Start & Run a Bookkeeping Business - Angie Mohr Start & Run Business Series

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      Know Your Competitors

      Before you start up your bookkeeping practice, take some time to assess who your competition will be. It won’t just be other bookkeeping practices, but also accounting firms, tax preparation outfits, and bookkeeping software companies who make it seem so easy for business owners to do their own bookkeeping.

      Assess what your competitors do well and where they are weak. Is the bookkeeping practice across town offering a service guarantee? That may be a model you should adopt for your company. Is the accounting firm charging $75 per hour for bookkeeping with no added support to the client? Perhaps you can improve on that level of service.

      The process of finding who your competitors are and what they’re doing is called competitive intelligence, and it is something every smart entrepreneur does on a continuous basis. It is simply the process of uncovering, analyzing, and presenting publicly available information on your business’s competitors in order to maintain a competitive advantage in the marketplace.

      Here are the basic steps to learning more about your competitors.

      (1) Identify the competition. Find out both who is competing directly with your services and who is competing for the same customer dollars.

      (2) Analyze what they do right and what they do wrong. Assess the strengths and weaknesses of your identified competition.

      (3) Determine how they are positioned to take advantage of opportunities. In this step, you will assess how well you think your competition could adjust to changes in their external environments, such as what might happen if they hired a tax expert.

      (4) Assess how vulnerable your competition is to changing market conditions. How would your competition be able to handle external threats to their businesses, such as changing tax laws, legal action, new competitors, or theft — all things that are potential land mines for businesses that are not prepared.

      (5) Consider how your business stacks up against the competition. Once you understand your competitors better, determine where you stand in relation to them based on the same criteria. Are there things you can improve in your business model to make your business stronger in the markets you serve?

      Chapter Summary

      • Before you start your bookkeeping practice, spend time articulating your motivations for wanting to start such a venture.

      • Plan your business thoroughly and set up a preliminary business plan that projects where your business is headed.

      • Begin by thinking about the end. Have an exit strategy in place so you will know how to harvest the value from your business.

      • Choose your external advisers carefully, for they will have much influence over your success.

      • Gather all the information you can about the markets you will be operating in and your competitors. This will help you strengthen your own business and find your niche.

      2

      Financing Your Business

      One of the major causes of small-business failure (aside from the lack of financial management skills of the owner) is the lack of adequate capital. The amount of financing you need may be different depending on whether you buy an existing business or start one from scratch. The monetary needs of an existing business will be more easily predicted than if you’re starting up a new business. If you are starting your business from the beginning, you’ll need financing to get you to the point where the net profits of the business can provide the needed capital to replace assets and grow. Many small businesses start up underfunded hoping that the internally generated revenues will quickly grow to provide financing, but this doesn’t always work out as planned. So how much money do you need to start up your business?

      How Much Money Do You Need?

      There are many considerations to keep in mind when trying to assess how much money you’ll need to start up your bookkeeping practice. From a financing perspective, it’s a benefit that your business is service-based, which means that you won’t require substantial up-front financing for inventory or warehouse space. You will, however, need funding over the course of your business for some or all of the following groups of expenses:

      • Start-up costs. Your initial investment in your bookkeeping practice may involve rent deposits, legal and accounting fees, and purchases of equipment such as computers, printers, and telephone systems.

      • Shortfalls of revenue over expenses. You will still need to pay your suppliers and pay the fixed costs of running the business, such as rent, salaries to your employees, and the phone bill, even before you become profitable.

      • War chest. This is simply a fund of money (or short-term investments) set aside for a rainy day or for taking advantage of sudden opportunities.

      • Capital equipment replacement. Eventually, your software and computer hardware will become obsolete and need replacement, as will other equipment you may have invested in.

      • Growth. Expansion of your current operations may mean additional costs related to advertising, payroll, or the purchase price of another bookkeeping practice. You will likely incur these costs before you generate the revenue as a result of the expansion.

      Let’s start by looking at the two major categories of expenses for which you will need adequate financing in the start-up phase of your bookkeeping practice: start-up costs and providing liquidity to the business.

      Start-Up Costs

      As part of your initial business plan, it’s critical that you outline your costs on start-up carefully and ensure that you account for all of the potential costs. You may forget seemingly insignificant things that can add up to a lot of additional cash you weren’t planning to spend. Typical start-up costs for a bookkeeping practice include the following:

      • Supplies. You may not think things such as pens, paper, and file folders are significant, but the initial cost of stocking your office can be high.

      • Rental deposits. You may have to pay a deposit on your rented locations or on any rented office equipment.

      • Capital equipment. You won’t need any kind of specialized machinery to run your bookkeeping practice, but you will need the basics: a computer, printer, photocopier, fax machine, office furniture, and perhaps a vehicle for your business.

      • Insurance premiums. Although you may pay monthly premiums in the future for liability or business insurance, your carrier may require that you pay the first year up front.

      • Professional fees. Chapter 1 discussed the importance of putting together your team of external advisers right from the start. This entails incurring at least legal and accounting fees to set up your business and also to retain advice on planning and strategizing.

      • Renovation costs. If you’re renting office space or converting a room in your house into your office, you may need to redesign and decorate that space. Costs can include paying a design consultant as well as expenses such as carpentry, painting, carpeting, and sound systems.

      • Delay costs. It is always valuable to factor delay costs into your calculations. Start by asking yourself what costs you will still be incurring even if you aren’t able to open your doors on time because of some unforeseen event. If you have hired an employee, for example, you may have to start paying that person when the contract starts, regardless of your delayed opening date.

      Once you have tallied all of your expected start-up expenses, make sure you leave yourself some breathing room. Overestimate your start-up expenses by 5

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