I’ve talked to many budding entrepreneurs who have the energy, discipline and optimism to successfully go solo, but they don’t always have a clear roadmap for managing the legal steps involved with launching a business like an accounting firm.
In my last article, we discussed how to determine if you’re ready to take the entrepreneurial plunge and start your own accounting firm (see Are You Ready to Start Your Own Accounting Firm?). If you have decided that you’re truly ready to go solo, here’s an overview of seven important legal steps to launch a new accounting business:
1. Choose Your Business Name
One of the first questions is deciding if you should market your business using your own name or create a business name. Many solo accountants use their own name since it makes your company transparent and personal. On the other hand, a business name (even if it’s just a variation of your personal name) can make you seem well-established and experienced.
If you decide to create a business name for your new business, you need to make sure it is available to use. Do this as early in the process as possible, since you don’t want to invest time and money in a name that you’ll ultimately be forced to change.
First, check to make sure there’s an available domain name; you can use a site like GoDaddy.com to instantly find out if there’s a suitable domain (they’ll give you suggestions in case your proposed name is already taken). Then, check if the name is available in the state where you’re planning on operating the business. You can contact your state’s secretary of state office, or many online legal filing service sites will perform this basic name search for free.
If no one in your state is using the name, the next thing you’ll want to do is search the U.S. Patent and Trademark Office to find out if anyone has an approved or pending trademark for your name. This step is crucial, since you don’t want to receive a nasty letter from an attorney that you are infringing on another company’s trademark. The search also will let you know if you’ll be able to trademark your business name, in case you plan on doing business in other states and want federal trademark protection.
2. Register Your New Business
The next step is to choose your business structure and register your new business with the state. Solo accountants and small accounting firms typically choose among the LLC (Limited Liability Company), PLLC (Professional Limited Liability Company) and PC (Professional Corporation). Since these business entities are state constructs, rules vary between states. For example, in some states, like New York, professionals cannot form an LLC, but may form a PLLC instead. You can read Should You Structure Your Accounting Firm as an LLC, PLLC or PC? for more details. And, you can always call the Secretary of State’s office in your state or an online legal filing service to find out the specific rules for accountants in your state.
3. Get Any Necessary Licenses and Permits
All states require some form of licensing for accounting firms that provide public accounting services. For example, you (or the owner of the firm) must hold a CPA license and the firm may need a public accountancy license as well. Check with your State Board of Accountancy to determine the state requirements to register your firm.
And while accreditation as a CPA is the basic minimum for starting a CPA firm, you may also need to apply for other state and local municipality permits. These licenses can include a general business operation license, a home occupation permit (if you’re running your business from home), or signage permit. To find out what you need, check with your local government office or online legal filing service.
4. Get a Tax ID Number
A Tax ID number, also called a Federal EIN (Employer Identification Number), lets the IRS track your firm’s transactions. It’s like a social security number for businesses. This ID number is mandatory for LLCs and corporations; in addition, you will typically need a Tax ID number before you open a business bank account.
5. Open a Business Bank Account
Once you have registered your business with the state and have your Tax ID number, you can open a business bank account. This allows you to accept checks and other payments made out to your business name. And, a business bank account will keep your personal and business finances separate—which is mandatory for LLCs and corporations.
6. Get Insured
While LLCs and corporations do help lower the personal liability of the business owner, they do not shield owners from personal liability related to their own actions. For example, a professional corporation or LLC will protect you from personal liability related to business debt and malpractice suits directed at other associates, but it won’t protect against malpractice suits aimed at you.
For this reason, many accounting and other financial professionals take out a good insurance policy, which can include Business Owner’s Policy (BOP), Professional Liability Insurance, even Data Breach Coverage. Talk to an insurance agent who specializes in or is familiar with the insurance needs of accountants and financial service businesses.
7. Understand Your Business Compliance Requirements
Running an LLC or corporation is more involved than operating a sole proprietorship. For example, as an LLC (or PLLC), you’ll probably need to file an Annual Report with your state each year, along with showing proof of a valid certification. Corporations have more corporate compliance requirements, including annual reports, annual meetings and meeting minutes.
When you form an LLC, PLLC, corporation or professional corporation, be sure to ask about the specific annual requirements for your state. Some online filing services offer a free service to help you track your compliance needs so you don’t risk falling into bad standing because you forgot to file a form.
The bottom line? Launching an accounting business isn’t complicated, but you do need to set it up properly. Following these steps will help give your business a solid legal foundation to protect you and help you grow for years to come.
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