How to Start a Bookkeeping Business
If you have excellent attention to detail, enjoy the challenge of balancing multiple projects, and have strong math skills, a career as a bookkeeper may be a natural fit for your skills. While you can certainly work as a bookkeeper employed by a single company, if you want more control of your schedule, workload, and income, then it may be time to consider starting a bookkeeping business of your own.
As a business owner, you’ll be in charge of everything from your marketing to closing deals with new clients. But, you’ll also enjoy plenty of perks, too, including a potentially higher income than you’d have when working as a business’ employee. Read on to understand all of the benefits and challenges that come with this exciting business opportunity to decide if it’s the right career move for you.
Bookkeeping businesses help other business owners to maintain their business’ financial records. Bookkeepers often perform many different tasks, including recording account debits and credits, checking financial statements for accuracy, verifying receipts, creating invoices, and reconciling financial records. Some bookkeepers may also handle a business’ payroll, and they may follow up on outstanding invoices.
While some businesses hire their own internal bookkeepers, it’s becoming increasingly popular to hire independent bookkeepers to help. This is particularly true when a business is smaller and doesn’t have the demand or budget to justify hiring a full-time bookkeeper. As a result, independent bookkeeping services may balance multiple accounts at any one time.
Independent bookkeepers are often operated by a single person – the business owner – though successful businesses can expand and hire a roster of bookkeepers. Thanks to the internet, some businesses even operate entirely remotely, never meeting with clients in person. In these instances, the bookkeepers on staff can also be located remotely. This remote situation increases a business’ access to potential clients, making for a larger client base.
According to IBIS World, the bookkeeping and payroll industries have undergone substantial recent growth. From 2014 to 2019, the industries experienced a 4.9 percent growth, and they were projected to bring in $81 billion in revenue in 2019 alone. During that five-year period, the number of businesses grew to 305,060, and industry employment also increased to 939,837.
That growth is closely related to the state of the labor market. As the number of jobs and businesses in existence increases, the demand for bookkeeping services also grows. With the economy improving from 2014 to 2019 and continuing to improve today, it suggests a promising future for the bookkeeping industry.
The accounting industry is evolving and changing, and MYOB identifies multiple trends currently shaping the industry. Bookkeepers are increasingly becoming more of a voice in business strategy, rather than being called on strictly for number crunching services. Bookkeepers who don’t only monitor and create reports but then analyze those reports and make recommendations on strategic decisions are more valuable to businesses today and can make a big difference in a business’s performance.
There’s also been a shift to increased use of technology and automated processes in the bookkeeping industry. As bookkeepers integrate technology that can save them time and take care of some of the more basic, repetitive processes, they’ll have more time to focus on client services like analyzing data and making those valuable recommendations referenced above.
The employment industry is changing, and with a near-constant focus on productivity, bookkeepers need to prioritize a work-life balance. Bookkeepers are becoming more selective about the clients they take on, realizing how important it is for a client to be a good fit for their business, and vice-versa.
At the basic level, bookkeeping businesses market to business owners who need professional help to maintain and prepare their financial statements and records. Some bookkeeping businesses specialize in working with certain businesses, like businesses in the financial industry, small businesses, or large corporations.
Checklist for Starting a Bookkeeping Business
If you’re thinking about starting a bookkeeping business, it’s important to do your research first. Here is a checklist to help you get started.
Step 1: Write a Business Plan
After coming up with the idea to start your own bookkeeping business, the next step should be to write a business plan.
While you may not require a loan, the business plan will force you to consider important aspects of the business, such as whether you want to target a particular niche or industry, marketing strategies, and project the income and expenses of the business.
Related: How to write a business plan
Step 2: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a bookkeeping business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 3: Name the Business
Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 4: Research Accounting Software
Some bookkeepers will focus on one particular accounting software, while others will be more flexible. There are a lot of popular choices, like Quickbooks, Xero, Freshbooks, and Wave Accounting. Fundamentally they all do the same thing, so that it may be worth at least familiarizing yourself with all of them.
Step 5: Select your Location
Small bookkeeping businesses can avoid rental costs by operating out of a home office, but if a home office isn’t available or is impractical due to the need to meet with clients, the business will need to rent office space. Rental costs will vary depending on the size of the office and its location. Another option is to operate as a virtual bookkeeping business, requiring no physical office space for clients to visit. This can be a great option if you live in a rural area with a limited number of businesses to assist.
Related: Choosing a business location
Step 6: Apply for Business Licenses and Permits
Unlike Certified Public Accountants (CPA), there is no licensing specifically for bookkeeping businesses. There is a national certification from the National Association of Certified Public Bookkeepers called the Certified Public Bookkeeper (CPB) that may provide credibility in your skills to potential customers.
Additionally, there will be general business registrations that will vary depending on where the business is located. Some of these include a business license and Employer Identification Number (EIN), among others.
Step 7: Find Financing
Most bookkeepers initially self-fund their business as they start from home, and expenses are low. If that is the case for you, be sure to have enough money saved, so you have at least three to maybe even six months of expenses in the bank as you build your client base.
As the business grows and perhaps you hire additional people or need dedicated office space, financing will be necessary.
In general, banks will want to see the borrower(s) have good credit and be able to invest 15-25% of their money towards the total expenses.
Step 8: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 9: Get your Marketing Plan in Place
Finding your first client will be challenging as there are no word-of-mouth referrals from happy clients yet. Your marketing will have to be professional-looking, and a few common marketing activities include social media marketing (Linkedin and Facebook business pages), print advertising, online advertising, and networking and handing out business cards at local events. Bookkeeping businesses may also implement customer referral programs or network with local Certified Public Accountants (CPA) should they have overflow work.
One important marketing task is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.
Step 10: Get Business Insurance
There are several types of insurance to consider when starting a bookkeeping business. A few of these include:
– Errors & omissions insurance or professional liability insurance is possibly the most critical insurance to consider as a bookkeeper is E&O or professional liability insurance. As a bookkeeper, you are taking care of sensitive financial data, and if you make a mistake (which could be very costly) or do not keep records accurately, the client may sue. Generally, policies can cover $1 million in coverage for less than $50 per month.
– Commercial property insurance protects the business against the financial loss it would face if its office and equipment were ever lost in an event like a fire.
– Worker’s compensation insurance covers expenses like medical bills or lost wages that can occur if an employee is hurt while working, like if they tripped and fell while in the office.
The cost to insure a bookkeeping business can vary depending on variables like where the business is located and the number of employees on staff. To get the most accurate idea of what insurance will cost, request quotes from multiple providers and compare those quotes while looking at factors like coverage limits and exclusions, premiums, and deductibles.
Step 11: Hire Employees
A bookkeeper can open their own business and operate as the sole bookkeeper, but as the business grows, it may become time to bring in additional employees. Perhaps the most important first hire would be a receptionist to answer calls and greet clients as these interruptions keep you from billing hours to clients.
PayScale reports that bookkeepers earn an average salary of $42,806 per year, though highly experienced bookkeepers may earn closer to $60,000 per year. According to Salary.com, receptionists earn an average of $36,531 per year.
These salary costs are just one expense that comes with hiring staff. A business also needs to budget for expenses like workman’s comp insurance, paid time off, and health insurance contributions.
Related: Hiring your first employee
How much does it cost to start a bookkeeping business?
Bookkeeping businesses have relatively low startup costs, especially if they’re initially run out of a home office rather than renting office space. Expect to pay about $10,000 to start up a business out of a home office. Larger businesses that are started out of rented offices will carry higher startup costs, starting closer to $20,000.
Some common startup costs for a bookkeeping business include:
– Office furniture and filing cabinets
– Equipment like computer, scanner, and printer
– Bookkeeping software like Quickbooks ProAdvisor
– Office supplies
– Office phone and internet service
– Working capital to cover the first 3-6 months of salaries, utilities, internet, etc.
How much can a bookkeeping business owner make?
Generally, bookkeepers will either charge an hourly rate or a monthly fixed fee. It may be tempting to initially set your rates low to get the first few clients, be careful as this can bring in the wrong types of clients. Setting your fees to get pricing right will take some, but don’t feel that you need to price yourself too low.
The average earnings for a bookkeeper are $42,806 per year, which comes out to an average hourly rate of just over $21 per hour. So many factors will affect what you can expect to earn from your business. Your location, the types of clients you work with, the volume of work you take on, and your rates will affect your income. A freelance bookkeeper often earns more than bookkeepers employed by a company since they can determine their rates and take on as much work as they like. If you’re driven to succeed, you could build your business into a highly profitable venture.
As a part of the core services of inputting data and preparing main financial statements will often offer additional services to small businesses such as payroll services, billing services, tax preparation, tax returns, and more.
What skills are needed to run a bookkeeping business?
While a bookkeeper won’t need a business degree to start a bookkeeping business, certain skills and experiences can increase the business’ chance of success.
Bookkeeping experience. Before starting a bookkeeping business, a business owner should have completed an internship or worked as a bookkeeper to get a sense of what’s involved in the industry and to be certain that this career is right for them.
Strong math skills. Bookkeepers use math daily, so strong math skills and comfort working with numbers is essential.
Attention to detail. Attention to detail is incredibly important since even small mistakes can have big implications in bookkeeping.
When you run a bookkeeping business, it’s important to implement systems and processes. These systems create consistency, and they can help to prevent you from overlooking important details or steps. They can also make you more efficient, and if you have multiple people working in your business, they can help everyone work together smoothly and accurately.
Strong communication skills. Bookkeepers often need to explain detailed topics to clients. Strong communication skills and creativity can help with this.
Education, certification, and licensure. While it’s possible to work as a bookkeeper with only a high school diploma, additional education can prepare a bookkeeper for the challenges they’ll face in the bookkeeping profession. Once a bookkeeper has worked in the industry for two years, they can become certified through the American Institute of Professional Bookkeepers (AIPB). A certified bookkeeper can later go on to earn a license through the National Association of Certified Public Bookkeepers (NACPB). This licensure requires that bookkeepers complete 24 hours of professional continuing education classes, 3000 hours of work experience, and pass a certification exam. While credentials and licensure aren’t required, they can build a client’s trust in a bookkeeper.
Quickbooks also offers a ProAdvisor certification, which may be worth pursuing, as Quickbooks is the most popular software. Being a ProAdvisor gets you listed in the network, which can help with marketing and credibility.
Are there grants to start a bookkeeping business?
It’s extremely rare to find a grant to start a bookkeeping business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a bookkeeping business?
The NAICS code for a bookkeeping business is 541200.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?