Accounting
Is it time to start your own accounting firm?
Now may be the perfect time to start an accounting firm.
With client demand growing and many baby boomer CPAs hitting retirement age, there is certainly no shortage of work, and advances in technology have lowered the cost of launching a new business.
But experts say there is much to consider before accountants jump into the deep end, such as their personal financial bandwidth, whether they want to do the technical work in their firm or just manage it and where to find support. Perhaps the best place to start is figuring out why you want to start your own firm in the first place.
By and large, there are two kinds of firm founders, experts say: Those who are natural-born entrepreneurs, and those who become founders as a result of some professional or personal change that requires them to have greater flexibility.
The first group can look like accountants who have lots of ideas but who may not be able to implement them at their current firm. Or it could be an accountant who sees what their employer is doing but believes they could do it better.
The second group can look like
Kirill Makarov/kirill_makarov – stock.adobe.com
He added that firm founders must be inquisitive—they need to be willing to test things out and experiment where things can be improved.
Miklos Ringbauer, treasurer and secretary for the California Society of CPAs and founder of MiklosCPA, recommends that firm founders work for someone else first, learning the ropes in another firm and determining what they want to do differently.
“You don’t know what you don’t know,” Ringbauer said.
Will I have enough clients?
Before actually starting a business, any savvy founder should consider whether there is a market for their services. For accountants, that translates to whether there are enough clients.
The answer is “not only applicable for accountants, but for all startups – it’s an unknown,” according to Ringbauer.
That’s where professional experience and understanding comes into play, he said. Accountants should consider a couple of factors: their personal financial obligations—whether they have children, student debt or a mortgage—and their personal savings.
If you don’t have enough runway to sustain yourself for a year or two, then you may need to plan longer or save more, Ringbauer said.
One common practice among accountants is buying a book of business to secure an established set of clients. However, Angie Wood, founder of Wood CPA in Edina, Minnesota, advises against it.
“Don’t buy a book of business,” she said. “I learned that the hard way. You don’t need to.”
Many clients will make the switch to the new firm, Wood explained, “but a lot of them choose to leave shortly after because it’s a different process. It’s a different person, it’s a different relationship. Fees change. The relationship is so personal, so it’s just not worth buying a book of business because clients can leave. There’s no guarantee.”
How do I do this legally?
The legal requirements for setting up a CPA firm vary from state to state, and the requirements are different for a CPA firm versus a firm offering bookkeeping services. Ringbauer recommends that accountants do their due diligence and research on their state’s requirements, but he offered a few tips and tricks.
“Some states limit certain things,” he said. “For example, in the State of California a professional limited liability company, PLLC, is not allowed, domestic or foreign, to operate and offer services in the state. Versus in Texas, you can be an LLC. So understanding state rules and regulations is incredibly crucial.”
In addition, many state boards of accountancy have special language requirements that must be included in a firm’s bylaws or incorporation documents. He also reminds accountants that you can always incorporate later.
“Depending on the type of services you offer, you may not necessarily need to incorporate upfront for liability purposes,” Ringbauer explained, using his own experience as an example. “For a very long time, I was doing the self-employed Schedule C. Then when our clientele started to change — when things got more complicated, when I ended up doing offshore voluntary disclosures, very scary IRS compliance stuff with clients having hundreds of thousands of dollars of penalties because they were not right previously, filing their returns with their foreign assets — I decided that this was too much risk for me and incorporated.”
Ringbauer recommends hiring a lawyer, “so you understand what your requirements are and the pitfalls or benefits of the different entities. … A lot of people think that just because you are a CPA, you know the tax laws.”
Do I need to hire?
The next big question for firm founders to consider is if and when to hire.
Buller said it’s important for the firm owner to first decide whether they want to continue as the main service provider in their business. Do they love actually doing the technical work, or is their goal to manage a firm and its employees?
“You should hire your first employees when you have a good process and good systems in place to deliver the service that you can charge for and that will make it easy for you to train an employee to generate revenue for your business,” Buller said.
“If you’re going to hire somebody, it basically means you’re taking a pay cut and a bunch of your time is then going to be spent training this person,” he continued.
For most accountants, the easiest and most logical first hires are usually admin and a bookkeeper.
“Affordability is a factor, and then what are the tasks I wanted to get rid of?” Wood said. “Tax was my strong suit, so I held on to that for the longest and found somebody else to do the other things that I didn’t really enjoy doing as much.”
What if I’m not ready?
Founding a firm isn’t for everyone, of course. And there are those who start their firm but realize that it isn’t the right fit for them. But most people quit because of some personal circumstance, not because they weren’t making enough money, according to Ringbauer. Thankfully, accountants have a safety net in that they can always go back to being an employee.
“The most beautiful thing in accounting is that if you are fit to do the practice, you will always make enough money to put food on the table,” he said. “It’s a secure and very viable business.”
Throwing in the towel on a firm isn’t a mark of failure, either, Buller said.
“I think it’s a good idea to have this attitude of, ‘How could I replace myself in this business in the long run?'” He said. “And then you start thinking about all these systems and processes you need to create to make it so somebody else could do the work, and then immediately you have started to create some value that you could actually sell to somebody. That’s one exit plan.”
Do I have enough support?
There is a litany of resources available to accountants looking to start their own practice, including the American Institute of CPAs and state CPA societies, which host networking events, workshops and post reading materials. Even insurance companies have boilerplate engagement letters and guidance support.
Then there’s an accountants’ personal network, which can include friends, colleagues, partners and sole practitioners.
Wood said she experienced overwhelming support and advice when she told her network she was starting her own firm. “If I would have known how much support I would have gotten from people, I would have done this so much earlier,” she said.
Graf said he received support from other tax experts on Twitter when he was starting out. And in October, he created his own online community of firm founders called
At the end of the day, for most accountants, there will never be a perfect time to start a firm, according to Buller—you need to just do it.
“It’s kind of like having a kid,” Buller said. “People can tell you there’s challenges. People can tell you how hard it’s going to be or various things you’re going to have to do. And you’re going to have to be ignorant about it, no matter what, to some degree, until you do it yourself.”
“That’s one of our biggest hurdles,” Ringbauer said. “We believe that we need to know everything, and we are afraid of reaching out for help. The best thing is, most accountants now are looking at each other as support rather than competition.”
He continued, “Of course there are articles and books, but the most important thing to understand is that books give you the basic idea, but your own unique life experience and circumstances will dictate what may work from it or what doesn’t.”
Firms are seeking to make major technology investments this year, especially when it comes to automating tax return workflows, which was cited as a major priority by accounting leaders.
A recent survey from Wolters Kluwer found that tax return automation tools were the No. 1 solution firms planned to invest in this coming year, with 19% of respondents announcing their intention to do so. This aligns with other data in the survey, which found that 41% of firms cited “automatically populating tax returns, reporting and financial statements” as a benefit they expect from their technology purchases. It also speaks to the 27% of firms who named “increase automation to improve workflows and processes” as a strategy they intend to pursue in order to meet their goals for this year.
Automation tools, though, are not the only tax-related item firms are eyeing in 2025. The survey also found 15% are planning to buy tax compliance solutions, and another 15% are planning to buy tax law monitoring and research solutions.
Firms are also eager to buy client portal solutions (17%), client data ingestion tools (16%), document scanning and extraction solutions (16%), AI search and/or productivity solutions (14%), client accounting solutions such as write-up and bookkeeping (14%), and data analytics/visualization tools (14%). The survey also found 18% are seeking beneficial ownership information reporting solutions for the Corporate Transparency Act, the status of which will be determined soon by the
Not that they’ve necessarily been sleeping on tech upgrades this past year. The survey found that firms made extensive technology investments over the past year, especially compared to 2023. A full 44% of firms surveyed said they implemented a client accounting solution last year, compared to 25% the previous year. Similarly, 39% of firms invested in client portal solutions (up from 28% the previous year), 35% implemented AI search and productivity tools (up from 1%), 28% invested in document scanning and extraction solutions (up from 3%), 27% implemented bank reconciliation and validation solutions (up from 9%), 27% implemented financial report prep software last year (up from 11%), 25% implemented document management solutions (up from 17%), 19% implemented fixed asset solutions (up from 12%), 14% implemented audit methodology solutions (up from 4%), 14% invested in project management solutions (up from 6%) and 11% bought workpaper management and trial balance solutions (up from 10%).
Despite these investments, though, firms want more from their tech stacks. Chiefly, 48% of firms are looking for solutions that enable anytime, anywhere access; 41% want both automation as well as tools that facilitate requesting and collecting documents from clients; 37% want solutions that assist with data input and ingestion; 27% want software that reduces or eliminates manual repetitive tasks; 26% want support efficiencies by implementing advanced technologies such as RPA or AI; 25% are especially concerned with protecting sensitive information and data; and 24% want electronic delivery and payment of invoices.
Cloud and integration
The survey also found that years of investment in cloud infrastructure and software integrations are also paying dividends.
In terms of cloud computing, the survey found that 25% of firms have tech stacks that are fully in the cloud, and 42% of those not entirely in the cloud plan to move at least partially to the cloud in the next one to three years, while 19% of them plan to be fully cloud-based in that time frame. In contrast, only 17% of firms keep their tech stacks full on premise, and only 14% plan to remain that way.
These tech stacks are increasingly integrated as well. More than a quarter of respondents, 26%, said their tech stack was between three quarters fully integrated, and 31% said their tech stack was between half to three quarters integrated. Meanwhile, 34% had less than half their tech stack integrated (19% had zero to a quarter integrated).
The Wolters Kluwer survey found, in both cases, that cloud infrastructure and tech stack integration correlated with higher firm revenues. Cloud-based firms were more likely than traditional firms to report increased revenue (76% to 79%), increased profit (71% to 80%) and client engagements (67% to 76%). Meanwhile, among firms using fully integrated solutions, 55% reported revenue increases of 10% or more. On the flip side, of those firms that were less than 49% integrated, only about a quarter reported a similar revenue increase.
The survey did not assert a direct causal relationship between these things, so it might be that more profitable firms have more resources to invest in cloud infrastructure and tech stack integration, but regardless the survey still found a relationship.
Accountants as innovators
This prioritization of technology speaks to changes in how the accounting profession perceives itself, as the proportion of firms identifying as innovators is the highest it’s been in three years.
The Wolters Kluwer survey found that 44% of firms self-identify as either innovators or early adopters, the highest level in three years. In this survey, an innovator is defined as someone who actively seeks and adopts the newest available technology and works with software partners to develop and test it, while an early adopter is someone who adopts technology, once it’s proven, generally ahead of peers. Notably, the number of firms that identify specifically as innovators jumped by 14 points year over year, from 5% to 19%. Wolters Kluwer believes this speaks to a changing self-perception within the accounting profession as being increasingly tech-driven.
“There’s a noticeable shift in the industry as accountants and auditors increasingly embrace technology as a key driver of success,” said the report. “Whether enhancing client service and engagement or digitizing client document collection, software is proving to be a valuable ally.”
The Internal Revenue Service and the Treasury Department issued proposed regulations for
In conjunction with the proposed guidance, the IRS posted a draft version of a new
The Treasury and the IRS said Monday they proposed the guidance to improve the IRS’s ability to administer the rules in the tax law governing the distribution of stock and securities of a controlled corporation, and to ensure that corporate separations satisfy the requirements to qualify for tax-free treatment. The proposed reporting regulations require certain filers to attach the new Form 7216 to their federal income tax return to provide data to the IRS about their multi-year corporation separation. Generally, filers would include the distributing corporation, the controlled corporation and certain significant shareholders or security holders of the distributing corporation.
The increased reporting requirements under the proposed reporting guidance would allow the Treasury and the IRS to provide increased transactional flexibility through the proposed regulations. Some examples of this increased transactional flexibility include addressing retention of controlled corporation stock, monetization transactions and other significant issues arising from multi-year transactions.
The IRS said it intends to follow these proposed regulations when it issues private letter rulings about certain corporate separations. The IRS plans to issue an update to Rev. Proc. 2024-24 to incorporate these proposed regulations into the procedures for requesting such private letter rulings.
The Treasury and the IRS are asking for comments on both the proposed regulations and the new form. They’re encouraging commenters to use the
The International Ethics Standards Board for Accountants plans to tackle a
The goal is to develop a culture and governance framework that promotes, supports and reinforces a high standard of ethical behavior by a firm’s leadership, other partners, and staff across all of the firm’s services. That way it will develop a reputation as a highly ethical firm, avoiding the risks of unethical behavior and strengthening public trust and confidence in all its services.
The report highlights the critical role of ethical culture and governance in addressing issues of unethical behavior within accounting firms. An IESBA working group on firm culture and governance did outreach and research last year and found some of the main drivers of an ethical firm culture include ethical leadership, transparent accountability mechanisms and governance frameworks that embed ethical values across all service lines. The report stresses the importance of transparent and ethical leadership, firm-wide accountability mechanisms and independent input. Performance incentives should align with ethical behavior, continuous ethics education, and a culture of open discussion and challenge.
Based on the working group’s conclusions and recommendations, the standard-setting project plans to develop a principles-based culture and governance framework for accounting firms that promotes, supports and reinforces a high standard of ethical behavior across all their professional services.
As part of this initiative, the IESBA intends to develop non-authoritative materials to raise awareness about the importance of ethical behavior in accounting firms and support firms with guidance on embedding ethics into their strategies and operations. These will also help involve other stakeholders who might contribute to developing an ecosystem for highly ethical accounting firms.
The IESBA plans to host a series of in-person and virtual global roundtables in March and April to gather input from a wide array of stakeholders. The in-person roundtables will be held in New York City; Melbourne, Australia; Brussels, Belgium; and Kuala Lumpur, Malaysia. Further details will be announced in the future.
Victor Machado/Bluepeach
“Ethics is foundational to the work of all accounting firms and all the professionals therein,” said IESBA chair Gabriela Figueiredo Dias in a statement Tuesday. “It is their gateway to public trust in their professional services. I commend the working group on tabling a comprehensive report, identifying the key areas of focus we will be probing carefully and systematically, in collaboration with stakeholders, as we seek to develop a global framework for culture and governance for firms. It is our strong conviction that this framework will enable firms to be highly ethical firms consistently, strengthening their resilience against risks of unethical behavior, maintaining a good reputation, and ensuring their long-term sustainability to serve clients, investors, other stakeholders and the public interest.”
The issue of accounting firm culture and governance is a strategic priority for the IESBA after a series of high-profile cases of unethical behavior in accounting firms in several parts of the world in recent years. The cases have led to negative consequences for individual accountants and their firms in multiple jurisdictions.
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