How to start up an accounting practice

Accountant using a calculator while at his desk

Accountant using a calculator while at his deskAccountancy practices provide accounting and other services to local businesses, clubs, societies, charities and sometimes to private individuals. Read our practical guide on starting up and running your own accountancy practice.

Research your target market

Estimating demand

It makes sense to find out whether there is enough demand for an accountancy practice in your area.

Don't forget that accountancy services are available from:

  • qualified accountants working in practices of all sizes
  • unqualified people offering more basic services such as book-keeping, completing tax and VAT returns and so on
  • online accountancy businesses, many of which charge very competitive fees
  • organisations like banks that offer personal tax services to customers, including tax return completion and submission and tax planning

Check out the competition in your area to identify how many other accountancy practices are already in existence. A look on Yell.com will not only indicate the number of competitors you will have in oyur area, but will also help to identify the size of these practices and the range of services they offer. Adverts may also include details of membership of professional bodies such as the Institute of Chartered Accountants in England and Wales (ICAEW).

It may be that you will only be competing directly against some of these practices because you will be offering very specialised services. For example, you might have the training and expertise to offer tax consultancy, or you might decide to offer a very comprehensive service to a certain type of business such as the medical profession or the catering trade.

Try to find out roughly what your competitors charge. This will help you to set your own fee scale. You could also have a good look at the premises and general set up of practices which are similar in size to yours. This will give you an idea of the standard of fittings and so on which is expected by clients.

Why will clients choose your practice

It is important to identify and advertise the factors which differentiate your practice from your competitors. Although clients are generally very cost conscious it is best to avoid competing on price - you will find it difficult on low fees to attract good calibre staff to your practice or to devote enough time to each client to provide a first class service.

Be cautious when estimating the number of clients you will be able to take from other accountancy practices. Some accountancy start-ups have described getting people to change their accountant as being as difficult as getting them to change their bank.

Find out what clients want

You might consider carrying out an informal survey of businesses which you have identified as being potential clients. Ask them what, if anything, they find unsatisfactory about their present accountant. Many business people accuse their accountants of having little interest in how their businesses work or in offering advice on how to grow or improve profitability. This might be something you could build on.

Be proactive when finding out what services potential clients would like you to provide, suggesting services they may not have considered, such as the preparation of management accounts, help with pension auto-enrolment, providing general business advice and so on. The introduction of mandatory digital record keeping and quarterly returns under Making Tax Digital (MTD) will mean that businesses are likely to have an increased need of accounting services to ensure that they keep digital records in a way that enables their quarterly returns to be made in compliance with HMRC requirements. Demonstrating that you are on the ball when it comes to the requirements of MTD may be a good way of gaining new clients.

Online accountancy services

Don't overlook the possibility of offering online accountancy services to clients anywhere in the country. Your clients would enter details of their business transactions into specialist cloud-based accounting software that you could then work on. You'll need to make sure your website features prominently in online searches for accountancy services.

Research current trends, plus legal and tax issues

Establish your customer profiles

Your market

It is likely that your client base will consist mostly of local businesses, clubs, societies, charities and other organisations, although you will probably also have some private clients. These may need personal taxation services or help with investment business, particularly since the relaxation of the pension rules. If you have an area of specialist expertise your clients might also include other accountancy practices. Of course, if you decide to offer online accountancy services your clients can be based anywhere in the UK.

Clients are very demanding and are likely to put pressure on you to keep fees low. You might be asked by larger businesses to tender for matters such as audit work.

Most of the work that you do is likely to be charged out to your clients on an hourly basis. To this fee you will add any expenses or disbursements you incur while working on the case. Some practices charge their clients a fixed annual fee - for example of £1,000 - to cover the range of services they're likely to require.

It is important to make sure that, when you take on a new client, you send them a letter of engagement which clearly sets out the basis on which you will be charging and when you expect your invoices to be paid. It is commonplace for an initial meeting to be held with a new client to discuss the services they will want and to give them an indication of the costs. Generally no charge is made for this meeting - you could use it as a way of telling the client about all the services you offer which would be useful to them.

Decide which services to offer

Your market

It is likely that your client base will consist mostly of local businesses, clubs, societies, charities and other organisations, although you will probably also have some private clients. These may need personal taxation services or help with investment business, particularly since the relaxation of the pension rules. If you have an area of specialist expertise your clients might also include other accountancy practices. Of course, if you decide to offer online accountancy services your clients can be based anywhere in the UK.

Clients are very demanding and are likely to put pressure on you to keep fees low. You might be asked by larger businesses to tender for matters such as audit work.

Most of the work that you do is likely to be charged out to your clients on an hourly basis. To this fee you will add any expenses or disbursements you incur while working on the case. Some practices charge their clients a fixed annual fee - for example of £1,000 - to cover the range of services they're likely to require.

It is important to make sure that, when you take on a new client, you send them a letter of engagement which clearly sets out the basis on which you will be charging and when you expect your invoices to be paid. It is commonplace for an initial meeting to be held with a new client to discuss the services they will want and to give them an indication of the costs. Generally no charge is made for this meeting - you could use it as a way of telling the client about all the services you offer which would be useful to them.

Billing

It is also a good idea to agree with your clients how you will bill them. Ideally for regular work you will bill them frequently (for example, monthly) rather than submitting a large bill every now and then. Be prepared for the fact that many clients are very slow to pay. Don't go on supplying services to clients who do not pay their bills. Think about how you will go about collecting money which is due to you. Would the services of a factor be useful?

You might consider using the Premium Credit FeePlan finance facility - this allows your clients to spread the cost of your fees by monthly direct debit, but you receive payment in full. You can find out more about FeePlan on the ICAEW website.

Discounts

You might decide to offer a discount to local charities, housing associations, churches and so on.

Your fee income

You will normally charge your clients for the work you do for them by keeping a record of the time you and any other staff spend on the case and then multiplying the time by the appropriate hourly charge-out rate. The charge-out rate is higher for principals than for technical and support staff. Charge-out rates also vary according to:

  • the type of work undertaken
  • the size and prestige of the practice
  • the location of the practice. Hourly rates in London and the South East are likely to be substantially higher than those charged in a small market town elsewhere in the country

It would be a good idea to find out what hourly rates your immediate competitors are charging. Although you will have to base your own rates on your costs and on the level of income you want to bring in to the practice, you'll also need to remain broadly competitive.

Remember too that more and more clients are using their own software to produce their accounts, do their tax computation and file returns online. This has made it more difficult for accountancy firms to charge high fees for routine compliance work. It makes sense to highlight the added-value services you can offer, helping your clients improve their business performance and plan for the future.

Chargeable hours

When thinking about the charge-out rate to apply for yourself and your staff remember that only a certain proportion of the hours you work will actually be chargeable hours. This is because you have to spend a significant amount of time on other things such as:

  • practice management
  • training
  • continuing professional development (CPD)

Make sure that you and your productive staff are very disciplined when it comes to keeping time records.

Fee recovery

Bear in mind too that it is unlikely that you will recover from clients all of the fees due to you. Sometimes you may feel that an excessive amount of time has been spent on a case that can't realistically be billed - at other times your clients may refuse to pay the amount that you've invoiced. Research has shown that fee recovery rates might typically fall between 80% and 90%.

Fixed fees

As an alternative to billing clients an amount based on the time you spend working on their business you might consider charging a fixed fee for certain jobs - for example producing a business plan. Some accountancy practices - including online-only practices - charge a fixed monthly fee that covers a whole range of accounting and tax services.

Don't forget to set out in your engagement letter the basis on which you will charge and your terms and conditions.

Qualified accountant

To become a qualified accountant you must undergo a period of training in a training practice which has been authorised by one of the professional accountancy bodies such as the ICAEW. Training generally takes between three and five years, during which time you will study for the professional body's exams and gain practical experience. The training practice will pay you during this period and will allow you study leave so that you can complete the course.

Once the training is satisfactorily completed, you will have gained a professional qualification and become a member of the professional body. After a further period of work experience you can apply to the professional body for a practising certificate so that you can set up in public practice. You will be entitled to use the title Chartered or Certified and you will have to comply with the rules and regulations of the professional body.

If you want to do audit work you'll need to obtain a recognised audit qualification. This can only be awarded by a Recognised Qualifying Body like the ICAEW or ACCA.

Regulated areas

Insolvency, probate and audit work

If you want to undertake work such as insolvency, probate services or audit work you must be a qualified accountant and you must also obtain the appropriate authorisation from your professional accountancy body. You'll need to register with a Recognised Supervisory Body (RSB) like the ICAEW if you want to carry out audit work.

Investment business

Membership of a professional accountancy body, which for the purposes of the Financial Services and Markets Act 2000 is a Designated Professional Body (DPB), allows you to carry out a limited range of investment business, general insurance or mortgage business or offer consumer credit services. These are known as regulated activities. However, this type of activity must be 'incidental' to the provision of your main services of accountancy, audit work, taxation and so on. You will need to apply for a DPB licence from your professional body. If you want to carry out 'mainstream' regulated activities you will need to obtain authorisation from the Financial Conduct Authority (FCA), or become the appointed representative (AR) of another firm that has been authorised by the FCA. You can find out more about this on the FCA website and in the Technical resources > Financial services > DPB licence and FCA authorisation section of the ICAEW website.

Buy an existing business

You might decide to buy an existing accountancy practice rather than start your own venture from scratch. Buying a going concern can mean that the clients, staff, premises and equipment are already in place.

Are all the clients listed still being dealt with or are there many 'ghosts'. Think about the client profile - you might not want the majority of your clients to be small concerns that have difficulty paying realistic fees

Look critically at the business accounts for the past three years and consider the selling price in the light of what the accounts reveal. Make sure you budget for professional fees such as legal fees and valuation and survey costs.

But buying a business can be a hazardous, expensive process unless you have the right skills and experience on your team, including legal and financial know-how. Establish the genuine trading and financial position, so that the price you pay for the business is not too high.

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