Starting Your Own CPA Accounting or Tax Practice| |
Starting an accounting firm is like starting any small business – it requires a lot of preparation and planning. However, industry and consulting firms list accounting firms as one of the best new businesses to start.
Like any new business initiative, everything starts from your degree of readiness and ability to take the risk. Here are a series of questions to honestly ask yourself before jumping in with both feet:
- Do I have the experience to service this type of business? For small businesses and individuals?
- Do I have the drive and determination to succeed? And find answers on my own?
- Do I have support from my family?
- Do I have the liquid capital to get started and operate for one year?
- How will I differentiate my services to earn higher fees?
Do I need to be a CPA to open an accounting firm?
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 nearly everything a CPA firm can do with one exception – audits and assurance services. So, if that is a part of your goals or your target market, then it's probably wise to think about the steps needed to become a CPA.
However, if you are looking to focus on the most common services accounting firms provide, like bookkeeping and tax preparation, then you may consider entering this industry without being a licensed CPA by your state. And while there are certain state-by-state exceptions about what can and cannot be undertaken by a CPA, they are not a requirement for starting an accounting firm.
While there are many types of accountants and even more specialties, here are the basics.
CPA's are licensed on a state by state basis and certification standards are rigorous. State laws vary widely on whether a non-CPA can use the title "accountant." In most states, a non-CPA can refer to themselves as an accountant.
Enrolled Agents are tax advisors and is authorized to practice before the IRS on tax issues.
Bookkeepers are typically not certified and can't use the CPA or Enrolled Agent designations. However, there is still a large demand and need for quality bookkeepers from businesses and organizations of all sizes.
The designation aside, you do not need to be a CPA to start an accounting practice. However, the compensation for a CPA is typically higher than an Enrolled Agent and Bookkeeper.
What are the key services offered by accounting firms?
In many ways, this question can be answered by looking at your goals and target market. What are the key services needed by that local population? How can you serve them better? Still, while many services will be dictated by the specifics of your clients and their business, there are a few standards most accounting firms offer, including:
- Assurance services (audits, reviews, etc.)
While these are typically the core offerings – and the ones that will provide consistent business in most accounting firms – it's also important to investigate emerging and buzz-worthy services that are attracting bigger and more progressive accounting businesses.
How much does it cost to start an accounting firm?
Start-up costs can range from $5,000 to $25,000. Your location, type of practice and your goals will determine cost in several ways, including whether you want to start a traditional brick and mortar firm or are looking to create a virtual office environment.
While the virtual office environment probably sounds attractive, you will probably ramp up much slower if you have a home based office.
Rather than making this decision in a vacuum, you should focus on your entry strategy before making the commercial vs home based office decision.
Should I buy an existing practice or build one from scratch?
Start-up costs can be misleading because they are low relative to other types of businesses.
The bigger challenge is your entry strategy into this industry. In other words, will you develop a practice from scratch or buy someone else's practice? Second, what are the demographic trends for your local market (e.g., rapidly growing, shrinking, lightly populated, heavily populated, etc.).
Starting an accounting practice from scratch – Starting a practice from scratch seems like a risky strategy for most accountants but by partnering with the right marketing firm and having the right plan on the type of practice you want, it is actually a superior entry strategy. In other words, it is far less expensive than buying an existing practice being sold on the market. And, your retention rate on the clients you acquire will be longer (in years).
Buying a practice through a broker – Buying someone else's practice that is available for sale appears like a lower risk strategy but it's not. It is attractive because the revenues and clients appear tangible but this gives many new buyers a false sense of security. As a first time buyer and newbie to this game, you will never see the top notch practices. The top notch practices will be sold privately or not be shown to you because your experience base is limited and you might be under-capitalized. As a result, you will only see the practices that the top tier buyers passed on the depth of due diligence will be limited because you are in a competitive bidding situation.
How can I acquire leads and new clients?
Most older, established firms generate referrals from existing clients. As a new practitioner, you will not have this luxury. You will need to generate your own leads.
Websites, social media, and various other online presences are a great way to establish credibility in the market but this takes time.
Website marketing is a great way make your practice appear larger and more established than it really is. Your website needs to create the right first impression, must be search engine optimized, and persuade total strangers to hire you.
Organic search engine optimization typically takes 6-12 months to work effectively and needs support. To speed up this process, many new firms will supplement their website with online advertising and social media marketing. Another component of supporting your website will be obtaining online reviews in Google and Yelp to positively impact your reputation.
Some firms focus on a specific accounting specialization. Should I consider a niche accounting service?
Most accounting firms will start as generalists and then slowly make their way towards developing a niche. Sometimes a firm will intentionally build clients in one industry or develop a specialty type service. For the time being, this is not your top concern.
After your firm is up and running, then it is time to identify the best type of specialty service or industry niche. As a marketing company, we support over thirty niches and strongly recommend it but work on this after your practice gets some traction.