New Bookkeeping Business Questions

[pmsmith2032]

I am going to be starting a bookkeeping business in the near future and I have a couple of questions:

1. I am currently planning on starting this business as a sole proprietorship. Ideally I would like to set it up as a LLC but it costs $500 in my state to do so. Since I am starting this on a shoe-string budget, I feel the sole proprietorship is my best option. What are the disadvantages to this? How difficult is it to change it to a LLC in the future?

2. I am an accountant and have my MBA in accounting. However, I do not have my CPA. My concern is that I am not very well-versed on what a bookkeeper actually does. I don't really remember taking any classes on bookkeeping. Is there some sort of inexpensive/free class I can take online? Do I need to work part-time for a bookkeeper for a couple months to gain some experience and get a better grasp of responsibilities?

Thanks in advance!

[vangogh]

Welcome to the forum pmsmith2032. The main reason you form an LLC over a sole proprietorship is the limited liability protection. I don't know if there are any tax benefits. There possibly are, but I think an LLC is treated similarly to a sole proprietorship where the IRS is concerned. Don't hold me to that though. The main reason people form one is the liability protection. If you own your home it's an asset you no doubt want to protect. The protection is limited, which is something to keep in mind and just because you're a sole proprietor it doesn't mean you're going to lose your assets. You can change to one later. It'll cost the same thing it does now and maybe there's some extra work in the accounting for the year you switch entities.

As far as what a bookkeeper specifically does, I'm not really sure. We have some bookkeepers here so hopefully one or more see this thread and can offer some details. I don't know that you'd need to work part time for someone, but it can't hurt. It's actually a good idea if you don't mind. It'll give you some experience and let you see how someone else runs their business. I'm sure it'll generate some ideas for how you'd want to run your own business and you can plan your business while gaining some practical experience.

[pmsmith2032]

Thanks vangogh. Are there any bookkeepers around that can help me with my second question?

[vangogh]

They do exist as members. I promise they do. It's possible they've missed this post, but I'll be happy to chat with you to keep it active until they come back and notice. Thought I could try helping too. I searched for what does a bookkeeper do and found an article on Intuit's site that compares the difference between a bookkeeper and an accountant? (http://blog.intuit.com/money/whats-the-difference-between-a-bookkeeper-and-an-accountant/). Hope it helps.

[pmsmith2032]

Thanks vangogh! I really appreciate all your help. I think I just need to start the business and take it from there. I've read a book on starting such a business so I have a pretty good idea of the framework.......it's just difficult to anticipate what potential customers will want until I actually start meeting with them.

[KristineS]

Here's a question - and maybe I'm just being a dork about this - but why can't you just start an accounting business? If you have your MBA in accounting, can't you hang out your shingle as an accountant? Or is that something that requires a CPA?

I'm not really sure what the difference between an accountant and a bookkeeper is (sorry if that's blasphemy to accountants and bookkeepers) so I'm not seeing why you couldn't just say you're an accountant and do what an accountant would do for a business.

[pmsmith2032]

Thanks for the response Kristine. I was wondering the same thing but I'm not sure how comfortable I'd feel doing so without my CPA. Maybe someone else can weigh in with their thoughts.

[Freelancier]

To be an "accountant", you have to be certified and licensed by your state, right? And you have to have liability insurance, which probably also wants that.

[vangogh]

I'm guessing here, but I would imagine many bookkeepers don't have CPAs. Some probably do, but I'm guessing many don't. If that's the only thing holding you back, I wouldn't worry too much about it. I think being able to keep someone's books far more important than the certificate when it comes to being a bookkeeper. Having the CPA might be seen as an advantage and a way to prove you know what you're doing and differentiate yourself from anyone who doesn't have it, but I'm pretty sure it's not going to be a requirement to building a successful bookkeeping business.

[tallen]

Check the laws in your state. In Maine for example, you don't actually need a CPA license so long as you don't call yourself a licensed accountant. You are also not able to file certain reports (in particular, the financial statements for public companies).



§12202. Unlicensed persons or firms
(http://www.mainelegislature.org/legis/statutes/32/title32sec12202.html)
Anyone may practice accounting and engage in services which involve accounting or auditing skills, including management advisory or consulting services, the preparation of tax returns and the furnishing of advice on tax matters, provided that no one except a licensee may:
1. Represent or appear to represent that he is a licensee as defined in section 12201, subsection 6; or
2. Issue a report on financial statements as defined in section 12201, subsection 10, except those persons described in section 12275, subsection 1, paragraphs A and B.


Now whether you can attract clients to your accounting service without actually being a licensed CPA is another question.

[pmsmith2032]

Thanks! From the research I've done so far, no licensing is needed to open a business as a bookkeeper in Illinois. However, I believe you do need a CPA to open a business as a certified accountant (not that I would open such a business without it). I feel that having both bachelors and masters in accounting will give me an advantage as a bookkeeper over those that have little training. I plan on stressing this in my advertising and when meeting with potential clients.