If you’re a CPA, making the transition from working for someone else to being your own boss has probably crossed your mind. Self-employment offers an opportunity to have more control over your own schedule, allowing you to better balance your professional endeavors and personal life. It also enables you to manage your firm the way you want to manage it. Indeed, there are some attractive perks to starting your own accounting firm. There are also a lot of things to consider and accomplish in the process.
Think It Through
Before you move forward with launching your own business, make sure self-employment is the right choice for you. It doesn’t suit everyone, and it’s best to discover that before you devote time and money to the cause. Ask yourself:
- What is motivating you to be a business owner?
Think carefully about what’s driving your decision. If your motivation comes from the inability to deal with your boss or your coworkers, you might want to reconsider. When you have your own business, you’ll need to find ways to work harmoniously with many different people. Not all of them will be easy to get along with. Realize that starting a business won’t enable you to avoid interpersonal challenges.
- Are you OK with assuming some risk?
Starting a business comes with initially forfeiting a steady paycheck and paid vacation time. And with no employer-paid health insurance, you need to seek and pay for that necessity on your own. If your business doesn’t succeed or doesn’t grow as quickly as you anticipate, you might face some financial hardships. Are you willing and able to accept that?
- Do you have enough capital to get started?
Many new businesses fail in their first few years of operation because they don’t have enough initial capital. Be realistic about your financing. Generally, it’s best to have enough money available to support yourself for at least six months to a year as your business becomes established.
- Are you self-disciplined and driven?
One of the biggest changes you’ll experience in going from employee to self-employed is holding yourself accountable for your work. With no boss to give you assignments and check in about their status, you need to keep yourself on track. You’ll need to be self-motivated and organized—your business success will depend on that.
- Are you prepared to handle all the aspects of running a business?
As a business owner, you’ll do more than just accounting work for your clients. You’ll wear many hats as you manage your business. Marketing your company, qualifying leads, negotiating contracts, dealing with IT issues…it all falls on you—at least in the beginning stages of your business.
If after that exercise you decide you want to pursue starting your own accounting firm, I expect you’re wondering, “Where do I go from here?”
To legitimately launch your business, here’s an overview of the seven legal steps to get there:
1. Select a business name
Think about whether you want to market your business using your own name (e.g., “Jane Smith, Accountant”) or create a business name (e.g., “Accounting You Can Count On”). As a solopreneur accountant, you might opt to use your own name because you and your brand are one in the same. On the other hand, choosing a business name might help you be perceived as well-established and experienced.
If you go with a business name, make sure it is available to use before you start printing it on business cards and other marketing materials. Check to see if the name is available in the state where you’re planning to operate your business by checking with your state’s secretary of state office. We have a free business name search tool here at CorpNet that can help, as well.
Also check to see if the domain name for your business is available (e.g., accountingyoucancounton.com). Sites like GoDaddy.com will let you instantly find out if there’s a suitable domain, and they will offer suggestions for alternate names if the one you want is already taken.
No one in your state is using the name you want? Excellent! Next, you’ll want to search the U.S. Patent and Trademark Office to see if anyone has a pending request for or has successfully registered a trademark for the name. Don’t skip this step because you’ll land in legal hot water if you infringe on another company’s trademark.
2. Choose a legal structure and register your business.
The business structure you choose will affect your business from both legal and tax standpoints. Solo accountants and small firms often choose to register as an LLC (Limited Liability Company), PLLC (Professional Limited Liability Company), or PC (Professional Corporation). As state constructs, these business entities are subject to different rules in different states. You can find the specific rules for accountants in your state via the CorpNet website or you can call the Secretary of State’s office in your state to get the details you need.
3. Obtain the licenses and permits you’ll need.
Regardless of which state you’re operating your business in, you’ll need some form of licensing to provide public accounting services. You will need to hold a CPA license and your firm may need a public accountancy license. To determine the requirements in your state, check with your State Board of Accountancy.
Besides CPA accreditation you may also need other state and local municipality permits, as well. They might include a general business operation license, a signage permit, and possibly a home occupation permit (if you’re operating your business from home. CorpNet can help you determine the license and permit requirements applicable to you, or you can check with your local government office.
4. Apply for a Tax ID Number
Also called a Federal EIN (Employer Identification Number), this allows the IRS to track your business’s transactions. LLCs and corporations are required to have an EIN and many banks will require that you have one before they’ll allow you to open a business bank account.
5. Open a bank account exclusively for your business.
It’s important to keep your personal and business finances separate—for both legal and tax purposes. In fact, that separation is mandatory for LLCs and corporations. After you’ve registered your business with the state and have your Tax ID number, you will have the information you need to open a business bank account.
6. Get insurance to protect your business.
Even though officially forming an LLC or incorporating your business will help to lower your personal liability related to business debt and lawsuits against associates, it will not protect your personal assets if action is brought against you due to your own actions. That’s why it’s a good idea to consider getting an insurance policy for peace of mind. Talk with a knowledgeable and trustworthy insurance agent who understands the needs of accountants and other businesses in the financial services industry. A reliable agent can guide you to the type of coverage that will best protect you, such as a Business Owner’s Policy (BOP), Professional Liability, Insurance, Data Breach Coverage, or others.
7. Know your business compliance responsibilities.
Registering your business is just the beginning. LLCs and corporations have ongoing requirements to keep their businesses in good standing. For example, most states require LLCs and PLLCs to file an annual report each year and show proof of a valid certification. Corporations have more corporate compliance responsibilities. Besides annual reports, they must conduct annual meetings, prepare meeting minutes, and meet other compliance requirements.
I know it can be tough to keep up with everything that’s required and when it’s due, so I recommend using the CorpNet B.I.Z. (Business Information Zone) compliance tool. It’s a free monitoring tool that can help you stay on top of your state filings and fees due throughout the year.
The steps to starting an accounting business aren’t overly complex. To make sure you launch your business on solid legal ground, you’ll want to make sure you do it right. Consider talking with a legal professional who can guide you and look to CorpNet to ensure your business forms and filings are done accurately and on time.
If you want more detail about launching your accounting business, join me on Thursday, May 4, 2017 at 11 a.m. Pacific Time for CPAacademy.org’s upcoming webinar, “Steps to Start Your Accounting Firm.” Registration is required, so sign up today!