Chapter 17

Starting Up On Your Own

In This Chapter

Figuring out whether you want to take the plunge

Getting your paperwork and qualifications in place

Setting up a new bookkeeping business and making some key decisions

Creating a business that’s successful, and everything you want it to be

Are you someone who values independence, loves the idea of small business and possibly needs more flexibility than a regular job allows? Then starting up your own bookkeeping business may be the answer.

The challenges of running a good bookkeeping business are quite different to the challenges of learning how to be a good bookkeeper. You need to create a business plan, figure out how much to charge, craft a marketing strategy and look at ways to differentiate yourself from others.

In this chapter, I explore the good — and the bad — things about being a contract bookkeeper. I also talk about the qualifications and skills you’ll need before you start trading, and share some down-to-earth advice about building a successful business.

Deciding Whether You’re Ready

I love being self-employed. I’ve been a freelancer or small business owner almost all my adult life, and find it hard to think of living any other way. However, not everyone is suited to such a precarious existence. In an attempt to be even-handed, I’m going to list five pros and five cons of starting your own bookkeeping business.

Five good things about starting your own bookkeeping business

I often get asked by people whether they should consider going into business by themselves as a bookkeeper. Here are five good things I can say on the topic:

• Flexibility: Being self-employed, especially with a job such as bookkeeping where you tend to work small chunks of hours for numerous different people, is about as flexible as work can be. I raised three kids while running a bookkeeping business, and this flexibility made life so much easier than if I had had a regular day job.
• Higher earning potential: As a contract bookkeeper, not only can you charge more per hour, but you can also potentially subcontract out some work and make additional profits.
• Independence: Any self-employed option provides more independence than that of a day job. If you get a client who gives you the pips, you can politely terminate your services. If you find a particular job really boring and dull, you can hand it to someone else.
• Professional development: I’ve been doing bookkeeping and accounting software consultancy for more than 20 years, and I’m still learning. The range of people and different work environments is challenging, fascinating and keeps me constantly on my toes.
• Security: You may wonder how I could possibly say that being self-employed is secure. Yet it is, in a way. A typical bookkeeper has 30 clients or more. If one of those clients goes bust or terminates your services, you still have many others. Not so when you have a day job, and you’re reliant on one employer only. (See the following section for the flip side of this.)

Five not-so-good things about starting your own bookkeeping business

In the preceding section I cover the good things about starting your own bookkeeping business. So, do I feel obliged to continue? Sure thing. Here are some of the potential not-so-good things:

• Constant pressure to stay up to date: The bookkeeping industry is changing very rapidly, and you’ll need to invest a fair amount of time in staying up to date, not just in regards to tax and GST legislation, but with software and technology also.
• Insecurity: Beady-eyed readers may howl with complaint at this point — after all, I list security as one of the good things about being a contract bookkeeper in just the previous section — however, the flip side of the coin is certainly that when you’re self-employed, your income is bound to fluctuate, especially when your business is relatively new. For some people, this level of insecurity can be tricky to live with.
• Legal liability: You’re much more exposed legally as a contract bookkeeper than you are as an employee, but if you behave ethically, take out insurance and understand your legal obligations, the risk is very low. I talk more about codes of conduct and professional standards in Chapter 18.
• Lower income: Despite the fact that you can charge more per hour, you also have more expenses as a contract bookkeeper. You may not have enough clients to work a 40-hour week — especially at first — and nobody is going to pay you holiday or sick leave. Unless you manage your business well, you can easily end up with a lower income than you would if you got a regular job.
• Stress: While the wrong kind of day job can definitely be stressful, being self-employed is generally more stressful than being an employee. Difficult clients, technically demanding work, unreliable income and balancing peak workloads (particularly when Business Activity Statements or GST returns are all due at the same time) can all contribute.

Thinking through the Practicalities

Being a contract bookkeeper involves a much greater depth of skills than working as a bookkeeper on an employee basis. Not only do you need to be able to think on your feet, but you also need to be able to adapt to the needs of many different kinds of businesses. You may also need to do some extra study and gain additional qualifications.

Getting qualifications in order

In Australia, if you want to charge clients for any activities relating to Business Activity Statements, you need to be registered as a BAS Agent. Registering as a BAS Agent means that you need to have a minimum of a Certificate IV in Financial Services and successfully complete a board-approved course in GST/taxation principles. You also need a minimum of 1,000 hours of relevant experience. (For more detail regarding registration requirements, skip to Chapter 18.)

Are you thinking that you can’t be bothered first registering as a BAS Agent and you’re going to provide bookkeeping services regardless? Think again. Without going into all the detail of what you can and can’t do without registering (for more on this topic, see Chapter 18), what I can say is that you won’t get very far as a contract bookkeeper unless you do register. The range of services you’ll be able to supply will be too limited, and clients are likely to feel uncomfortable if they become aware that you are not authorised to assist with a whole range of different transactions.

Updating your skills (and choosing software)

In the same way as a carpenter needs to build things in real life — rather than just learn theory about construction and different types of timber — a bookkeeper also needs to practise bookkeeping on an everyday basis. Qualifications aren’t enough; to succeed, you must gain a high level of familiarity with the mechanics of recording transactions, which in turn inevitably requires that you become familiar with accounting software.

I suggest that you pick two different products to support in the first year or two of trading. (Having only one product limits your client base; more than two products and you’re likely to stretch your knowledge a bit thin.) For example, you may choose to learn how to use MYOB and Xero, MYOB and QuickBooks Online, or Reckon Accounts and Xero. I suggest you include one desktop-based product and one cloud-based product so that you can meet a good range of client needs.

As well as choosing the accounting software you support, I also advise you register as a partner with your chosen products. Although you usually have to cough up a fee to do so, you’ll get your money’s worth, especially in the first year or two of trading. Being a registered software partner normally means you get free software, free support and the opportunity to attend partner conferences — with lots of great networking opportunities.

Launching Your New Business

I don’t have a hope in hell of explaining how to create a business plan in just a few pages, but nonetheless I’m going to try to give the quickest of summaries in this chapter. For a much more in-depth treatment of the topic, refer to Creating a Business Plan For Dummies (also written by yours truly and published by Wiley Inc.).

Creating a plan — no excuses

Are you one of those people who knows you should do a business plan but somehow the doing of it never makes it to the top of your To-Do List? Please don’t put off your plan any longer. Set aside a day or two, and get started.

To provide you with a bit of inspiration and structure, I’m going to outline the different parts of a typical business plan, with bookkeeping specifically in mind. Here’s what your plan needs to include (in the order they usually appear):

1. An overview of your business and its strategy.

   Don’t just write some random blurb that you copy from the internet. Instead, think carefully about what you can do differently from other bookkeeping businesses. This differentiation is going to be more important to your business success than any other single factor. (See ‘Identify what makes you different’, later in this chapter, for more details.)

2. A complete summary of financials.

   Start with a Profit & Loss projection for the next 12 months. As part of this projection, make an estimate of how many hours you’re going to bill each week (and at what rate), and what your costs are going to be.

3. A people plan.

   Remember that employing others is the only sure-fire method to build capacity in your business and make above-average profits. For this reason, if you intend to employ others at some point in the future, make this transition a definite part of your plan. Otherwise, you’ll end up being so busy doing bookkeeping yourself that you won’t have time to hire and train new employees.

4. A marketing plan.

   Initially, the most important part of your marketing plan is the competitor analysis, where you list your competitors and objectively compare prices and services. Other important parts of your marketing plan include deciding what kind of clients you want to target, and setting sales targets with marketing strategies to match.

5. An analysis of industry trends, as well as a summary of what you perceive to be opportunities or threats.

   This part of your plan looks at factors outside of your control, such as industry or economic trends. For more about trends, see ‘Look to the future’ at the end of this chapter.

6. A summary of goals.

   Share your dreams, neatly compartmentalised into monthly, six-monthly and yearly goals.

Feeling inspired? I hope so! A business plan is hard work, but in many ways this planning is the best time you’ll ever spend.

Deciding what to charge

When deciding how much you’re going to charge for your services, I suggest you start off by checking out the immediate competitors in your local area. If you can, ask a local accountant what bookkeepers are charging, or get a friend or family member to ring around other bookkeeping services and enquire about rates.

Don’t fall foul of the temptation to be cheaper than everyone else. Unless you have a system that enables you to provide your services cheaper than your competitors (maybe you plan to offshore data entry, for example), setting your prices lower than everyone else is likely to lead to poor profitability and a risky business model.

Vary your rates depending on the situation. Here are some ideas to get you started (not all of these suggestions may work for you, but hopefully may spark some new ideas):

• Consider a flat monthly fee. Whether this can work depends on the client, but some clients do like the idea of paying a single monthly fee regardless of how many hours the job takes.
• Create a package. Consider the possibility of combining your services with that of your local accountant and providing a fixed price for all bookkeeping and accounting services for the year.
• Include software subscriptions in your rate. Note that you can usually get a discount for accounting software if you’re a registered partner.
• Incorporate discounts into your rates for jobs with lots of hours. When you have to travel between jobs, three two-hour jobs are way less productive than one six-hour job. Adjust your rates accordingly.
• Offer a premium service. Some clients already have bookkeepers but are looking for someone to do the really tricky stuff each month or quarter. Unless you’re careful, these clients can be painful, wanting only an hour or two of your services at a time and seeking high-level email and phone support. Charge premium rates for this kind of service and turn the job into a win–win situation.
• Vary your rates according to how far you have to travel. Consider charging a bit less for jobs close to home and more for jobs where you spend an hour or more in the car. Less time in the car means more profit for you.

Competing on price alone is always a dangerous strategy. How you position and sell your services should be based on a combination of many different factors, such as quality of service, location, availability and expertise, and never just price alone.

Calculating billable hours

After you’ve figured out what rate or rates you’ll charge, I suggest you make an estimate of how much income this rate equates to when spread over the course of a year. In order to make this estimate, you need to calculate your billable hours. Here’s how:

1. Estimate how many days you’re going to work each week, and how many hours you can realistically charge for each day to arrive at your average number of billable hours per week.

   When doing this calculation, remember to include billable hours only. Don’t include travel time between locations, non-billable time due to administration or paperwork, professional development time at networking meetings or conferences, or time spent running your business (customer phone calls, marketing, paperwork and so on).

   If you have lots of clients and tend to work in small chunks of time (maybe two or three hours per visit), you may find it hard to get your billable hours up to more than five or six hours per day.

2. Estimate how much holiday you’re going to take (or be forced to take) each year.

   Don’t think in terms of lying on the beach watching the surf, but include both holidays where you go away and breaks where you may be available to work, but you can’t because no work is available. (For example, January is often a very quiet time for bookkeepers, with many businesses owners away or working only part of the time.)

3. Make an allowance for public holidays.

   Public holidays of ten days a year equates to an equivalent of two weeks per year when you may not be able to work.

4. Think of what will happen if you get sick.

   Most people do get sick from time to time, and it’s realistic to make an allowance for this.

5. Calculate how many weeks per year you will be able to charge for.

   For example, if you have 6 weeks of holiday per year, 2 weeks of public holidays and allow for 2 weeks of sick leave, you’re only able to work 42 weeks per year.

6. Multiply the number of working weeks per year by the number of weekly billable hours, to arrive at your maximum billable hours per year.

   I show how this sum works in Table 17-1, where a bookkeeper bills for 30 hours a week for 42 weeks a year, making a total of 1,260 hours.

7. Multiply your maximum billable hours per year by your hourly rate.

   In Table 17-1, you can see how a rate of $60 per hour equates to a maximum gross income of $75,600 per year.

Note: The method shown in Table 17-1 only gives you the maximum billable hours per year. If you’re still getting your business established, it may be some time before you can build your business up to this point.

Thinking about your rate of return

As a final cold-and-beastly reality check, take a moment to think about how maximum gross income (which I talk about in the preceding section) translates to actual profit.

For example, in Table 17-1 I arrive at a maximum gross income figure for the year of $75,600. Looks good, but from this I almost certainly need to deduct GST, as well as business expenses including computer expenses, home office expenses, insurance, motor vehicle, professional development and travel expenses. Chances are my net income is going to be closer to $60,000, even with fairly modest expenses, and that this net income doesn’t include the regular superannuation you’d normally receive in a day job.

I’m not presenting an argument against being self-employed here — all I’m saying is be realistic about how much you need to charge and what profits you’re likely to end up with.

Looking for clients

A bookkeeping business is one of the harder kinds of businesses to grow. Most businesspeople are pretty cagey about their finances, and you can’t just set up a stall at the local markets and sell stuff from day one. Instead, most bookkeepers gain new business via word-of-mouth referrals and networking. Indeed, according to the Institute of Certified Bookkeepers 2013 Bookkeepers’ Survey, word-of-mouth referrals provide over 80 per cent of new business.

However, just because most work comes through word of mouth doesn’t mean you should just sit back and do nothing. I can think of a heap of ways you can inspire these word-of-mouth recommendations:

• Ask existing clients to spread the word: Don’t be shy. Tell clients you’re trying to build your business and ask if they can recommend you to others.
• Create a website: A website may not bring in much business from complete strangers, but helps add credibility if a possible client decides to check out your online profile.
• Get social: Yep, the greatest time drain in the universe has arrived on your doorstep. Do get active on Facebook, LinkedIn, Twitter and so on but remember: Spend more time posting to professional network groups and less time watching very silly cat videos.
• Go visit every single accountant in your area: I’m not talking about sending emails here. In fact, I specifically suggest you don’t send emails. Instead, put on your smartest clothes, grab your business cards and a personal portfolio, and knock on the doors of every single accountant within an hour’s travel.
• Join your local business networking group (or groups): I can think of no better way to get to know a bunch of businesspeople than your local business group or chamber of commerce.
• Offer free software advice: If a business is hunting around to change bookkeepers, chances are they may want to switch systems also. Offer free advice regarding what accounting software is going to work best, taking care to be impartial of course, and you may catch some extra work.
• Register as a software partner: If you sign up as partner with MYOB, QuickBooks Online, Reckon Accounts or Xero, you’ll almost certainly receive enquiries from people seeking assistance and bookkeeping services.
• Sign up for Toastmasters: If you’re shy, Toastmasters is a great way to build confidence and learn to present yourself (skills that will be very useful at all those business meetings you’re about to attend). Chances are you’ll meet a few businesspeople there too.

Building a Successful Business

I remember going to a conference once for Jim’s Bookkeeping (an excellent and very successful bookkeeping franchise). One of the things that made such a positive impression on me was how seriously the franchisees took their business. Almost all of the franchisees either had employees or were planning to hire employees in the near future, and a substantial number were turning over significant dollars in their business. (I haven’t mentioned franchising as an option yet in this chapter, but certainly a franchise is a great way to get marketing and business support, especially if you’re new to business in general.)

In the last section of this chapter, I talk about some of the ingredients I believe are essential in order to create a successful and thriving bookkeeping business.

Identify what makes you different

I mention early in this chapter (refer to ‘Creating a plan — no excuses’) the importance of finding something that differentiates your business from your competitors. I believe that the essence of what makes your business special, or more likely to succeed than others, is the single most important ingredient for ongoing business success.

You may be wondering what on earth you can do to make your bookkeeping services different from the next person’s. After all, you can only approach data entry and bank reconciliations in so many ways, right? Not quite. Here are some possible ideas for how you may be able to stand out from the crowd:

• Can you build a strategic alliance with another business that has complementary skills? Consider creating a business partnership with someone who can complement your skills. For bookkeepers, the most obvious synergy is with accountants, but keep your mind open to other possibilities too. Maybe you could partner with a business consulting firm, with a local IT company or with an office services business.
• Can you figure out a way to provide some services at a lower cost? For clients with lots of data entry, delegating work to an offshore service may make sense.
• Do you have a particular niche in which you have a lot of experience? Maybe you’ve got an intricate understanding of the construction industry; maybe you’ve got a background in non-profit organisations; or maybe you understand retail inside out.
• Do you have a really good name or brand? A good brand probably requires that you sign up with a franchise. However, you can also differentiate yourself by thinking up a really clever business name, with a smart logo and web address to match.
• Do you have an innovative way of doing things that significantly improves business processes? The accounting and bookkeeping firms that were early adopters of bank feeds and cloud accounting are a good example of innovation that improved day-to-day processes.
• Have you chosen a good location? I know most bookkeepers seek work in the area where they live, but be prepared to think left-field, especially if you’re near a city. Look at census figures and identify suburbs with the highest growth in new businesses, and focus your marketing efforts in these areas.
• Can you offer something that other bookkeepers don’t? Can you offer a quality of service that’s beyond what other bookkeepers offer, or a higher level of expertise?

Join a professional association

As a contract bookkeeper, I think joining a professional bookkeeping association is pretty much essential. I really can’t think of any other practical means for staying up to date with relevant changes in software, tax legislation and professional requirements.

The other big benefit is that you become part of a community of bookkeepers, so that you can chat online in forum boards and meet at networking events and conferences. Networking in this manner is the ideal way to get new ideas for your business, and to acquire new skills.

In Australia, the two main associations are the Institute of Certified Bookkeepers (www.icb.org.au) or the Australian Bookkeepers Network (www.austbook.net.au). In New Zealand, the main industry association is the NZ Bookkeepers Association (www.nzbookkeepers.co.nz).

Set goals, and reach them too

I reckon that setting goals for your business is really crucial to creating a road map for success. Here are just a handful of goals I reckon any bookkeeping business should be able to define:

• Goals for how much gross income you want to generate this month, next month, next year, and for the year after that.
• Goals for employees — how many people you intend to hire, and what services these employees will provide.
• Goals for the number and mix of clients you aim to have in 12 months’ time.
• A goal for where you want this business — and your life — to be in ten years’ time.

Goals are meant to make you feel inspired, not afraid. One way to ensure goals help you feel motivated is to split your goals into activities rather than outcomes. For example, instead of setting a goal to increase turnover to $100,000, you could set a series of mini-goals: Contact one accounting firm per week for the next month to tell them about your services; sign up for a fortnightly webinar regarding new software developments; get your website up and running by April.

By setting goals according to what you plan to do, rather than what you plan to gain, you can be much more confident that you’ll achieve what you set out to do.

Look to the future

Part of your job as a businessperson is to stay abreast of industry changes. For example, one of the biggest changes happening in the bookkeeping industry right now is cloud accounting. Arguably, any bookkeeper who doesn’t understand the impact of this trend is destined to go the same way as the Tasmanian tiger.

A continued change towards cloud accounting isn’t the only thing that may affect your business. Here are some possible trends that may have an impact on the bookkeeping industry in the coming years:

• Increased use of offshore companies to provide bookkeeping services.
• Increased integration between accounting software and government agencies such as the Australian Tax Office or Inland Revenue Department.
• In Australia, a continued shift in perceptions regarding the ‘professionalisation’ of the bookkeeping industry, as more and more bookkeepers gain BAS Agent accreditation.
• In New Zealand, the possible introduction of a bookkeeper accreditation scheme similar to the one operating in Australia.
• More bookkeepers providing remote services (as opposed to onsite services) facilitated by high-speed internet.
• Possible downward pressure on hourly rates due to changes in workplace legislation and pressure from overseas providers.
• Rapid changes in accounting software and continued increase in automation and ‘clever’ coding.
• Rapid development of add-ons to accounting software, particularly for mobile devices such as smartphones.

I’m not saying that all these trends will occur and undoubtedly I’ve failed to mention some others. However, any of these trends — including ones that haven’t happened yet! — has the potential to impact your bookkeeping business. The best way to stay up to date with changes is to subscribe to a professional membership association (refer to ‘Join a professional association’ for details), and commit to continuing professional development.