The bookkeeping industry is booming, with an expected compound annual growth rate (CAGR) of 9.8% from 2023 to 2030. As more small businesses and startups emerge across industries, demand for qualified bookkeepers to handle financial records and reporting continues to rise.

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Starting a bookkeeping service is an accessible business venture that aligns with in-demand skills like accounts payable/receivable, payroll, tax preparation, and beyond. The low overhead also makes a bookkeeping practice realistic.

This guide will walk you through how to start a bookkeeping business. Topics include market research, competitive analysis, registering an EIN, obtaining business insurance, forming a legal business entity, and more.

1. Conduct Bookkeeping Market Research

Thorough market research is the critical first step when assessing the viability of a bookkeeping business. It offers insight into bookkeeping trends, your target market, and other tips helpful to starting your own bookkeeping business.

Some details you’ll learn through market research as you start a business plan for your bookkeeping services include:

• The steady growth of the bookkeeping market is fueled by increased small business formation across sectors and the complexity of financial reporting regulations.
• As the number of startups and small businesses rises, so does the demand for outsourced financial services.
• The bookkeeping industry has thrived with the proliferation of e-commerce companies.
• As more entrepreneurs launch online stores, they often lack expertise in accounts payable/receivable, payroll, inventory management, and other key areas that bookkeepers handle.
• It’s also critical to assess the competitive landscape in your geographic target market.
• Large firms like H&R Block and Liberty Tax Service focus largely on tax preparation rather than ongoing bookkeeping.
• When scoping potential customer targets, realize that all small businesses are not equal.
• E-commerce companies have very different bookkeeping demands than local restaurants or law firms.
• Develop an ideal client framework based on size, industry vertical, business model complexity, growth phase, and other attributes.

Don’t underestimate budget limitations for small business owners. Balance value-based pricing models with various tiers of service levels, help attract clients that align with your firm’s capabilities and capacity. As you conduct comprehensive market research around starting a bookkeeping business.

2. Analyze the Competition

Conducting competitive analysis is crucial for positioning your emerging bookkeeping business. When assessing competitors, divide research between established brick-and-mortar accounting firms and independent bookkeepers’ marketing services online.

For local firms, search online directories and visit offices to gather sales literature and service offering details. Take note of locations, longevity, number of staff, specialty services, client types, and any membership affiliations or certifications touted. The American Institute of Professional Bookkeepers (AIPB), is a leading credentialing organization.

Independent and remote bookkeepers should have an online presence for marketing services. Search Google Maps and online directories like Yelp to find providers advertising in your geographic target area. Visit their websites and profiles to analyze service packages, pricing models, client types, differentiators, and customer reviews.

These activities help create a competitive landscape analysis to inform your own service offerings and positioning. Local firms with long-standing client bases have an advantage – you likely can’t compete directly on price. Therefore, build value propositions around flexibility, specialization, and leveraging online tools/technology.

Rather than striving to be the dominant bookkeeping provider in a given region from the outset, identify niche targets and messaging to complement existing competitive offerings. Analyzing both established and independent players provides insights to strategically craft competitive differentiation.

3. Costs to Start a Bookkeeping Business

When assessing the viability of a new bookkeeping venture, realistic cost projections are critical. From initial licensing fees to ongoing software expenses, budget adequately for these operational elements.

Startup Costs

• In terms of startup costs, one of the first investments should be establishing a legal business entity. Registration fees for an LLC generally run $100-$800 depending on your state.
• Accreditations like the Certified Bookkeeper (CB) from the American Institute of Professional Bookkeepers (AIPB) require enrolling in approved training programs ($1,000-$2,000) and passing an exam ($350).
• Basic furnishings like a desk, computer, printer/scanner, and filing cabinets could run $2,000 or more upfront.
• Budget for a new laptop and printer/scanner if you don’t already own them, which could cost around $1,500 combined.
• Top bookkeeping software QuickBooks offers monthly subscription plans starting around $25/month for basic functionality.
• Payroll modules and added features increase costs closer to $75/month.

Working solo limits startup staffing costs, though independent contractors for tax preparation support could be needed at $50-$150 per 1099 filing. Using an independent CPA for advice/oversight might run $100-$200 per month.

Ongoing Costs

In the first year, marketing and advertising are imperative for client acquisition. Allocate several thousand for branding materials (business cards, logo design) and directory listings to drive visibility both online and in regions you service locally. Ongoing marketing costs will taper in year two.

With lean startup budgets around $15,000-$25,000, securing $30,000-$100,000 in first-year sales is recommended to turn positive cash flow quickly while reinvesting early profits.

Keep overhead costs manageable by outsourcing specialized functions like tax filing until transaction volume increases. Weigh expenses against the value delivered to your clients while ensuring an adequate budget to operate successfully.

4. Form a Legal Business Entity

When starting a bookkeeping company, one of the first major decisions is choosing your legal business structure. Each entity type carries different implications around ownership, liability, taxes, and operating flexibility.

Sole Proprietorship

A Sole Proprietorship represents the simplest and most affordable option to establish. You can immediately begin operating under your name taxed only at personal rates. However, you assume unlimited personal liability for company debts or legal issues. Difficulty securing business financing and lack of credibility with clients limits growth.

Partnership

Forming a Partnership enables combining your expertise with someone else, often rounding out complementary skillsets. This facilitates service diversification and expanded capacity for taking on more client work. However, similar to sole ownership, each partner assumes full liability risks for the business.

Corporation

Incorporating as a C or S Corporation formally establishes the bookkeeping business as a separate legal entity from the owners. “Corporation” designation often resonates better with commercial customers for credibility. Owners also get protection from personal liability, only jeopardizing their initial business investment.

Limited Liability Company (LLC)

Forming a Limited Liability Company (LLC) provides the best of all worlds – it protects personal assets from business liabilities and debt like a Corporation while allowing pass-through income tax treatment similar to a Sole Proprietorship. Only your LLC investment is at risk.

5. Register Your Business For Taxes

One of the first tax compliance steps for new bookkeeping companies is obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Similar to a Social Security Number for individuals, an EIN serves as a unique numerical identifier in filing taxes for your business entity and any employees.

Thankfully obtaining an EIN is fairly simple and fast online through the IRS website. The online EIN Assistant walks you through a series of questions about your business entity structure, ownership details, and reason for the request. This data is required before receiving your unique 9-digit EIN.

With your new EIN in hand, contact your state revenue office about potential business or sales/use tax obligations related to the services you offer. Submitting the necessary registrations sooner rather than later prevents penalties down the road. Be sure to leverage any tax credits or incentives available for small service businesses in your area.

Having an EIN along with proper state/local tax licenses and related registrations lays the groundwork for remaining tax compliant as your practice grows. Both the IRS and the state provide various informational materials and workshops for small business education if you need additional support.

6. Setup Your Accounting

As a bookkeeping professional, ensuring your own financial house is in order is imperative. From separating personal and business transactions to leveraging accounting tools for efficiency, treat your practice like any other commercial client.

Open a Business Bank Account

Begin by keeping personal and business finances separate. Open a business bank account and apply for a business credit card. This keeps you accountable and ensures streamlined organization of incoming and outgoing funds for easy tax management.

Accounting Software

Strongly consider small business accounting software like QuickBooks to automate recording/categorizing transactions and generating financial statements. Robust integration with bank/credit card accounts enables seamless data flows rather than manual entry. This saves immense time while reducing errors.

Hire an Accountant

Consider enlisting an accountant or CPA to advise your practice, especially if new to owning a small business. A qualified tax professional provides valuable expertise in not just annual filing requirements, but also quarterly estimates, payroll taxes, retirement plan options, and expense optimization strategies.

7. Obtain Licenses and Permits

Opening a bookkeeping business requires obtaining certain licenses and permits to legally operate and avoid issues. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.

To start, review your state and local requirements by contacting the secretary of state or using online permit filing portals like Permits Made Simple that consolidate filing information in one place. Depending on your location, common licenses and registrations for bookkeepers may include:

• Business license – This establishes your business as a legal entity and grants permission to provide services in your region. Fees are typically under $100 annually. For example, California requires a business license with a fictitious name statement.
• Sales tax permit – While bookkeepers focus on services not goods, states still obligate collection given occasional product sales like bookkeeping software licenses.
• Zoning compliance permit – For home-based businesses, confirm your location and activity and comply with local zoning laws around home occupations.

Depending on your state, additional permits around service categories like tax preparation or certified accounts may be prudent to review as well. Requirements vary greatly across regions, so customize research accordingly.

Leverage free consultation sessions with business lawyers or state representatives to navigate specific obligations. They can also preemptively highlight risks given your bookkeeping specialties.

By proactively obtaining necessary licenses and permits, bookkeeping businesses reinforce operational legitimacy and a risk-smart foundation primed for growth. These administrative investments pay dividends through legal compliance and preparedness as your services and team expand over time.

8. Get Business Insurance

Getting adequate business insurance is crucial for bookkeepers to safeguard operations. Though not legally mandated in most regions, coverage provides a critical financial safety net against unexpected losses. Don’t wait for disaster to strike – proactively ensure early on.

The right insurance mitigates three core risks:

1. General liability which covers 3rd party bodily injury and property damage claims. For bookkeepers, an accident on your property could lead to high legal fees without coverage.
2. Some errors and omissions handle damages from potential mistakes and financial harm to clients. It protects you if plans or filings have unintentional compliance issues.
3. Cyber insurance is key with frequent access to sensitive client data. Cyberattacks pose significant vulnerability including potential theft of customer information, funds, or disruption of computer systems that could crush an uninsured bookkeeping firm.

Consider how lack of insurance could sink operations in many scenarios: A wildfire destroys your home office and equipment without property protection; An employee embezzles client funds with no insurance to recover damages; You transmit payroll funds to the wrong recipient who won’t return the money.

Though expensive upfront, the preventable disasters above demonstrate why proper coverage is so vital. To get insured smoothly:

• Document your risks including tracking assets, exposures, and compliance needs.
• Research plans and compare offerings from providers like CoverWallet and Incfile.
• Consult brokers to discuss your specific needs and tailor options appropriately to your bookkeeping firm.
• Purchase core policies like general liability immediately.
• Review annually to revisit limits as your client base and services evolve.

While tedious, adequately insuring your bookkeeping venture earlier can pay dividends long-term. Anchor operations with this foundational financial protection before taking on precious client accounts and data.

9. Create an Office Space

Securing office space can significantly empower bookkeeping operations despite the remote nature of most work. While home offices seem tempting for bootstrapping firms, consider if upgraded environments better support your capabilities and vision before signing long-term leases.

Home Office

Home offices certainly offer affordability and convenience for entrepreneurs. Critical advantages during the launch include no additional contracts and potential tax deductions. As you scale accounts, the separation between work and life improves focus to sustain quality output.

Coworking Office

Coworking spaces provide a professional infrastructure for firms not ready for solo offices. WeWork locations across the country provide turnkey amenities like conference rooms, printing, events, and networking from just $350-$800 monthly. Though noisy open seating suits independent focus work better than meetings.

Commercial Office

Private commercial offices facilitate customized build-outs for your tools, data privacy needs, branding displays, and dedicated conference capabilities that freelancing prohibits through noise and distractions. While most expensive at $1,000 monthly, the productivity dividends and client confidence.

10. Source Your Equipment

As a bookkeeping entrepreneur, your essential tools include reliable technology for processing financial data, collaborating with clients, safeguarding records, and backing continuity assurances. There are many ways to source materials, including:

Buy New

Buying new computers, printers, and scanning hardware from Best Buy certainly enables customization, warranty protections, and lag-free performance crucial for number crunching. However, with items starting around $300 apiece new, these aggregate costs strain bootstrapping businesses.

Buy Used

Explore used marketplaces like Craigslist and Facebook Marketplace for steep 50-75% discounts on prior generation – but still robust – devices. Core i5 Dell Latitude laptops with 8GB RAM readily sell under $150 secondhand. Laser printers and business scanners also abound for huge cost savings over new options.

Rent or Lease

Renting can also secure the latest gear with predictable costs rather than big new capital expenditures. National chains like Rent a Computer offer 12-36 month leasing options that bundle devices, damages protection, upgrades, and flexible terms all from $30-60 monthly. However, cumulative rental costs may eclipse the used device’s resale value long-term.

11. Establish Your Brand Assets

Establishing a strong brand presence is pivotal for bookkeepers to stand out from the competition and foster trust in an industry largely built on relationships and referrals. Beyond conveying professionalism, branding also encapsulates customer experiences that earn loyalty.

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Get a Business Phone Number

Getting a unique business phone line like those offered by RingCentral establishes a vital client access point with custom greetings, and call routing glues all communication together smoothly from first impressions and beyond.

Design a Logo

Creating a logo and related brand assets helps quickly communicate professionalism while humanizing services. Looka’s logo maker helps craft styles from abstract to typographic marks starting at just $20. Sync complementary colors, fonts, imagery, and taglines across sites, cards, and presentations.

Print Business Cards

To enable that client access, business cards also provide memorable IRL sharing channels where referral information can travel more tangibly to spark offline discussions over your services. Vistaprint delivers 500 standard or premium 16pt cards affordably starting from $10.

Get a Domain Name

A domain name also captures your enduring web presence and identity simply and memorably for visitors and marketing materials. Names like “AceBooksBP” convey offerings while options at Namecheap enable domains from just $9 annually.

Design a Website

Building a matching website then becomes possible through user-friendly Wix templates to showcase brand assets and offerings 24/7 for prospects seeking bookkeepers. For under $10 monthly their platform empowers anyone to craft pages. Alternatively, hiring web developers from freelance marketplaces like Fiverr offers creative site ideas at low costs.

12. Join Associations and Groups

Beyond solo learning, connecting with bookkeeping associations, groups, and peers can provide invaluable growth opportunities through shared wisdom. Don’t isolate your progress – regularly network with others succeeding in the space.

Local Associations

Industry associations like the American Institute of Professional Bookkeepers and the National Association of Certified Public Bookkeepers unlock training programs, conferences, certifications, and exposure to cutting-edge practices to elevate your capabilities. Local chapters also facilitate meetups and ongoing support systems.

Local Meetups

Attending broader conferences and tradeshows facilitates face-to-face networking impossible remotely. Sites like Meetup consolidate upcoming events from groups you can join to meet other entrepreneurs across sectors.

Facebook Groups

Facebook also hosts bookkeeper communities boasting tens of thousands of global peers. Small Business Owners Who Need Bookkeepers and US Based – QuickBooks, Bookkeeping, Payroll, and Business Tips share everything from mentorship to motivational success stories from the trenches.

13. How to Market a Bookkeeping Business

Marketing is pivotal for bookkeepers to spur awareness and interest in services when launching a firm. Without promotion, even talented professionals remain invisible to prospective clients online and in their communities. Balance digital discovery and word-of-mouth referrals to economically grow.

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Personal Networking

Tap friends, family, and existing business contacts first. Offer reduced-rate services in exchange for referrals. Reward happy early customers with gift cards to share experiences on sites like Yelp. Nothing drives conversions better than referrals from trusted social circles.

Digital Marketing

Digitally, openings abound to expand reach affordably:

• Run Google/Facebook PPC ads geo-targeting local finance searchers
• Start a bookkeeping podcast on Audible educating small business owners
• Host QuickBooks training webinars to demonstrate expertise
• Publish educational blogs/videos with DIY tax tips for solopreneurs
• Comment on finance forums and entrepreneur groups to gain visibility

Traditional Marketing

Traditional options like direct mail postcards, chamber of commerce networking events, and sponsoring conference lanyards can also facilitate valuable local connections. Just focus on spending on the highest ROI channels digital and real-world.

Cast messages widely, but fine-tune based on channel analytics. Match social media and search engine optimization efforts to recently trending concerns small business operators face today. Don’t overinvest early without data on what resonates best with your region and audience.

Stay nimble and don’t overcommit budgets to any singular promotion until tangible performance data demonstrates a channel’s true reach and conversion potential. With lots of low-cost digital options, experimentation rules the day.

14. Focus on the Customer

Customer obsession fuels growth for bookkeeping businesses through service experiences that spark referrals and loyalty. Don’t fixate on transactions. Instead, nurture relationships by making each touchpoint empathetic and helpful.

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Go beyond reconciling statements accurately and on time. Build rapport with check-in calls and onboarding welcome gifts like accounting resource eBooks. Celebrate client milestones on social media. Capture testimonials for their first year in business. Unexpected delights get shared and referred.

Enable channel flexibility by offering phone, email, chat, and virtual meeting support. Solve problems fastest through their preferred medium. Send new client referrals from the same region a little thank you and onboard them with care.

No matter how reliable your technical outputs are, people ultimately do business with those demonstrating authenticity and care for their goals. Competency gets you in the door but connection builds enterprises as clients double as vocal advocates.