There are several benefits to owning your own accounting firm or CPA firm, but it’s no small undertaking. For your firm to succeed, you need to start off on the right foot. To help you do that, we're covering the CPA firm requirements and actionable steps to ensure you launch your business on solid ground.
CPA firm requirements: Legal requirements
Before opening your practice, you need to meet the legal and regulatory requirements for your firm to operate ethically and seamlessly while making sure you and your clients are protected. Below are the key areas to address.
Hold a CPA license
To establish a CPA firm, you need to be a Certified Public Accountant (CPA). If you haven't already, you'll need to earn your license by passing the CPA Exam and meet your state Board of Accountancy's education, experience, and ethics requirements. If you're already a CPA, make sure you renew your license on your state's timeline and meet your CPE requirements to stay in good standing.
Choose the right business entity
You probably know how to guide your clients to choose a business entity, but as you set up your own firm, don't overlook this step for yourself. As you're selecting the appropriate legal structure to meet this CPA firm requirement, consider these options:
- Sole proprietorship: The simplest structure to establish, ideal for single-owner businesses. While it’s easy and cost-effective to set up, it doesn’t provide liability protection, meaning you are personally responsible for all debts and legal obligations.
- LLC (Limited liability company): A popular choice for small businesses due to its liability protection while maintaining flexibility in tax treatment.
- Partnerships: Best suited for businesses with two or more owners. General partnerships are easy to form, but they don’t shield personal assets. Limited partnerships (LPs) or limited liability partnerships (LLPs) offer liability protection for some or all partners, depending on the structure.
- Corporations (C-Corp or S-Corp): These entities provide the strongest liability protection but are more complex to set up and manage. C-Corps are taxed separately from their owners, which can result in double taxation, whereas S-Corps offer pass-through taxation but come with restrictions on ownership and share classes. Both are ideal for businesses planning to scale or seek outside investors.
If you're on the fence, or you don't feel knowledgeable enough in this area to make the right choice, connect with a CPA or tax accountant who specializes in working with small businesses.
Check State CPA firm requirements and registration guidelines
State laws regulate CPA firm requirements, so check with your state’s secretary of state or accountancy board for licensing and registration procedures.
For instance, in Indiana, obtaining a Firm Permit requires you to submit detailed forms, pay associated fees, and adhere to peer review regulations if you provide services like audits or reviews.
Obtain an EIN for tax purposes
File for an Employer Identification Number (EIN) through the IRS to identify your business for tax reporting. You'll also need this if you plan to hire employees and when you open business bank accounts. You can obtain an EIN by applying online through the IRS website1, mailing or faxing Form SS-4, or by calling the IRS's Business & Specialty Tax Line.
Open a business bank account
To manage finances and clearly separate your personal and professional transactions, ensure you open a dedicated business bank account. You probably know firsthand how this will simplify your tax preparation and financial statement preparation, but it will also build credibility with your clients and make it easier to stay organized.
CPA firm requirements: Business Essentials
Legalities aside, setting up a thriving CPA firm requires a range of business preparations. Even though they aren't necessarily legal CPA firm requirements, they will help you launch your firm successfully.
Develop a detailed business plan
Your CPA firm business plan will defines your vision, services offered, target market, projected revenue, and business goals. Having this will not only help you get funding and project revenue, but your business plan also helps you stay focused and aligned with your goals. In your business plan, consider what clients you want to serve or what area you plan to specialize in, like individual tax preparation, small business consulting, financial statement preparation, or other areas.
Secure startup capital
Your startup costs may vary depending on a variety of factors, but many CPA firms need $2,500–$12,500 to get started. Essentials like computers, accounting software, marketing, and professional liability insurance all factor into costs.
Set up digital platforms
You're going to need a way for clients to reach clients and also have them reach you. This will start with a website to help you build trust with potential clients and showcase your expertise. Be sure to include your services, testimonials, and contact information. You'll also need a business phone number to maintain professionalism and ensure clients can easily reach you.
Invest in secure file management
Handling sensitive client data is a given in accounting, so investing in secure file storage is critical. Consider encrypted cloud storage platforms or physical filing cabinets with locks as part of your data security strategy.
Subscribe to accounting software
Depending on the area you work in, you'll need tax and accounting software to automate your processes, ensure compliance and accuracy, and improve efficiency. And of course, you'll probably need Excel or something similar.
Can you start an accounting firm without being a CPA?
If you’re not a CPA, you can still launch an accounting firm—but you'll be limited to what services you can provide. You can still offer bookkeeping, payroll management, tax preparation, and similar services, but you will need to hold a CPA license to file financial statements, provide audits, and have full representation rights before the IRS.
However, if you want to focus solely on tax services, and you don't have a CPA license, consider earning your Enrolled Agent designation. As an EA, you're federally authorized by the IRS to represent clients and can offer all aspects of tax preparation, tax resolution, and advisory services.
Maintain your license and build your skills with Becker CPE
If you’re committed to starting and running a successful CPA firm, staying updated on industry developments and sharpening your skills will make a huge difference. Becker’s CPE courses and IRS-approved Enrolled Agent CE will not only help you meet your requirements, but they can help you succeed as you open your firm!
Unlock unlimited CPE with a Prime Subscription
Becker makes it easy to meet your CPE requirements, gain new skills, and stay aware of critical updates and changes in the industry!
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