. This can take up a lot of your time, especially if you have a large client base.
Requires Specialized Knowledge
Another con of starting an accounting business is that you need to have specialized knowledge in order to be successful. You will need to know how to use accounting software, prepare financial statements, file taxes, and more. And you will also need to be skilled at doing all of these things so that you can be efficient with your time. Without this knowledge, it will be difficult to provide your clients with the services they need.
This can also be seen as a pro though since it helps limit the number of competitors entering the market. This is why accountants are able to charge much higher hourly rates than many other professions. If it was easy to be an accountant or anyone could do it, then everyone would enter the industry and the hourly wage would drop quickly.
Can Be Stressful
Another downside of starting an accounting business is that it can be quite stressful. You will need to meet deadlines, deal with clients’ financial problems, and keep up with the latest changes in tax laws.
If you are not well-organized and efficient – especially during the tax season – this can quickly become overwhelming.
Requires Start-Up Costs
Another con of starting an accounting business is that you will need to invest in some start-up costs. These may include office space, furniture, computers, and accounting software.
While these costs can be significant, they are necessary in order to provide your clients with the services they need.
Competition Can Be Tough
Finally, another downside of starting an accounting business is that competition can be tough and depends on where you open your practice. There are a lot of accountants out there, and while the number of CPAs is not growing as fast as many other professional degrees – therefore increasing demand – the industry can still be difficult to gain a foothold in early on. It’s all about generating word of mouth and establishing a long-term and consistent client base early on.
There are many other accounting businesses out there vying for the same clients. You will need to make sure that you offer competitive rates and quality services in order to attract and retain customers. Oftentimes, it can help to find a niche set of services for your firm to offer – that way you can become really good at doing a few things rather than just ok at doing several.
Accounting Job vs. Accounting Business
An accounting job is a position within an organization where you are responsible for maintaining and auditing the financial records of the company. You may also be responsible for preparing tax returns and financial statements, as well as providing advice to management on financial matters.
One of the main advantages of having an accounting job is that you will have a steady income and benefits such as health insurance and retirement savings plans. Additionally, you will likely receive training from your employer on various aspects of accounting and finance.
On the other hand, the main disadvantage of having an accounting job is that you may be required to work long hours, including evenings and weekends. Additionally, you may be under a lot of stress due to the nature of the work.
An accounting business is a company that provides accounting services to other businesses or individuals. This can include bookkeeping, auditing, tax preparation, and financial consulting. Accounting businesses can be small, local firms, or large, international organizations.
The main advantage of having your own business is that you will have the potential to earn a higher income than you would in a traditional job. Additionally, you will have more control over your work schedule when you are self-employed.
One of the main disadvantages of having an accounting business is that it can be difficult to find clients, especially if you are just starting out. Additionally, you may need to invest in expensive software and equipment in order to provide quality services.
Here at the Biz2Credit Blog, we work tirelessly to bring the latest information and news on small businesses to readers. This is because Biz2Credit is dedicated to helping millions of small businesses across the nation. So, remember to keep checking back here at our blog for the latest timely information each day.