How to start an accounting business from the ground up

Starting an accounting business is an exciting venture that combines your financial expertise with sharp business savvy. The industry pulls in hundreds of billions of dollars annually, driven by a consistent demand for financial services from small businesses, startups, and non-profits.

This guide will take you through the practical steps of validating your business concept, obtaining necessary licenses, securing funding, and building your client base to help you launch a successful accounting business in the U.S.

Step 1: Plan your business and validate your idea

First, confirm there is a market for your services. You can check U.S. Bureau of Labor Statistics data for industry growth projections. A simple survey using Google Forms sent to local businesses can also help you gauge demand for specific services like bookkeeping or tax preparation.

Next, analyze your local competition. A quick search on Yelp or LinkedIn will reveal their service packages and pricing structures. For deeper industry insights, you might consider reports from databases like IBISWorld to understand broader market trends.

Estimate your startup costs

Initial investment can vary, but a frequent misstep is to underestimate software expenses. When you budget, think about systems that can scale with your business to avoid costly changes later. A thoughtful budget prevents surprises down the road.

• LLC Formation: $50 - $500, depending on your state.
• Licenses & Permits: $100 - $400 for state and local requirements.
• Errors & Omissions Insurance: $500 - $1,000 for your first year.
• Accounting & Tax Software: $300 - $1,500 annually for professional suites.

With these figures in mind, you can expect your initial startup costs to range from approximately $1,000 to $3,500, excluding marketing and office expenses.

Here are 3 immediate steps to take:

• Survey 10-15 local businesses about their current accounting needs.
• Analyze the service offerings and websites of three local competitors.
• Create a startup budget with line items for software, licensing, and insurance.

Step 2: Establish your legal entity and secure licenses

Your next move is to choose a legal structure. A Limited Liability Company (LLC) is a popular choice because it separates your personal assets from business debts. You might also consider an S Corp election for potential tax savings on self-employment taxes once your income grows.

After you file your LLC with your Secretary of State, open a business bank account right away. Many new owners mix personal and business funds, a mistake that can erase the legal protection your LLC provides.

Secure your licenses and permits

First, get your Employer Identification Number (EIN) from the IRS. It’s your business's social security number for tax purposes. The application is free on the IRS website and you will receive the number immediately upon completion.

Next, check with your state's board of accountancy for CPA licensing rules. You will also need a general business license from your state and possibly your city or county. These typically cost between $50 and $150 and can take a few weeks to process.

Here are 3 immediate steps to take:

• File your LLC or other business entity with your state's Secretary of State.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Research your specific state and city business license requirements.

Step 3: Secure your insurance and manage risk

Errors & Omissions (E&O) insurance is your top priority. It protects you from claims of negligence or mistakes in your work. A simple data entry error could lead to a client lawsuit, so this coverage is non-negotiable for an accounting firm.

For a new firm, aim for at least $1 million in E&O coverage. Annual premiums typically range from $500 to $1,500. While it is tempting to pick the lowest price, an inadequate policy that does not cover a potential claim is a waste of money.

You will also want to consider General Liability insurance, which covers third-party bodily injury or property damage. With client financial data in your hands, Cyber Liability insurance is another smart move to cover costs related to data breaches.

When you shop for policies, look at providers that understand accounting firms. You might want to get quotes from specialists like Hiscox, The Hartford, or CNA. They are familiar with the specific risks you face and can offer tailored coverage.

Here are 3 immediate steps to take:

• Get quotes for Errors & Omissions insurance with at least $1 million in coverage.
• Compare policies from providers that specialize in accounting, such as Hiscox or The Hartford.
• Ask potential insurers about bundling General Liability and Cyber Liability policies to reduce costs.

Step 4: Set up your office and get equipped

Many new firms start from a home office to keep overhead low. Before you do, check your local zoning ordinances for any restrictions on home-based businesses. Some residential areas have rules about client traffic or signage you should know about.

If you opt for a commercial space, a small office of 150-300 square feet is plenty. When you negotiate a lease, you might ask for a shorter term, like one or two years. This gives you flexibility as your firm grows.

Get the right equipment

Your technology is your primary production asset. A frequent misstep is buying consumer-grade hardware. Business-grade equipment is built for heavier use and offers better security features. You will rely on this gear daily.

• Business Laptop: $1,000 - $2,000 for a model with a fast processor and ample RAM.
• Dual Monitors: $300 - $600 for a pair of 24-inch or larger screens.
• Multifunction Printer/Scanner: $400 - $800 for a high-speed document scanner.
• Secure File Cabinet: $200 - $500 for a locking cabinet to protect physical client documents.

Here are 4 immediate steps to take:

• Research your city's zoning laws for home-based professional services.
• If leasing, draft a list of questions for landlords about lease terms.
• Price out a business-grade laptop and a high-speed document scanner.
• Compare locking file cabinets for secure physical document storage.

Step 5: Set up your payment processing

Establish clear payment terms from day one. For monthly bookkeeping clients, set up automated recurring payments. For one-off projects like tax preparation, it is standard to require payment upon completion. For larger consulting engagements, you might ask for a 50% deposit upfront.

Many new firm owners make the mistake of only accepting checks, which can delay cash flow. You should accept credit cards and ACH bank transfers. This makes it easier for clients to pay you promptly and improves your financial stability.

Choose your payment solution

For accepting payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit and digital wallets directly through your smartphone - just tap and done. It is a simple way to get paid after a client meeting.

At just 1.99% per transaction with no hidden costs or extra hardware needed, its rate is very competitive. Other providers often charge between 2.5% and 3.5% plus monthly fees. This makes JIM particularly useful for collecting payment after an in-person client consultation.

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers.

Beyond mobile options, your main payment processor should integrate with your accounting software. A lack of integration creates hours of manual data entry to reconcile your books. Look for solutions that connect directly with platforms like QuickBooks or Xero to automate this process.

Here are 3 immediate steps to take:

• Decide on your standard payment terms for different services.
• Research payment processors that integrate with your chosen accounting software.
• Download the JIM app to test its mobile payment flow.

Step 6: Secure your funding and manage finances

With your startup costs estimated, your next focus is cash flow. You will need enough working capital to cover at least six months of expenses. For a new solo firm, this is often between $15,000 and $25,000. This buffer covers software, insurance, and your own salary.

Many new owners get tripped up by underestimating ongoing expenses. They budget for the initial setup but forget about the cash needed before client revenue becomes consistent. A detailed six-month forecast is your best defense against this.

Explore your funding options

You might look into SBA loan programs, which often favor service businesses with low overhead. The SBA Microloan program offers up to $50,000 and is a good fit for startups. For larger needs, the SBA 7(a) loan is an option, though it has stricter requirements.

A business line of credit from your bank is another flexible choice. Instead of a lump-sum loan, it gives you access to funds as you need them. This is useful for managing unpredictable cash flow. Lenders will want to see a solid business plan and good personal credit.

Here are 4 immediate steps to take:

• Calculate your specific working capital needs for the first six months.
• Research SBA Microloan requirements on the official SBA website.
• Contact your bank to ask about qualifications for a business line of credit.
• Draft a one-page executive summary for your business plan to show lenders.

Step 7: Hire your team and set up operations

Build your team

Resist the urge to hire a full-time employee immediately. Many new firm owners hire too quickly, which strains cash flow. Your first hire might be a part-time bookkeeper for 10-15 hours a week to handle data entry and basic reconciliations.

For a part-time bookkeeper, you can expect to pay between $25 and $40 per hour. As you grow, you might hire a full-time Staff Accountant. Their salary typically ranges from $55,000 to $75,000, and you should look for candidates with a CPA or EA designation.

A healthy revenue-per-employee ratio for a small firm is between $150,000 and $200,000. Use this as a benchmark to decide when it is time to expand your team.

Establish your operational workflow

Before you bring anyone on, you need documented procedures. A lack of clear systems creates chaos as you grow. Start by outlining your client onboarding process, from the first call to the signed engagement letter. Also, create checklists for monthly bookkeeping and tax return preparation.

To manage this work, you might use practice management software. Platforms like Karbon or TaxDome help you track deadlines and delegate tasks. For payroll and HR, a system like Gusto simplifies onboarding and compliance for new hires.

Here are 4 immediate steps to take:

• Draft a job description for a part-time bookkeeper, including key responsibilities.
• Research local salary data for bookkeepers and staff accountants on sites like Glassdoor.
• Create a step-by-step checklist for your client onboarding process.
• Review the features of practice management software like Karbon or TaxDome.

Step 8: Market your business and acquire customers

Define your target client

Instead of a generic message, focus on a specific niche like construction companies or e-commerce sellers. This focus makes your marketing far more effective and allows you to charge premium rates for specialized knowledge.

Many new owners try to be everything to everyone. If you specialize in restaurants, your website can speak directly to their challenges with tip allocation and food cost percentages. This specific expertise attracts higher-value clients.

Choose your marketing channels

Start with local search. Set up your Google Business Profile and aim to get 5-10 reviews from professional contacts or early clients. This is one of the fastest ways to appear in local search results when someone looks for an accountant.

Next, demonstrate your expertise through content. You could write a blog post on "Quarterly Tax Pitfalls for Freelance Designers" and share it on LinkedIn. In-person networking at local Chamber of Commerce or BNI meetings is also a powerful way to find your first clients.

For a new firm, a healthy Customer Acquisition Cost (CAC) is often between $300 and $500. Track your marketing spend against the number of new clients you sign. If a channel is not delivering within this range, reconsider your investment.

Here are 4 immediate steps to take:

• Identify a specific industry niche to target with your marketing.
• Create and fully optimize your Google Business Profile.
• Draft a list of three blog post titles for your target niche.
• Research two local business networking groups, like BNI, to visit this month.

Step 9: Set your pricing and profit margins

Choose your pricing model

Your pricing strategy directly impacts your profitability. Most new firms start with hourly rates, which are simple to track. You might charge between $75 and $150 per hour for bookkeeping and from $150 to $450 for higher-level advisory work.

Once you understand your workflow, you can offer fixed-fee packages. For example, you could price a standard small business tax return at $750. Many new owners underestimate the time required, so track your hours carefully at first to avoid a loss on these projects.

Value pricing is the most profitable model. Here, you price based on the outcome for the client, not your time. If you help a client secure a $100,000 loan, a fee of $5,000 is justifiable, regardless of the hours you spent.

With these models in mind, you need to set your target profit margin. For accounting services, aim for a gross profit margin of 50% to 70% on your work. This ensures you cover all your costs and have room for growth.

To find your baseline, add your annual salary goal to your total overhead costs. Divide that by the number of billable hours you expect to work in a year, typically around 1,500. This gives you the hourly rate you need to break even.

Here are 4 immediate steps to take:

• Calculate your break-even hourly rate based on your salary goals and overhead.
• Research the websites of three local competitors to find their pricing structures.
• Create a fixed-fee price list for three of your most common services.
• Draft a sample value-based pricing proposal for a hypothetical client.

Step 10: Implement quality control and scale your firm

Establish your quality standards

Your reputation depends on consistent, accurate work. You can create a simple review process where no work leaves the office without a second set of eyes on it. Many firms stumble by skipping this final review when deadlines loom, but it is your best defense against costly errors.

If you are a CPA firm, you will likely need to undergo a peer review every three years to maintain your license. This process involves another CPA firm reviewing your work to ensure it meets professional standards. Check your state board’s specific requirements.

Measure your performance and know when to grow

To measure quality, you can track your client retention rate, with a goal of 95% or higher. You could also send a simple Net Promoter Score (NPS) survey after a project to gauge satisfaction. These metrics give you concrete data on your performance.

With quality checks in place, you can plan for growth. A good rule of thumb is to consider a new hire when your revenue per employee nears the $150,000 mark. This prevents your team from getting overwhelmed and service quality from dropping.

Practice management software like Canopy or Karbon becomes invaluable here. It helps you assign tasks and monitor deadlines as your client list expands, which ensures nothing falls through the cracks.

Here are 4 immediate steps to take:

• Create a final review checklist for your primary service, like tax returns.
• Calculate your client retention rate from the last 12 months.
• Research your state's peer review requirements if you are a CPA firm.
• Schedule a demo for a practice management software like Canopy.

Conclusion

You have the roadmap to launch your accounting business. The key is to remember that trust is your currency. Every accurate return and on-time report builds that trust. With a solid plan in place, you are ready to take the first step.

As you meet clients, make payments simple. JIM turns your phone into a card reader, so you can get paid on the spot with a flat 1.99% fee and no extra hardware. Download JIM to get started.