How To Start a Bookkeeping Business in 8 Steps
Tim is a Certified QuickBooks Time (formerly TSheets) Pro, QuickBooks ProAdvisor, and CPA with 25 years of experience. He brings his expertise to Fit Small Business’s accounting content.
This article is part of a larger series on Accounting Software.
A bookkeeping business consists of tracking income and expenses, processing payroll, and possibly preparing tax returns for business clients. It is a great home-based business that’s easy to start with very little cash. Whether you’re looking to make a little extra money or wanting to grow a business to support you and your family, our eight steps to starting your own bookkeeping business—from creating a business plan and registering the business, to getting the right software and marketing—will help you achieve your goal.
Step 1: Create a Business Plan
Writing a business plan is something that everyone should do before they start their own business. While a business plan can be used to obtain funding for your business, the real value is the thought that goes into the process of writing a plan.
During the business plan writing process, you should think about every aspect of your business—such as what products and services you will sell, how you will market those products and services, and who your competition is. You will also create a financial plan that should include a 12-month profit and loss projection, projected cash flow, and a projected balance sheet.
Here are the key items that should be included in every business plan:
- Cover page
- Executive summary
- Company overview
- Competitive analysis
- Marketing plan
- Startup costs
- Financial projections
Identify Your Target Market
You should first decide whether your target market will be limited to your surrounding area, or if you’ll offer online services. While it’s tempting to offer your services online to a worldwide audience, it adds a lot of complexity to your operations. You should plan on paying for help with online advertising, web design, search engine optimization (SEO), and website content management.
The next decision is whether to focus on a particular small business niche or offer services to all small businesses. It’s much easier to become an expert in accounting for a particular business niche than it is for all businesses in general.
The best niches to consider are those that have unique bookkeeping challenges. For example, construction companies compute their profit by project, truck drivers have special tax rules for computing travel expenses, and restaurants have a very high volume of relatively low-value inventory items to track. While choosing a niche will greatly reduce your available client base, it makes it much easier to gain expertise and distinguish yourself from your competitors.
Choose What Services You’ll Offer
You should decide what services your bookkeeping business will initially offer. You might add more later, but knowing your initial offerings are important so that you can choose the right certifications and software. Here are some of the common services offered by bookkeeping businesses:
- Basic bookkeeping: Basic bookkeeping usually includes entering banking transactions, classifying payments, and reconciling the bank statements. The result is typically a basic set of financial statements at the end of each month.
- Invoicing: Some bookkeeping businesses will prepare and mail invoices to their client’s customers. Even if you don’t prepare and mail the invoices, you could collect, deposit, and track customer payments.
- Bill payment: You can provide value to your clients by tracking their unpaid bills. You can submit payments to their vendors or simply provide a list of bills that need to be paid.
- Payroll: If your bookkeeping business provides payroll services, you’ll need to not only issue payments to your client’s employees but also track and pay payroll taxes. Be sure to pick a client software package that can easily be expanded to include payroll.
- Tax returns: Only provide tax return preparation to your clients if you have tax expertise. It’s not difficult to learn how to fill out tax forms, but there is much more to know to adequately advise your clients. If you do decide to prepare tax returns, be sure to get professional liability insurance.
Check out our comprehensive guide to creating a business plan.
Step 2: Earn Your Certifications
One of the fastest ways to gain credibility with potential clients is to prove that you have the knowledge necessary to do bookkeeping, payroll, and perhaps tax returns. If you’re a certified public accountant (CPA), you probably won’t benefit from becoming a certified bookkeeper, but you still might consider becoming certified in whatever accounting software you choose to use.
Certified Bookkeeper
Even if you don’t have formal education in accounting or bookkeeping, you can become a certified bookkeeper before starting your own bookkeeping business. Unlike CPAs, these certifications are not regulated by the state, so be sure to choose a large, reputable organization so that the certification is meaningful and respected.
There are two top professional bookkeeper organizations that we recommend you certify with:
- American Institute of Professional Bookkeepers (AIPB): To become AIPB-certified, you must meet the 3,000-hour work experience requirement and pass a certification exam. Once certified, you will earn the right to put the letters CB―for Certified Bookkeeper―behind your name and display this on your resume and business cards, which will give you an edge with potential clients. This certification is ideal if you do not have any formal education in the bookkeeping and accounting field.
- National Association of Certified Public Bookkeepers (NACPB): To earn certification through the NACPB, you must take courses in bookkeeping, payroll, QuickBooks Online, and accounting principles and pass an exam for each course. You’ll also need one year of experience before applying for the license. If you’ve had college accounting courses, you might be able to substitute them for required courses, but you’ll still need to pass each exam. Once certified, you will earn the credentials CPB―for Certified Professional Bookkeeper. You can put these letters behind your name on resumes, business cards, and other materials to display your accomplishment to future clients.
Look at our guide on how to become a Certified Bookkeeper for the details of these, plus other, bookkeeping certification programs.
Accounting Software Certification
Some of the best small business accounting software providers offer a certification program so that bookkeepers can demonstrate they are proficient with the software. Most of the certifications are free and even come with free accounting software for your firm. Here are a few of the most popular accounting software and their certification programs:
- QuickBooks ProAdvisor: QuickBooks is by far the most popular small business accounting software in the United States, and you’ll very likely have clients using it. QuickBooks offers ProAdvisor certifications for both QuickBooks Online and QuickBooks Desktop. The Online certification is free, but the Desktop certification requires the purchase of QuickBooks Desktop Accountant software, which is $449 per year. You earn your certification by completing self-paced lessons and taking exams.
- FreshBooks Partner Program: FreshBooks is popular accounting software for service-based businesses requiring exceptional invoicing features. It offers a partnership program with accountants that includes FreshBooks certification and skills training.
- Xero Partner Program: Xero, while not as popular as QuickBooks, is a comparable program at a lower cost. Similar to FreshBooks, Xero offers a partnership program that includes Xero certification.
Tax Certification
No certification is required for a paid preparer to sign a client’s tax return, but I highly recommend not preparing returns unless you are a tax professional or willing to put in the work to become one. Many bookkeeping firms prepare financial statements that their clients take to CPAs or other tax pros to prepare a return. You may find yourself working closely with their tax preparer and, together, you can provide outstanding service to your mutual clients.
Avoid pitfalls:
It is illegal to prepare a client’s tax return and not sign it as the paid preparer. This means you cannot use do-it-yourself (DIY) software like TurboTax or TaxAct to prepare client returns because they don’t allow for a paid-preparer signature. You will need professional tax software instead.
If you’re not a CPA and you want to prepare tax returns, I recommend becoming an Enrolled Agent (EA) through the IRS. EAs must initially pass an examination and then complete annual continuing education to renew their certification every three years. While no formal education or classes are required, the examinations are difficult and will prove you have the knowledge to serve tax clients properly.
Step 3: Register & Organize Your Bookkeeping Business
This step is important because it establishes your business as legitimate and may help to limit your personal liability if your company is ever sued. Whether you are doing this part-time or full-time, you don’t want to skip this step.
You need to do the following to establish your business at the local, state, and federal levels:
Select a Business Name
Naming your business can be both a fun and stressful exercise. Your name must convey your brand since that is what a potential customer will see before they sit down with you for that initial consultation. Make sure your business name says exactly what you do. This is not the time to be cute, unless you can also be clear about what it is that you do.
Here are some great tips on how to name your business:
- Aim for clarity: Your name needs to tell people what you do. If you’re focusing your bookkeeping business on a niche, include the niche in your name.
- Use a term with an established brand: For example, you could use the name of the city where you are located, such as Scranton Bookkeeping.
- Get input from others: Ask family and friends for their input. Make it fun and put it out on your social media that you are looking for suggestions on what to name your business. You could even offer a prize to the winner.
- Test it out: Try it out on potential customers to see what they think. Compare your name to competitors’ names to see if it stands out enough, but not too much.
For more tips, check out our business name generator to help get those creative juices flowing.
Choose a Business Structure
There are four common business structures: sole proprietorship, partnership, limited liability company (LLC), and corporation. The structure that you choose will determine your personal liability if the company is ever sued, your tax liability, and your ability to raise capital.
To assist you with this decision, I recommend that you get an introduction to the four common business structures by reading our best small business structure guide.
Most people operating a part-time bookkeeping business with no employees will operate as a sole proprietorship, which generally works fine. However, if your business grows to the point of hiring employees, you need to consider becoming an LLC or corporation. In addition to tax consequences, your personal liability in the event of a lawsuit can vary dramatically by business structure, so be sure to consult with an attorney.
Step 4: Set Up Business Operations for Your Bookkeeping Business
Now that you’ve organized your business, you can start setting up operations, like getting the right small business insurance and opening a separate business checking account. It’s important to separate your business operations from your personal finances to make your accounting easier and potentially affect your liability in the event of a lawsuit.
Set Up a Business Telephone Number
Getting a unique phone number for your business is incredibly easy and often free. You can get a free Google Voice number that includes a local area code, voicemail, texts, and unlimited calling. You can explore other options in our guide to the best business phone systems.
Hire an Answering Service
As a one-person operation, you may find it hard to get back to clients right away, especially during tax season. Sending prospective customers to voicemail when they need your services can cost you business. Go Answer is a bilingual answering service that connects your customers to live customer service agents via phone, text, web chat, or email 24/7. You can get started today with a 30-day free trial.
Set Up a Business Bank Account
It’s important to separate your business finances from your personal finances. While most people think they should wait until the business starts to generate cash flow, it’s important to track expenses immediately so that they can be deducted as startup costs. It’s easy to open a business checking account.
Establish a Business Mailing Address
If you plan to lease office space, then your mailing address will be wherever your office is located. However, if you plan to set up a home office, you’ll need to obtain a business mailing address so that you don’t have to use your home address. This will make your business appear more professional and maintain your privacy.
There are a couple of options. First, you can rent a post office box from your local post office. On average, you will pay $60 for six months or $120 for the year. Of course, the price will vary based on your location. Another is to rent a UPS mailbox instead, and the UPS Store will give you a real street address to use. A benefit to using a UPS mailbox is some merchants won’t deliver to P.O. boxes and require a street address.
Get Bookkeeper Insurance
As a bookkeeper, you should have liability protection in case you get sued for a mistake on your client’s books. Insurance can both cover the cost of settling a lawsuit and the lawyer fees to defend against a lawsuit.
For more information on the right insurance coverage, check out our article on Bookkeeper, Accountant, and CPA Insurance.
Step 5: Get the Right Accounting Software
Determining which software to use to manage all of the various aspects of your business can be an overwhelming task. To get you started, the following is a list of the areas of your business for which you will need to decide which software tool to use:
Client Software
You need to decide what accounting program you would like your clients to use. This doesn’t necessarily have to be the same platform that you use to manage your bookkeeping business. A few things to consider when selecting a software to recommend to your clients are:
- Can you access the client’s books remotely?
- How much will it cost each client for basic bookkeeping?
- How much will it cost to add client payroll?
- Is it easy for your client to learn to use?
- Does the software offer a certification program or partnership program for bookkeeping firms to help attract clients?
Bookkeeping/Accounting Software
You’ll also need to choose a bookkeeping software for your own bookkeeping business. Some offer a bookkeeper or accountant edition that is designed specifically for bookkeeping companies to use both for their own books and as a portal to their client’s books. My recommendation is that you use QuickBooks Online, which we rated as the overall best small business accounting software. As discussed earlier, you can get QuickBooks Online Accountant for free when you join the QuickBooks Online ProAdvisor program, which is also free.
Payroll Software or Provider
Depending on the bookkeeping/accounting software you choose, there will generally be a payroll processing option you can turn on when you are ready to hire employees. If you decide to go with QuickBooks, it offers a variety of payroll options from which to choose. If you don’t want the headache of dealing with payroll, check out our guide on the leading payroll services for small businesses.
Practice Management Software
Another tool that will make your life easier is accounting practice management software. This can help you organize and track the progress of client work and, in some cases, provide a portal to access your client’s books. QuickBooks and Xero both offer practice management software that are integrated with their accountant software.
Electronic File Sharing/Management
A document sharing program will allow you to share information, such as bank statements, copies of receipts, invoices, and accounting files, with your clients no matter where you are working. Dropbox is a popular document sharing program. You can create a dropbox for each client, and they can start submitting their information. This system is much more secure than sending files via email or using a USB. To access the information, you need a user ID and password. All files are stored in the cloud, so there’s no backup required.
Step 6: Fund Your Bookkeeping Business
After completing your business plan, you will have a good idea of what your estimated startup costs will be. In general, the startup costs for a bookkeeping business can be low if you work out of a home office as opposed to leasing office space, which we will discuss in the next section. The experts say that you should always have at least six months’ worth of expenses in the bank. Also, even though your business is brand new and hasn’t generated any revenue yet, you may still qualify for startup business financing.
Apply for a Business Credit Card
You’ll want to open a business credit card account soon. A business credit card will likely be the first form of financing you’ll qualify for, and it can be a great financial tool to help you with cash flow or necessary expenses early on in your business. A business credit card can also be a great way to track your business expenses easily. This will go a long way toward making tax time a breeze.
New bookkeeping businesses will typically use a credit card to float working capital expenses, earn rewards, and manage employees. Check out our guide to the best credit cards for startups to find one that fits the bill.
Step 7: Set Up a Home Office for Your Bookkeeping Business
When starting out, you should keep your costs low by setting up a home office. If possible, plan to meet your clients at their offices or virtually. I don’t recommend that you invite clients to your home office unless you know them very well and have a private room where you can work. Read our tips for creating your home office to learn more of the dos and don’ts when setting up a home office.
Also, don’t forget to take those home office tax deductions. You can deduct repairs and maintenance to the area used for business and a portion of utilities, real estate taxes, and insurance on your home.
If you can’t make a home office work, look into virtual office space or office sharing. Typically, this includes a mailing address, local telephone number, receptionist to answer calls, physical office space, and access to a conference room that you can rent by the hour.
Step 8: Market Your Bookkeeping Business
Marketing is one of the most difficult things for accountants and bookkeepers to master. Whether this is your side gig or full-time business, you can get a website customized for your business with a company that offers specialized marketing services, like CPA Site Solutions.
It will have one of its webmasters reach out to you for a quick 15-minute conversation before it goes on to create your website fitted with your logo, images, and content. It will focus on designing a website that increases revenue, improves client loyalty, and drives brand awareness. It even offers a free 60-day trial so that you can see if it works for your business.
In addition to a website, there are many ways to market your bookkeeping business:
- Become a business advisor with the Small Business Development Center (SBDC).
- Be an adjunct instructor.
- Get certified in accounting software.
- Sign up with bookkeeper freelancer websites.
- Join a local meetup group of bookkeepers and accountants.
- Establish a client referral program.
- Establish professional social media accounts.
- Target a niche industry and join their industry association.
Read our guide on how to get bookkeeping clients to learn how to implement these marketing ideas, plus find out more ways that you can market your bookkeeping business.
Bonus Tip: Stay on Top of Industry Trends for Bookkeepers
It’s tough to stay on top of new trends and changes in the industry. For example, one of the most popular trends in the software industry is that installed desktop software is becoming a thing of the past and is being replaced with subscription-based cloud software, also known as software-as-a-service (SaaS). This is a trend that is completely changing how bookkeepers and accountants do business, so it’s important that you understand how it works since it will have a direct impact on your business.
Here are a few tips to “stay in the loop” on what’s going on in the bookkeeping/accounting industry.
Attend Accounting/Bookkeeping Conferences
Investing the time to attend a conference will give you those continuing education credits you need to keep your bookkeeper or CPA certification. It will also enable you to learn what the hottest trends in the industry are and what’s becoming obsolete. A great conference to attend is QuickBooks Connect, which is hosted by Intuit and usually held in San Jose, California, in the fall.
Sign Up for Blogs & Newsletters
Join a Professional Bookkeeper Association
You should be a member of at least one professional bookkeeper association. The AIPB and the NACPB are the top two associations for bookkeepers.
The AIPB offers membership for one, two, or three years. The fee starts at $39 for one year and includes a subscription to a monthly newsletter, free accounting, payroll, and QuickBooks help on a member answer line and other benefits. Meanwhile, the NACPB offers membership for $200 per year and includes access to practice certification exams, continuing professional education, training videos, discounts on certification exams, exam prep courses, and other benefits.
Bottom Line
Now that we’ve provided you with a roadmap to get your bookkeeping business started, I want to challenge you to pick a date for when you would like to be ready to take that first client. Then, take this guide and create a weekly to-do list based on the steps we have shared with you.
