How to Start a Bookkeeping Business
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If you have a strong background in mathematics and finance, then starting a bookkeeping business might be the path for you! Every company needs to keep track of and organize their finances—and, someone needs to do that for them. Starting from scratch might sound overwhelming—but, with the right tools and a little know-how, you can have a successful bookkeeping business in no time!
Below, we’ve done the legwork for you to provide a free guide to starting a home-based bookkeeping business today.
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What Does a Bookkeeping Business Do?
Simply put, a bookkeeping business maintains the daily finances of its clients’ companies. This may include payroll, paying and collecting debts, monthly reconciliation of bank accounts, creating financial statements and reports, and issuing customer invoices. In addition, a bookkeeper is responsible for checking financial reports and figures for accuracy.
Although bookkeepers are often referred to as accountants, there are distinct differences between the two positions. An accountant is responsible for completing income tax returns, creating plans for businesses to meet specific financial goals, preparing financial statements, and analyzing the overall costs of operations—focusing on the larger monetary picture. In addition, owning an accounting business typically requires a bachelors degree in accounting or finances—whereas owning a bookkeeping business does not require certification or a degree.
Steps to Starting a Bookkeeping Business
Create a Business Plan for Your Bookkeeping Business
Before you get started, you’ll need an idea of what resources you’ll need—and how to monetize your business in a practical way. We’ve answered the biggest questions about clients, costs, and profits below.
Who is the target audience?
Every company needs to manage their finances, but you may want to narrow down your clientele to a specific audience. For example, do you want to work with big or small businesses? Both? Is there a specific business niche that interests you (e.g. retail, automotive, or manufacturing)? The answers to these types of questions will more than likely drive the types of clients you end up working with. But, don’t overthink it—especially in the beginning. When you’re first starting out, your goal needs to be landing your first client. Once you’ve checked that box, you can begin developing your skills and refining your specialty.
How do I get clients?
Finding your first bookkeeping client—as well as establishing a loyal list—takes a lot of time. And, while that’s certainly not meant to discourage you, it is important for any new business owner to know. The good news is, there are a lot of creative ways and affordable marketing tools to help!
- Get listed on professional directories: Websites such as Quickbooks, Gusto, and Xero, allow individuals and companies to search for freelance bookkeepers. You can list your expertise level, contact information, and links to your business’s social media pages–where all of your loyal clients will post glowing reviews.
- Network: Social media platforms are one of the strongest ways to find bookkeeping clients–BUT, don’t just add your business information to an existing personal account. Create fresh Facebook, Instagram, LinkedIn, and Twitter pages that aren’t connected to your private photos and content. You can also follow and connect with other professional bookkeepers and companies that may need your services.
- Ask locals: Reach out to local businesses you support and frequent. If you find you need more bookkeeping experience, consider volunteering for a nonprofit in your area.
- Get certified: Although becoming a certified bookkeeper isn’t a requirement for owning a bookkeeping business, it can make a huge difference when looking for clients—in fact, some companies will only contract out to certified bookkeepers. Organizations such as the NACPB (National Association of Certified Public Bookkeepers) and AIPB (American Institute of Professional Bookkeepers) offer exams to become certified.
How does a bookkeeping business make money?
Most bookkeeping businesses will accept full-time, part-time, or intermittent work. In addition, you may choose to charge an hourly or flat fee, depending on the situation.
Medium and/or large businesses will most likely hire a full-time bookkeeper—someone to manage employee time sheets, pay bills, process monthly financial statements, and bill clients. These customers
are often charged a monthly flat rate. Smaller businesses will probably be able to handle some of the daily finances on their own and hire a part-time bookkeeper to help organize/input receipts and track accounts receivable/payable. Also, some clients will just hire you to set up their bookkeeping software and train staff to track the company’s finances, only contacting you when issues come up.In cases like these, an hourly rate may make more sense.
Once you’ve been hired, you’ll need to draft a bookkeeping contract—this will ensure your protection as well as your client’s. Here’s a list of information you should include:
- Business name.
- Client information.
- List of specific services provided.
- Service rates.
- Materials and data you will have access to.
- Term of service—full-time, part-time, or intermittent.
- Payment information—due dates, late fees, and accepted methods.
- Termination terms—for both you and the client.
- Any relevant federal, state, or local legislation.
How much money will it take to get started?
Assuming you own a reliable laptop, start up costs will be minimal. However, if you need to purchase a new computer, it will cost a minimum of $1000.
Because you’ll be responsible for your client’s finances, you’ll need to buy or subscribe to a bookkeeping software program such as QuickBooks, FreshBooks, or Xero (between $9-$25/month). In addition, you should strongly consider buying an E&O (Errors and Omissions) insurance policy. Unfortunately, any mistakes could end up having serious consequences and result in your business being sued. E&O policies protect you from having to pay for legal services out of your own pocket. E&O coverage costs an average of $500-$1000 per employee, per year.
Formal training or certification isn’t necessary to own a successful bookkeeping business, but it can be helpful when you’re first starting out—especially if you’re new to the profession and need a quick way of establishing authority and skill set. Local colleges may offer bookkeeping courses, and there are plenty of options online. LinkedIn offers online courses and access to expert-led tutorials for $19.99/month-following a 14-day free trial.
How much do bookkeeping businesses make each year?
According to Salary.com, the average freelance bookkeeper makes $43,591 per year. Although most
US states report an average of $40,000+, there are a small handful of states (such as Mississippi, South Dakota, New Mexico, and West Virginia) that average between $37,000 and $39,000. Alaska, Washington DC, and California pay the most at over $48,000 a year.
How much should I charge?
As reported by Payscale.com, the average bookkeeping business will earn between $17.40-$25.50 per hour. However, you may also choose to charge a flat rate, depending on the circumstances. To determine your flat fee, simply take your hourly rate and multiply it by the number of hours you typically work per month.
- Benefits of charging per hour: An hourly wage will be the most accurate portrait of your work and time. Clients will know exactly how much time you put into their company. It’s also an easy and fair way to bill companies that only reach out periodically to ask questions or to have their files reviewed.
- Benefits of charging a flat rate: Businesses you work with on a regular basis will probably prefer to pay a flat rate. It’s an upfront method that promotes efficiency and allows for better cash flow planning.
Select a Name for Your Bookkeeping Business
Have a great name idea? Before you start marketing and branding your business, you’ll need to ensure your name is available. Most states prohibit or restrict businesses from adopting names that are already in use. Even if it’s legally allowed, a copycat name puts your business at risk of a lawsuit.
See if your business name is available in your state with our Free Business Name Search.
Trademarks and Domain Names
Plan to trademark your business name? You can see if the trademark is available on a website like Trademarkia. It’s also a good idea to see if the domain name is available, which you can do on websites like Network Solutions and GoDaddy. Even if you don’t plan on putting together a website right away, you can buy the domain name to make sure no one takes it in the meantime.
Choose a Business Structure
Should you form an LLC? A sole proprietorship? Your choice of business structure will affect many aspects of your business, from liability to taxes.
Sole Proprietorships & General Partnerships
If you don’t file any paperwork to legally form a different kind of business—you have a sole proprietorship or general partnership. Essentially, these are “default” business structures. A sole proprietorship has one owner, and a partnership has multiple owners.
These structures have a few initial benefits. They’re easy, fast and cheap to start and maintain. However, the limitations and risks of these business structures quickly become more apparent as your business grows. In both of these business types, you are your business, legally speaking. Your company’s legal business name is YOUR name—so you’ll need a DBA to operate under any other name. Any business debt is YOUR personal debt. If anyone sues your business, they are suing YOU personally.
LLCs & Corporations
Limited liability companies (LLCs) and corporations are business entities formed at the state level. The entity is legally separate from its owners, meaning the owners are not personally liable for the debts and obligations of the business. As a separate entity, the business also has multiple tax election options. For example, both LLCs and corporations can choose to be taxed as S-corps if they meet the requirements.
LLCs and corporations are not quite as simple and inexpensive as default structures. LLCs and corporations come with formal requirements like state reports. They also have more fees than default structures, such as formation and annual report fees. However, the benefits of an LLC or corporation—especially liability protection and tax flexibility—are significant.
Legally Form Your Bookkeeping Business
If you opt for a sole proprietorship or general partnership, there’s no formal paperwork to file to legally create your entity—you just start selling your product or service. However, you will not have any liability protections or tax flexibility.
LLCs and corporations are formed by filing paperwork with a state agency, typically the Secretary of State. To start an LLC, you file articles of organization. To start a corporation, you file articles of incorporation. In most states, you can file these forms online or download a paper form from the state’s website.
Whether you’re forming an LLC or corporation, your articles will require certain basic information about your business, such as your company’s:
- business address
- registered agent and office
- business purpose
- members/managers or directors/officers’ names and addresses
- number and type of authorized shares (for stock corporations)
You’ll also need the signature of someone authorized to sign on behalf of the business, along with the state’s filing fee. Fees vary by state but are typically between $100 and $200. If you hire Northwest to form your LLC or corporation, we complete and submit your formation paperwork on your behalf for just $100 plus state fees.
Create Internal Policies and Procedures
It’s important to put your company’s internal policies and procedures in a written document, especially if you’re starting your business with others. Partnerships have partnership agreements. LLCs have operating agreements. Corporations have bylaws.
These documents look a bit different for each kind of business, but they serve the same general purpose. They ensure there’s a clear path forward for any major issue that may arise, from changes in ownership to closing the business. LLCs and corporations also typically need an operating agreement or bylaws in order to open a bank account.
Get an EIN and Register for Taxes
Nearly all LLCs and corporations will need to request a federal employer identification number (EIN) from the IRS. If you file corporate income taxes, have employees, or file certain franchise taxes, you must have an EIN. An EIN is also a common requirement for opening a business bank account. Most businesses can request an EIN by filling out the IRS’s online form.
Your EIN is for federal taxes—but you’ll likely have state and local tax obligations as well. You will most likely need to set up an account with the state’s Department of Revenue, and you may need to apply for a state tax ID or a sales tax license as well.
Learn more about how to Get an EIN for your business.
Open a Bank Account
A business bank account keeps your personal finances separate from your business finances. For LLCs and corporations, keeping separate finances is essential for maintaining liability protection. To open an account, LLCs and corporations typically need to bring to the bank a copy of their articles, their operating agreement or bylaws, and their EIN.
Obtain Required Licenses and Permits
Many businesses will need a business license to operate. Licensing information—as well as any zoning requirements or other permits—can usually be found on the city or county website.
If your home is part of a homeowner’s association, you’ll also be subject to any of their restrictions for home-based businesses. Some areas may also require home-based businesses to obtain a Certificate of Occupancy (a document certifying the property owner has given the business permission to operate).
Next Steps for Your Bookkeeping Business
After your business is up and running, there are a few additional steps you may want to take as you grow:
- Get online: With your domain name, you can create a business website. You can hire a professional or use a website-builder like Wix or WordPress. You may also want to invest in online ads through a program like Google Ads.
- Hire employees: Hiring employees requires quite a few steps. You’ll need to collect W-4s and I-9s from employees, report the new hires to the state, set up withholding, pay for unemployment insurance, distribute any required documents and notices to employees, and display wage and safety info in the workplace. Employer.gov is a good place to start, followed by your state’s tax or labor office.
- Get business insurance: While LLCs and corporations protect you from personal liability, you don’t want your business to go bankrupt in the face of an accident, injury or other disaster. At minimum, it’s a good idea to look into general liability insurance. Home-based businesses can sometimes add insurance onto their homeowner’s policy.
- Get Error & Omissions (E&O) Insurance: This is an absolute must for all bookkeeping businesses. If an unsatisfied client were to sue your business, your E&O policy will pay for the legal expenses. An E&O policy will typically cost $500 to $1000 per employee, per year.
How Do I Know if a Bookkeeping Business is for Me?
What’s it really like to work in a bookkeeping business?
Bookkeepers typically work a regular 40–hour work week although they may need to work extended hours during busy periods such as tax season or at the end of a fiscal year. Although bookkeepers are not responsible for filing a business’s taxes, they do often act as financial interpreters between companies and accountants.
Depending on client needs, bookkeepers will work full-time, part-time, or intermittently to balance business check books, manage accounts receivable/payable, process payroll, match invoices to purchase orders, reimburse employees for business expenses, verify the accuracy of all bank statements and financial reports along with a myriad of other money-related tasks.
Since you’ll more than likely be working from home, you’ll need to rely on phone/video calls, emails, and instant messaging to keep communication open between you and your clients. Keep in mind that you will have access to sensitive information, so it’s also important that you have a system in place to keep client information secure and away from anyone else in your household.
What does it take to succeed in the world of bookkeeping?
A strong bookkeeper must have extensive training in math, excellent organizational skills, and a lot of integrity. As the manager of all things finance, you need to be able to explain complicated financial matters in layman terms and consistently demonstrate discretion—especially when you take on multiple clients. Listening to your clients and understanding their unique needs will show you’re genuine and truly care about their financial future.
Ready to Form an LLC or Corporation?
Northwest Registered Agent is here to help with all your small business ideas and needs. Answer a few simple questions about your business, and we’ll prepare and submit your formation paperwork to the state. We also provide your new business registered agent service, free business forms and guides, and much more.