Starting a virtual bookkeeping business is a great side hustle or small business if you know what you’re doing. Setup costs are low, there’s a low barrier to entry, and training is readily available. A virtual business easily crosses state lines and time zones, so you can work when you want to.
I started my virtual bookkeeping business when my health made me take a step back from a full-time career in accounting. It has been a blessing since then, as my personal life became more complicated.
Having a child with multiple disabilities means I’ll never be able to work a traditional 9-5 job, no matter how good my own health is.
Instead, I can make my own hours and choose to do work I enjoy. I chose not to prepare taxes because I just don’t like to.
My clients all enter into a contract with me knowing about my daughter’s needs. They know I may be unavailable temporarily if she is hospitalized out of state again. They know that email is my preferred method of communication and that I usually work in the evenings. Everyone has been understanding and accommodating.
Are you looking for a new business idea?
Virtual bookkeeping is the perfect opportunity for someone who wants to work from home and has an accounting background.
You’ll be able to take on clients, set your own hours, and have a flexible schedule. It doesn’t require any start-up costs or inventory so it can be started with just a computer and internet connection!
With virtual bookkeeping, there are no limits to what you can do, as long as you stay within legal bounds. You could even open up your own virtual firm that provides services all over the world.
This is the perfect opportunity for anyone who wants more freedom in their life without sacrificing financial security. The extra income will help with debt payoff if that’s the Financial Security Step you’re working on.
Starting your own virtual bookkeeping business is relatively simple and affordable too.
Decide on a business name
Brainstorm business names & write them all down on a piece of paper. Then start eliminating the names based on these criteria:
- Is this name available as a domain? If not, will you be able to buy it or create a variation of it? Use Name.com to see if the domain name you’re interested in is available.
- Will people remember this name?
- Is it specific enough to describe what you do?
- Are you okay with saying the name aloud when promoting your business?
Your business name will be the first thing people see when they start their search for accountants, so it’s important to pick something that shows what you do.
Here are some starter names:
- The Virtual Bookkeeper
- Your Name, CPA (if you’re actually a Certified Public Accountant)
- Your Last Name Bookkeeping
- Accountant Virtual Assistant
If you want to start your virtual bookkeeping business under the same name as your business, you’ll need a URL (a website). If the name is available in .com format, start there and register it right away!
Make sure to Google the names you are considering. This will help avoid confusion with any other existing businesses and may help avoid embarrassing or confusing coincidences.
Also, search your state government’s business register. You can’t register a new business using the same name as an existing business. Even if a few characters or words are different, you’ll want to avoid confusing future customers.
Decide on a business type: LLC or corporation
Create a business entity that separates your business from your personal finances and liability.
You could absolutely use your own Social Security Number and proceed as a sole proprietor, where you do not create a business entity. However, there are identity theft concerns with using your SSN and liability considerations, especially when you’re working with other people’s money.
You will be asked to share W-9s with other businesses, so they can properly report funds paid to you, and that form requires a tax ID number…. which means you lose control over who has access to your SSN.
A Limited Liability Corporation (LLC) is a simple type of business entity that can be composed of one or more people. The net income (revenue minus expenses) of the business “flows through” to be reported on the personal taxes of the owner(s).
Since the business income is reported on a personal form 1040, it’s taxed at your personal rate rather than a corporate rate. That means that this type of business has very little impact on your taxes when compared to starting a business using your own social security number. However, that also means you are personally responsible for paying taxes on business income even if you don’t “pay” yourself at all.
An LLC also protects the owner(s) from lawsuits. Basically, if you’re sued and lose, the plaintiff can only take your business assets and not your personal assets. Your home is safe.
S-Corp or C-Corp
Establishing a corporation creates a separate legal entity from the owner(s). The corporation is responsible for paying business taxes, and the owners are responsible for paying personal income taxes as employees of the corporation.
That means there are more tax factors involved, so I absolutely recommend discussing with a CPA. I even consulted a CPA on when to incorporate vs staying as an LLC. In my case, she recommended incorporating when my business reached a higher income-generating point… so you definitely don’t need to start as a corporation. An LLC is perfectly fine for most beginner entrepreneurs.
Register with your state and the IRS
Once you have a name and business structure, you need to register with your state’s government and the IRS.
This is the step that recognizes the business with the government. State governments are in charge of businesses creation and state tax collection, while the IRS is concerned with collecting income taxes and FICA withholdings (Social Security & Medicaid taxes)
Register your business with the state
In most states, the Secretary of State’s office administers business licenses. Use this list to find your state’s website. The office may also be called a Business Bureau or a Business Agency.
According to the Small Business Administration, you need to register with any states where:
- your business has a physical presence (an office)
- you meet with clients in-person frequently
- a significant portion of revenue comes from that state (you can register with new states later)
- you have an employee working
When you’re first starting out, you’ll probably only need to register with the state you live in.
Seven years into entrepreneurship, I have only registered with my home state and that’s the only state that I have clients in. It’s important to remember that you may need to register with additional states later.
Register with the IRS to get an EIN
An Employer Identification Number (EIN) is the business equivalent of a Social Security Number, so it’s important to obtain an EIN when starting a virtual bookkeeping business.
Applying for an EIN is a very easy process on the IRS website, although it may take a while for it to fully process. The IRS has been crazy backed-up since COVID.
Get a state ID number
Depending on your state, you may need a state ID number too. Check your state’s website for requirements.
If you set up a corporation in a state that collects state income taxes, you might need to obtain an identification number for state income tax withholdings. Again, check with your state government for clarification. I’ve found that calling & talking to a human gets clearer results than searching the state’s website.
Open a business bank account
It’s very important to set up a separate business checking account. Once you’re working as a bookkeeper, you’ll understand the pain of clients who mingle personal and business expenses. It makes bookkeeping messy, wastes time, and can make your business look less legitimate.
I recommend using the same bank you’re already banking at for personal purposes. It makes it easier and quicker to pay yourself by transferring money to your personal checking account within the same bank.
Of course, it’s not necessary to use the same bank. You can easily use separate banks, just remember to account for delays in processing between banks.
As soon as your business bank account is set up, use it EXCLUSIVELY for business expenses. You can, and should, pay yourself from your business, but do that by transferring money to your personal account or writing a check. Don’t use the business account for personal expenses.
Get a liability insurance policy
As someone involved in other people’s money, it’s important to behave in a trustworthy matter, but also protect yourself. There’s a chance you could make a mistake that costs your client money. You could be sued. Having a liability insurance policy in place will protect you and your business if that happens.
This assumes your error was an accident, so don’t plan on a liability insurance policy protecting you from intentional errors. To be safe, don’t be a criminal. Don’t even think about it, no matter how tempting or easy it may seem.
Not every state requires businesses to carry liability insurance, but I recommend doing it anyway.
I use an online insurance broker for my business insurance needs. I pay $300 per year for my $1 million coverage. With no employees and a relatively small business, that’s a tiny price to pay for peace of mind.
Train on bookkeeping practices and software, if necessary
Bookkeeping may seem like an easy job (especially compared to a CPA’s job), but I firmly believe you either get it or you don’t.
Accounting & related professions, including bookkeeping, seem to come naturally to some people. My observations of my college classmates back up my theory, and I think you’ll just know if you’re cut out for bookkeeping or accounting.
Learn on the job
If you want to start a virtual bookkeeping business, but don’t have the necessary skill, you can start by learning on the job as an assistant. I know that’s not always an option, but it IS the best way to learn practical ways to run a business.
Attending in-person or virtual workshops and seminars related to accounting may be helpful too. Some of them are free with your local Chamber of Commerce membership or Small Business Administration events.
Quickbooks is one of the most popular small business accounting software options. Intuit, the parent company, provides numerous training options. I am a wholesaler for Quickbooks, so my clients get a discount on their monthly subscription, but I also have access to training.
I have completed Quickbooks-specific courses, but when I run into a specific problem, I turn to Google. Intuit, the maker of Quickbooks, has a robust community online to answer user questions.
When I started my virtual bookkeeping business, I completed the testing to become a Certified Public Bookkeeper. My Master’s of Professional Accountancy degree provided me with more than enough knowledge to pass the exams, but the certification lends credibility to a new entrepreneur.
It was also helpful for me to learn the routines of bookkeeping.
Don’t fake it
The most important qualification for a bookkeeper is knowledge. Please, please don’t start a virtual bookkeeping business with no knowledge, training, or qualifications.
Don’t “fake it till you make it.” Start your virtual bookkeeping business with a strong foundation in knowledge and training.
Decide what services to offer in your virtual bookkeeping business
The scope of work for a bookkeeper can encompass many duties, so you need to decide what you’re going to offer. Don’t stretch beyond your abilities though. You can learn to do these things, but don’t actually do them before you know how to.
The most common bookkeeping tasks are:
- financial statements
- accounts payable
- accounts receivable
- invoice preparation
- bill pay
Set up your tech
The computer you use to start your virtual bookkeeping business is less important than its comfort. Working on a laptop is possible, but not ergonomic.
I have an external monitor, keyboard, and mouse to make my work hours more comfortable. I have definitely noticed pain in my shoulders and neck from working too long on my laptop vs my external monitor setup. Sitting at a real desk, in an adjustable office chair, also helps me work efficiently and comfortably.
Use a laptop that you prefer and can afford, whether Mac or Windows. My Dell cost me maybe $500 and it’s still going strong after 5 years. Remember to keep receipts for business purchases and pay for those things from the business account.
Even a digital business needs to print things. I print checks to pay my clients’ bills, documents that I want to write on while working, and invoices to send to my clients.
Initially, a cheap printer will work just fine. One day, you’ll probably want to upgrade and buy a printer/scanner unit. If you have the start-up funds, get the nicer option in the beginning.
A fairly cheap webcam works for Zoom meetings with clients. If you’re working with local business owners, it’s always nice to meet in person initially and once a year or so.
For quick check-ins, Zoom meetings are a great option that saves a lot of time.
Most of my clients use Quickbooks Online, so I have the free Accountant version. Other popular software options are Microsoft Dynamics (I also use it and it’s a lot more intense), Quickbooks Desktop, Xero, and FreshBooks.
You can either encourage your clients to move to your preferred software or become acquainted with the software they’re already using. Alternatively, you could only take on new clients who use your preferred software.
A virtual business obviously generates digital files, and you’ll need a way to store them. Don’t save important documents to your computer’s hard drive, because it will crash or die one day. Instead, upload the documents to a cloud-based document storage system like Google Drive or Dropbox.
Make sure to set up a filing system right away and stick to it. I have folders for each client; within those folders are subfolders for reports, tax filings, notes & communications, bank statements, and HR or payroll documents. Within those subfolders are folders for each year. I also make sure to title documents with the date and enough description that I know what I’m looking for at a glance.
When you start out, you likely won’t need project management software because you’re business is so small. I recommend setting up your project management system in the beginning, to grow into it and let it grow with you.
Trello, Asana, and Monday can all be used as project management software. I have used Monday and Trello, and prefer Trello because the free option is more robust and the setup makes sense to me. Try them all out and see what you like.
I have lists for each client so I can keep important notes and communications with them easily accessible. I have a couple of contractors who help out with simple tasks, so I use my project management software to keep track of who is doing what and what has been completed.
There’s a good chance you’ll need to create PDF documents to share with clients. There are free options, but I like the ease of use Adobe Acrobat provides. The subscription is $12.99 a month for the basic plan, which meets my needs. An upgrade will get you redaction capabilities, which would be nice but may not be necessary.
Create a simple website to establish your presence online. Include your contact information, a short bio, your qualifications, and any specialties you want to highlight.
I have websites through both providers and SquareSpace is definitely the easier option. It meets my needs for my bookkeeping business and it was very easy to set up a Gmail email address using my website address.
Virtual bookkeeping is the process of keeping up with a business’s financial records from a remote location. Virtual bookkeeping can be accomplished through software and telecommunications technology to connect to various accounting machines. In this article, we covered basic business start-up steps and more details about the technology needed for working virtually. If you’re ready, start your own virtual bookkeeping business.