How to Start a Firm

By Jannet E. Hendrix, CPA

Editors: Steven F. Holub, CPA, MBA and Kenneth M. Parker, CPA

Generally the trend in the profession has been the consolidation of firms to gain economies of scale and spread of overhead, but now may be a great time to start a firm and experience the benefits and burdens that derive from being an owner. The need for CPAs has grown over the past decade as a result of the passage of the Sarbanes-Oxley Act in 2002, and the average tax return today is more complicated than before because of the ever-growing Internal Revenue Code. As a result, more people are seeking specialized advice from CPAs.

Although there are many obstacles to getting started, the most challenging one may be a fear of failure. If establishing a profitable accounting firm is the CPA’s dream, he or she must believe that success can be reasonably anticipated with proper planning. To achieve success, a potential owner needs to follow several basic steps: decide which services to offer; conduct research and marketing; choose the legal form for the business; and offer great customer service (Jones, The Start-Up Guide: How to Start a Successful Small Business, p. 9 (Harriman House 2011)).

There are three basic options for starting a CPA practice: purchase an existing practice, find a partner, or start from scratch (AICPA, “Starting Your Own CPA Firm”). Whichever path a prospective owner chooses, preparation is key. Practitioners need to take time to brainstorm ideas, determine the viability of those ideas, develop a plan of action, and register with the relevant bodies and professional associations to determine the legal requirements for starting a business (Jones, p. 12). Practitioners cannot forget, or minimize, the threats they will face and the weaknesses they will confront. They must make sure their plan addresses these thoroughly. Success is not a straight line. The plan must take into account the bumps in the road as well as the setbacks that will inevitably occur.

Planning and Research

Being one’s own boss may sound great; however, starting a CPA firm requires careful preparation to create a well-structured firm that yields substantial revenue while attempting to maintain an appropriate work/life balance. In the early days of starting a business, there is a lot to do, including obtaining clients; doing or supervising their work; hiring staff; collecting fees; making sure the payroll is met; negotiating leases; obtaining insurance; and determining necessary software, systems, and equipment to buy and at what price. Furthermore, the owner may be the only person available to do it. Running the business requires hard work, long hours, and exceptional time management and yields low pay. Nearly all practices are cash flow negative during the startup and growth phases.

The first step in starting any business is creating a written business plan, which serves as a map for the entire process. This step is especially critical if the practitioner is seeking investors or loans to fund the business. The business plan is an extremely valuable tool since it contains detailed financial projections, a marketing plan, and forecasts of the business’s performance. The forecasts are highly useful in determining the attainability of the firm’s goals. They will guide the business from startup to profitability, establishing milestones along the way (Jones, pp. 47–48). The plan may cover one to five years, depending on the objectives.

A business plan should:

  • Outline business goals;
  • Identify the business structure;
  • Identify necessary skills and experience;
  • Describe a potential competitive advantage;
  • Outline regulatory and legal issues;
  • Outline pricing and services;
  • Explain management and staffing;
  • Outline office space, facilities, and equipment requirements;
  • Estimate startup costs, operating costs, and projected revenue; and
  • Identify startup and operating capital needs (AICPA, “Starting Your Own CPA Firm”).

Turning dreams into a successful firm requires research. An owner can begin by visiting forums and websites where potential customers compare the local competition. These forums can be located by using Google searches and following links posted on sites such as Facebook and Twitter.

Researching the competition is equally important. Visiting competitor websites and online trade sites can provide a better understanding of a competitor’s strengths—and perhaps weaknesses. Researching what clients like and dislike about the service they are receiving can identify opportunities for improvement that can be used as an advantage over the competition. It may also alert the owner to situations he or she should avoid; if a competitor has overwhelming strength in one area, it may be beneficial to consider another.

This research can help determine competitive fees for services, as this is often extremely difficult, particularly for a new business owner. An owner should explore how similar services are priced by the competition and how much potential customers are willing to pay. It may be tempting to undercharge for the expertise and knowledge that are offered, but this will not help to build a successful practice. A competitive rate should take into account time, personal service, and added value and enable the firm to maximize profits (Jones, p. 37). The fees should be low enough to attract new clients and high enough to produce an acceptable profit. From time to time, CPAs may be engaged to provide services that are difficult to price, as they need time to uncover a problem before they can give a proper price quote. It is fair to both the CPA and the client to make this clear before setting expectations.

Because the figures used in costing are estimates, the one certainty about them is that they will be wrong. This is acceptable, as long as the margin of error is kept to a minimum. Continually monitoring the business plan against actual returns will provide an early warning if things are going wrong. The firm should keep track of key factors, including invoiced sales, collections, overhead expenses, and productive hours worked. A table should be set up to provide metrics to track actual returns. This can help determine whether the firm is on target, ahead of the game, or falling behind. This will enable an owner to take corrective action before the warning becomes a crisis (Morris, Starting a Successful Business, pp. 67–68 (Kogan Page 2011)).

A business develops over time. It will have to adapt as new opportunities and threats arise and modify its plans by incorporating lessons learned. After one year, the business may look very different from the initial vision. This is expected as a natural result of refining the business model, based on feedback from clients and experiences along the way (Jones, p. 16).

Define the Firm’s Business

At the core, all firms are alike. Businesses often start from services that can be improved upon. Some firms prefer to focus on a broad market and offer a variety of services, while others may prefer a niche specializing in a specific industry or market.

Establishing a niche business that meets the needs of a well-defined audience is beneficial to a successful business. There are two key benefits to a niche business:

  • Low marketing costs due to a well-defined audience: Identifying the audience enables an owner to understand the kind of marketing messages potential clients will respond to. This will help attract clients (Jones, p. 24).
  • High customer loyalty: Customers will likely stay with a firm if the owner becomes the expert in his or her field or the sole provider of a product or specialized service (Jones, p. 24).

The deciding factor of choosing which market to target should be the owner’s background and experience, especially if there are market gaps within these specific areas. The owner must always be aware of what the competition is doing and respond accordingly. An owner can determine this by thoroughly researching the local market to locate opportunities and avoid mistakes.

Business and the Law

Choosing the legal structure of the practice—sole proprietorship, partnership, C corporation, S corporation, or any type of limited liability entity—has important tax and legal consequences. Additionally, the status of the company determines the kinds of financial records an owner needs to maintain and file (Jones, p. 59).

A sole proprietorship is the simplest form of legal structure and by far the most popular way of getting into a business. Legally, the owner and the business are one. The firm’s profits and debts are the owner’s profits and debts, meaning the owner is personally liable for all of the business’s debts. A partnership is another option if two or more individuals choose to set up a business and share the liability. If the owner chooses to remain a sole practitioner, an LLC is an option. This keeps business finances separate from personal finances. An LLC is liable for business debts—not the individual owners, as is the case with a sole proprietorship or a partnership (Morris, p. 95). A new owner may benefit from professional advice about choosing the best structure, especially since rules and regulations change frequently and without warning (Jones, p. 77).

An owner needs to check local, county, and state business requirements and certifications, as these can vary by jurisdiction (AICPA, “Starting Your Own CPA Firm”). Several practice specialties have increased regulations; therefore, it is important to take extra care to check with state and national rule-making bodies and professional associations to determine which requirements apply before opening a firm. For example, certain attestation services require enrollment with an AICPA-approved peer review group. It is wise to engage an attorney who can ensure compliance with local requirements and handle the legal formalities of the firm.

Financial Considerations

Once a CPA decides to open a firm, it is critical to review income needs and cash flow projections. Even if clients are waiting for the doors to open, an owner may not see cash flow for several months, since many clients pay their bills two or three months after work is completed (AICPA, “Starting Your Own CPA Firm”). Furthermore, the firm may not experience profitability for months or even years; therefore, an owner needs adequate capital to cover startup and operating expenses. This is always critical, but especially so during the startup phase.

Careful consideration should go into what is required to start up and operate a firm. Most individuals already have basic startup equipment, including a computer, printer, and mobile phone. Obtaining the right information technology system does not require an owner to start from scratch or spend a lot of money (Jones, p. 91). Essential equipment includes a high-quality computer with good tax software. It is wise to buy the best computer one can afford. It helps prepare for the future by allowing more data to be stored. It may include a faster processor and more memory, which will benefit a growing business (Jones, pp. 93–94). Backup capabilities for both data and equipment are essential. Many firms today adjust to new ways of conducting business by adding advanced technologies and practices to support highly efficient processes that yield higher profits while demanding less time. This underpins the success of many CPA firms.

The cost of opening a new CPA firm depends on many factors. Office rent varies depending on geographical location (AICPA, “Starting Your Own CPA Firm”). For example, rent is much higher in San Francisco than in Houston. Many new owners begin with a home office and grow into a larger space over time to initially save on rent. Home-based businesses come with many benefits, including no commute, financial savings, and the ability to provide personal service to clients with a homey welcome when they visit the office (Jones, pp. 89–90). Even though the home-based office has many benefits, it may not suit everyone’s needs. Some practitioners may not have adequate space for an office, while others may fail to meet local zoning laws (AICPA, “Starting Your Own CPA Firm”).

Renting commercial office space may better suit the firm’s business requirements. Before settling on a specific location, it is best to shop around since lease and rent conditions vary significantly. Upon reviewing a lease, the owner must consider its length and costs. If the business does not take off, an owner does not want to be locked into a multiyear commitment (AICPA, “Starting Your Own CPA Firm”).

A practitioner can also consider a shared office space. This provides many of the benefits of a single office space but with shared costs. An owner rents a private office space within a commercial building and shares certain features, such as conference facilities, copy machines, and phone systems, as well as restrooms and lunch or coffee areas. Sharing an office space may be more realistic financially, and it may also convey a positive image to clients as they enter a large office with a professional setting (AICPA, “Starting Your Own CPA Firm”).


Now it is time to get into business and make money. When marketing a new firm, one needs to consider two aspects: defining the services and expertise the firm will provide and defining and reaching potential clients, whether individuals, businesses, or both (AICPA, “Starting Your Own CPA Firm”). It is critical to understand the needs of the prospective marketplace to gain market share. If the area already is saturated with a certain type of firm, it may be wise to consider a more narrowly focused one.

Once the services have been determined, the owner needs to communicate with potential clients. It is important to create the right first impression to attract new clients, in person or on a website. Expanding the firm’s presence through a website or blog is essential for any new business. The website can be an effective marketing tool and a way to make money (Jones, pp. 148–149). A new owner with the right technology and knowledge can build, develop, and maintain the site, or engage a developer to do so.

The many ways to communicate with prospective clients include advertising in the local newspaper, mailings, and Yellow Pages (AICPA, “Starting Your Own CPA Firm”). When ordering business cards, an owner may not want to put a home address on the business cards if the business is home-based. It might appear too domestic, and the family may not appreciate clients showing up at the doorstep. Instead, use a post office box, which is easy to set up (Jones, p. 187).

One of the most powerful marketing tools is networking. The local chamber of commerce is one example of an organization that an owner can join to access networking opportunities. In addition, many CPAs start out by providing services to friends, family members, and business associates who know them and trust them to deliver. They are great means of advertising and can pass the word about the firm’s services to others (AICPA, “Starting Your Own CPA Firm”).


An owner will need to operate on a whole new level, viewing himself or herself as a leader, for without leadership, no accounting firm succeeds. The owner must create a strategic vision of the firm and take the time to plan the details. Establishing a clear vision of where the firm is going is essential to success. The owner should:

  • Organize key functions of the practice and create a business plan.
  • Identify processes that link the functions.
  • Identify results the practice should produce.
  • Clearly state how each phase in creating the firm will work.

An owner should identify his or her strengths, focus on the tasks that use those strengths, and consider delegating other tasks to employees or partners. The firm’s core competencies should be defined—the niches it will serve, the services it will offer, and its annual revenue goals. Once these are identified, an owner will be more successful at communicating his or her services to prospects and setting up the processes that are required to support the firm. The next step is to provide customers with high-quality service and maintain regular communication.

With desire, planning, and commitment, owning a prosperous firm can be a reality and, with it, the realization of a dream.



Steven Holub is a partner in Cherry Bekaert & Holland LLP in Tampa, Fla., and is a former chairman of the AICPA Tax Division’s Tax Practice Management Committee. Kenny Parker is with Parker and Associates, CPAs, in Jackson, Miss. Jannet Hendrix is a group manager at Anheuser-Busch Cos. Inc. in Jacksonville, Fla. Mr. Parker is chairman and Ms. Hendrix is a member of the AICPA Tax Practice Improvement Committee. For more information about this column, contact Ms. Hendrix at

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