responsibility for customer satisfaction, working conditions, supplier shortages, product failure, and the economic well-being of your employees. Look at whether you are the type of person who can handle these responsibilities while simultaneously making considered, but quick, decisions on a daily basis.
(c) “Empire building.” For many small-business owners, the most important consideration is that they are building something that will outlive them and perhaps provide income and stability to future generations. If this is an important consideration for you, it will be critical to make sure that you are building a business that has value, and that the value can be transferred to others through sale of the business or inheritance. The unfortunate reality is that over 80 percent of small businesses do not survive into the next generation but die with their owners. Planning ahead for the eventual transfer of ownership will help preserve the value of your business.
Why Bookkeeping?
Now that you’ve examined your skills and your motivations for becoming an entrepreneur, it’s time to assess why you have chosen bookkeeping services as your business’s main offering. Here are some questions to ask yourself:
• Do you currently work as an employee bookkeeper and enjoy the work?
• Do you feel there is an unmet market need for bookkeeping services?
• Do you think you can fill a certain niche and attract business because of your different way of doing things?
Take some time to write down your rationale for starting a bookkeeping services business as if you had to explain it to a group of people. The better you can articulate your reasoning, the more it will solidify and reinforce your focus and commitment. You will need to do this exercise as part of your business plan (discussed later in this chapter).
Approaches to Starting Your Business
Once you have definitively decided that you want to start a bookkeeping services business, there are two ways you can go about it. You can build your practice from scratch, customer by customer, or you can buy an existing practice. There are benefits and downsides to both approaches. You will have to assess which considerations are most important to you and your situation. Let’s look at these considerations.
Building a business from scratch
When you build a business from scratch, you will start with nothing but the tiniest grain of an idea. You will spend months or longer mapping out that idea, running cash-flow scenarios, doing market and competitive analysis, writing a business plan and a management operating plan, and working on the business’s vision and mission statements. You will be meeting with bankers, accountants, lawyers, and financial planners as you build your external advisory team.
You will probably open your doors before you take in the first dollar in revenue, and you will take the enormous leap of faith that customers will actually want the services you are selling as you had envisioned in your business plan.
The process may sound scary, but designing and building the business that exists in your head can be an extremely fulfilling and gratifying experience — so much so that many successful entrepreneurs design and build businesses, then sell them once they’re up and running. Then they start all over again and build another one.
Here are the pros of building a business from scratch:
• You can design internal systems the way you want them to work right from the beginning
• It can be less expensive than buying an existing operation
• There is no risk of acquiring the previous owner’s liabilities or having to satisfy pre-existing warranties
• You can manage staffing needs more carefully (i.e., you don’t inherit employees that are sub-par and/or difficult to fire)
There are also some cons to building a business from scratch:
• Attracting investors can be more difficult and expensive. Because the venture doesn’t yet exist, investing will be a riskier proposition.
• Generating profits can take longer than with an existing business
• Building name recognition and goodwill with customers can take a long time
• There is a much greater risk of failure than with a business that has a proven track record
Buying an existing business
Buying an existing business is, in general, less of a risk for you as the major investor. You have the opportunity to watch the business in action, and you will be able to access the historical financial information to determine patterns such as growth rate, profitability, and solvency. You know that you will be able to generate a return on your investment almost immediately as well as be remunerated for your management role in the business (and perhaps also your operational role).
You may choose to buy a business because you want to quickly introduce a new product to an existing customer base before there are too many competitors in the market. For example, if you have developed a brand-new print-on-demand self-serve book station, you may want to have instant access to a thriving bookstore’s customers before copycats come on the market.
Here are some of the pros of buying an existing business:
• Obtaining external financing can be easier than if you build a business from scratch because the business has a track record
• You can market your existing products to a new customer base
• Managing and fine-tuning an existing business model can be easier than building it from the ground up
• You can generate profits right from the purchase date
• You can continue the business with the existing goodwill and name recognition
The cons to buying an existing business include the following:
• You may be inheriting the hidden headaches of the previous owner
• You may be inheriting negative goodwill if the business has a bad name in the community
• It may take as long to reshape the business the way you want it as it would have taken had you started a new business from scratch
• The clients you are “buying” may have only been loyal to the former owner and may choose not to stay on as clients when you take over
Decide which priorities are most important to you and make your decision to build or buy a business based on sound reasoning.
Setting Up Your Own Books
There are many different ways you can set up the books for your bookkeeping practice. You may not have given this much thought, because primarily you help others with their bookkeeping. However, as a bookkeeping practice, you will need to keep the following goals and objectives in mind when considering what type of system to use:
• You will need to track your time spent on each client. Even if you don’t do your billings based on time spent (more on this in chapter 3), you will still need to assess what your recovery rate is so that you can understand your efficiency. The system you choose should be able to track time by client in a clear, concise way.
• You will need to track separately the revenues from each of the services you offer. When you analyze your financial statements, you will need to know which of your areas of practice (such as monthly business bookkeeping, taxes, and investment tracking) are growing and which are the most profitable.
• You will need a system that can be updated quickly and easily. You don’t want your own set of books to be onerous and take up time that could be spent on client work.
Choosing Your Accounting