7 Things to Know Before You Start a New Accounting Firm

Starting an accounting firm is a serious commitment. You need more than a CPA license and a client list. To help you avoid costly mistakes, here are seven things you must know before you hang your shingle. This guide covers the essentials, from legal structure to pricing, with realistic figures for 2026.

1. Licensing and Certification Requirements

Before you can offer tax preparation or audit services, you must meet state-specific licensing requirements. In most states, you need a CPA license to call yourself a CPA or to perform attestation services (like audits). For tax preparation only, you may not need a CPA, but you must have a PTIN (Preparer Tax Identification Number) from the IRS, which costs $19.95 per year. If you plan to represent clients before the IRS, you may need to become an Enrolled Agent (EA), which requires passing a three-part exam and costs about $300 for the exam.

Practical steps:

• Check your state board of accountancy for licensing requirements.
• Obtain your PTIN if you’ll prepare tax returns.
• Consider EA certification if you’ll handle IRS disputes.

2. Legal Structure and Insurance

Choose a legal structure that protects your personal assets. Most accounting firms choose an LLC or S-Corp. An LLC is simpler and offers liability protection; an S-Corp can save on self-employment taxes but requires more paperwork. You’ll also need professional liability insurance (errors and omissions), which costs between $1,500 and $5,000 per year for a solo practitioner, depending on your location and services. General liability insurance adds another $500 to $1,000 per year.

Practical steps:

• Consult a business attorney to form your LLC or S-Corp (cost: $500 to $2,000).
• Get quotes from three insurance providers for professional liability coverage.

3. Technology Stack and Software Costs

Your tech stack is your backbone. You’ll need accounting software, tax preparation software, and practice management tools. Here are typical costs (2026):

Software	Purpose	Monthly Cost (per user)
QuickBooks Online	Bookkeeping	$30-$100
Xero	Bookkeeping	$30-$70
Drake Tax	Tax prep	$1,500-$2,500 (annual)
UltraTax	Tax prep	$3,000-$5,000 (annual)
Canopy	Practice management	$50-$100
Karbon	Workflow management	$50-$100

Practical steps:

• Start with QuickBooks Online for bookkeeping and Drake Tax for tax prep if you’re on a budget.
• Use a free trial of practice management software before committing.

4. Pricing Your Services

Pricing is a common struggle. You can charge by the hour, by the return, or by monthly subscription. For tax preparation, a simple 1040 return might cost $200-$400, while a complex return with schedules and business income can run $500-$1,500. For bookkeeping, monthly fees range from $300 to $1,000 for small businesses. For advisory services, you can charge a monthly retainer of $500 to $2,000.

Practical steps:

• Research local market rates for tax prep and bookkeeping.
• Set a minimum price for a simple return to avoid underpricing.

5. Client Acquisition and Marketing

You need clients, and they won’t come automatically. Start with your network: former colleagues, friends, and local business owners. Build a simple website with a clear service list and contact form (cost: $500-$2,000 for a basic site). Use Google Business Profile to show up in local searches. Consider offering a free initial consultation to attract leads.

Practical steps:

• Create a one-page marketing plan with your target client and services.
• Reach out to 10 potential referral sources this week.

6. Compliance and Regulatory Obligations

You must comply with IRS e-file mandates and state regulations. Most tax returns must be e-filed if you prepare more than 10 returns per year. You also need to follow the FTC Safeguards Rule, which requires a written information security plan and annual risk assessments. Failure to comply can result in fines.

Practical steps:

• Register with the IRS as a tax preparer and get your e-file number.
• Draft a basic information security plan (use templates from the FTC).

7. Cash Flow and Startup Costs

Your first year will likely be lean. Startup costs can range from $10,000 to $50,000, including software, insurance, marketing, and office space (if you don’t work from home). Plan for at least six months of personal expenses in savings. Consider a business credit card with 0% introductory APR to manage cash flow.

Practical steps:

• Create a 12-month cash flow projection with realistic revenue and expenses.
• Set aside a contingency fund of at least $5,000.

FAQ

Do I need a CPA license to start an accounting firm? Not necessarily. You can offer bookkeeping and tax preparation without a CPA, but you cannot perform audits or represent yourself as a CPA. For tax prep, you need a PTIN. If you want to do audits, you must be a licensed CPA in your state.

How much does it cost to start an accounting firm? Startup costs typically range from $10,000 to $50,000, depending on software, insurance, and marketing. A home-based solo practice can start for under $10,000 if you use budget software and minimal marketing.

What is the best software for a new accounting firm? QuickBooks Online for bookkeeping and Drake Tax for tax prep are cost-effective for new firms. For practice management, Canopy offers a good balance of features and price. Start with free trials to see what fits your workflow.

How do I price my services competitively? Research local rates for similar services. For tax prep, start with $200-$400 for simple returns. For bookkeeping, charge $300-$1,000 per month per client. Adjust based on your experience and client complexity.

Related guides

• 7 Questions to Ask Before Buying a New Accounting Firm
• Best New Accounting Firm Tools Compared in 2026
• How Much Should a New Accounting Firm Set Aside for Taxes?

The bottom line

Starting an accounting firm requires careful planning. Focus on licensing, legal structure, technology, pricing, marketing, compliance, and cash flow. By addressing these seven areas before you launch, you’ll build a solid foundation for a profitable practice. Take one step this week: check your state’s licensing requirements and set up your PTIN. Then, move on to the next item on this list. Your future clients are waiting.