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How Much Does It Cost to Start a Accounting Company? (Sales Forecast and Breakeven Analysis Included)

With as low as $50,000 or lower you can successfully start a small-scale accounting company. If you are looking to start a standard accounting company with the capacity to hire chartered accountants, auditors, and other support staff, then you may consider spending over $120,000 to set up the business.

Starting an accounting company is not capital-intensive except you want to launch out very big. As a matter of fact, with a decent office or a virtual office, a laptop, and the appropriate software such as QuickBooks, Xero, FreshBooks, and Wave Accounting, you can start an accounting company.

Of course, certain factors dictate the amount you are expected to spend when starting an accounting company, but that does not rule out the fact that the amount it will cost to start an accounting company is not the same across the board. 

Estimated Cost Breakdown for Opening an Accounting Company

  1. Office space rental or purchase: $30,000
  2. Furniture and equipment (desks, chairs, computers, printers, etc.): $20,000
  3. Licensing and permits: $5,000
  4. Marketing and advertising (website development, business cards, online ads, etc.): $15,000
  5. Professional liability insurance: $5,000
  6. Employee salaries (if hiring staff): $30,000
  7. Utilities and other ongoing expenses (electricity, internet, phone, etc.): $10,000
  8. Miscellaneous expenses (legal fees, initial inventory, etc.): $5,000

Total: $120,000

3-Year Sales Forecast and Breakeven Analysis

If the average revenue per client is $1,500 and the number of clients serviced in the first year is 100. With a sales growth of 20% in the first year, 15% in the second year and 10% in the third year; here is the sales forecast:

Year 1:

  • Total Revenue: $1,500 x 100 = $150,000

Year 2:

  • Total Revenue: $1,500 x 120 = $180,000

Year 3:

Total Revenue: $1,500 x 132 = $198,000

Breakeven Point Calculation: Breakeven Point (in terms of revenue) = Fixed Costs ÷ (Average Revenue per Client x Average Number of Clients)

Where Fixed Costs (initial investment): $120,000

Breakeven Point = $120,000 ÷ ($1,500 x 120) 

= $120,000 ÷ $180,000 ≈ 0.67

So, the breakeven point is around 0.67 years, or approximately 8 months into Year 1. This means the company is expected to cover its initial investment and start making a profit within the first year of operation.

Factors That Influence the Cost of Opening an Accounting Company

  1. Licensing and Compliance Fees

Without meeting the licensing and compliance requirements, you cannot legally start an accounting company. No doubt, the cost of obtaining the necessary licenses and meeting the regulatory requirements in your state can vary but it will be a significant portion of your startup capital.

To start an accounting company in the U.S., one must obtain a Business License, Professional License (Certified Public Accountant – CPA), Employer Identification Number (EIN),

State Tax Registration, Sales Tax Permit, Professional Liability Insurance, Local Permits (depending on location), and Federal Employer Identification Number (FEIN).

Note that after acquiring your licenses and meeting the compliance requirements, you will still need to maintain a budget for the ongoing renewal of the required licenses and the compliance status of the business.

  1. The Location of the Business

The cost of renting, leasing, and setting up an office or physical location for your accounting company will depend on the real estate market in your area, lease agreements, and any renovations or improvements needed in the facility.

Of course, some cities are known to attract higher rents and if you choose to start your accounting company in such cities, you must be ready to spend a large chunk of your startup capital on rents or lease payments.

For example, you will spend more to rent or lease an office space for your accounting company in New York City, San Francisco, San Jose, and Washington, D.C. when compared to how much the same office space will cost you in other cities in the United States.

  1. Insurance Policy for the Business

You cannot escape spending on insurance for an accounting company because accounting companies require insurance to cover your employees, you, and of course the business.

At least, you should budget for Professional Liability Insurance, General Liability Insurance, Cyber Liability Insurance, Business Owner’s Policy (BOP), and Workers’ Compensation Insurance.

The cost of insurance premiums will depend on the level of coverage, the size of your business, and the rates set by the insurance providers you are working with.

  1. Legal and Administrative Expenses

If you are planning to start an accounting company, the nature of the business requires that you have a proper grasp of how an accounting company works especially the legal aspect of the business.

In essence, you will be required to spend money on getting guidance from a legal and administrative consultant. Of course, you know it will cost you money to consult with legal professionals to ensure compliance with laws and regulations.

Apart from consulting with legal professionals, you will also need to spend money on administrative expenses, such as accounting software, office equipment, and staff, and these expenses will no doubt affect your startup costs.

  1. Advertising and Marketing Cost

If you are planning to start an accounting company, and you want to attract clients and establish your business presence in your city, then you will need to invest in advertising and marketing the business.

You can leverage print and electronic media, social media, and unconventional advertising and marketing approaches to sell your tax preparation services.

Whatever advertising and marketing strategy you settle for make sure it includes website development, online advertising, and other promotional strategies.

  1. Your Staffing Cost

An accounting company requires some key employees including chartered accountants and auditors, marketing and sales officers, and administrative assistants to be on its payroll if you want major organizations to hire your services.

The only reason why your budget for staffing will be low is if you decide to run the business on a small scale, and you are the one handling most of the roles in the business. Please note that such businesses usually may not attract high-paying clients.

  1. Office Furniture and Equipment Cost

Of course, you know you cannot operate an accounting company without having the needed furniture and equipment. The amount you are expected to spend in this regard to a large extent will form a significant portion of your startup capital.

Even if you choose to limit the furniture and equipment you want to purchase for your office, you must at least budget for receptionist stands/desks, office desks, chairs, computers, phones, vaults, security cameras, and other security measures. You may choose to purchase used furniture and equipment as a means of cutting costs.