How to start up a bookkeeping business

Bookkeeper being handed files while at his deskBookkeepers provide record keeping and management services to local businesses and sometimes to private individuals. Check out our practical guide for starting and running your own bookkeeping business.

Research your target market

Estimating demand

It's very important to find out whether there will be enough demand for your book-keeping services business. Be aware that book-keeping services are also provided by accountancy firms of all sizes, many of which will be able to offer clients a wider range of services than you are likely to offer (for example, preparing the client's annual accounts, undertaking an audit, offering financial services and so on). There's lots more competition now from online accountants and book-keepers too, who can attract clients from all over the country. And more and more business people are using book-keeping software to record their financial transactions themselves. So it's essential to make sure that the services you plan to provide will prove attractive to potential clients and that your role complements that of your client's accountant. You may be able to offer a cheaper or more personalised service, for example.

The introduction of Making Tax Digital (MTD) by HMRC will mean that businesses will have to keep digital business records and submit quarterly returns to HMRC based on those records.

From April 2019 MTD will apply for VAT purposes only to any business with a turnover above the VAT threshold. Once the system has been shown to be working well, the scope of MTD will be widened beyond VAT, although this won't be before 2020.

The increased record keeping burden imposed on businesses as a result of MTD may provide opportunities for bookkeeping businesses to offer their services more widely so that business owners can get on with what they do best - running their business - and leave the burden of the MTD record keeping to their bookkeeper.

In any case, you will have to familiarise yourself with the requirements of MTD and make sure that you are able to use the necessary software packages that your clients decide to install.

Businesses generally choose to out-source their book-keeping requirements for one of these reasons:

  • because they are inexperienced and are unsure of what records should be kept, and in what form
  • to make sure their VAT, PAYE and tax returns are sent in on time and the right amount of VAT and tax is paid
  • because they are too busy undertaking their core activities and want to free up some of their valuable time

As seen above, the introduction of MTD reinforces all of these reasons for businesses to out-source their bookkeeping, particularly smaller businesses without their own bookkeeping department.

So look carefully at the area in which you propose to operate, to:

  • check out the existing competition
  • make an estimate of the number of business clients you will have
  • satisfy yourself that local businesses are thriving and that new ones are being encouraged to start up
  • decide on the range of services you should offer

Find out what businesses want

As a first step you could visit a number of small and medium size businesses in your area and discuss with them the possibility of out-sourcing their book-keeping requirements. It would be a good idea to cover the following matters:

  • the nature of their business and what paperwork is involved (for example purchase invoices, till rolls, sales invoices, patient or client records and so on)
  • how frequently they would want their records written up, for example, daily, weekly or monthly
  • where the services would take place, for example at your premises or theirs
  • whether they would want you to administer their payroll, handle pensions auto-enrolment, do their VAT returns, produce monthly management accounts and so on
  • the increased record keeping requirement arising out of MTD - being able to explain MTD and reassure them that you will be able to deal with this is a good way of selling your services

From the information they provide you would be able to give them an indication of how much it would cost them, based on the time taken, travelling expenses (where appropriate) and so on. Their reaction to your proposed charges would also be valuable - they will quickly let you know if you are too expensive and if they bite your hand off, maybe you're a bit too cheap! You will also be able to find out which services are likely to be most in demand.

Don't forget that organisations other than businesses might welcome your services, for example, housing associations, charities, churches and sports clubs.

Online book-keeping services

Don't overlook the possibility of offering online book-keeping and related services to clients anywhere in the country. Your clients would enter their income and expenses and employee pay details into specialist cloud based book-keeping and payroll software that you could then work on. You'll need to make sure your website features in online searches for book-keeping or accounting services.

Research current trends, plus legal and tax issues

Client profile

Your market

Your clients are likely to consist for the most part of small and medium size businesses. Although you might be prepared to service some clients by post and email or offer them an online service, most of your clients are likely to be local concerns.

Some of these businesses might be start-ups who have very little idea of what records should be kept, the format they should be kept in, tax, PAYE and VAT matters, payroll and pension auto-enrolment requirements and so on. Provided you can keep your fees affordable this type of client may be well worth cultivating - as they grow and prosper so you can increase the range of services you offer them.

Other businesses will be established concerns which have more complex book-keeping requirements that take up more and more of the proprietor's time each week. This type of client benefits from being able to outsource the book-keeping work to a specialist because it frees up valuable time. It also makes sure that all records are being processed correctly and tax and legal requirements complied with. The business may also benefit from a reduction in their accountant's fees because you will have kept the records in a way which is easy for them to work with.

All businesses, whatever their size, benefit from being in control of their finances and will be in a position to monitor their performance by reference to the monthly reports (or management accounts) that your service will be able to provide.

You might decide to offer book-keeping services on a freelance basis to local accountancy firms that need an extra pair of hands during busy periods.

When you take on a new client it's a good idea to formally set out the book-keeping services you have agreed to provide, when you will provide them and the fees that you'll charge them.

Discounts

You might decide to offer a discount to local charities, ministers of religion, clubs and so on.

Some book-keeping businesses offer fixed price packages - for example an Accounting and Book-keeping package and a Payroll package. If you do this, you might decide to offer a discount to clients who take more than one package.

Your services

What range of services will you offer

The range of services you decide to offer will depend on:

  • your own (and your staff's) skills, expertise and training
  • the nature of your clients' businesses
  • the size of your premises (if you have any)

These are some of the book-keeping services you would be likely to offer clients:

  • processing of all documents relating to business transactions (for example purchases, sales), including e-commerce transactions
  • upkeep of all appropriate ledgers
  • credit control
  • bank reconciliation
  • stock control
  • monthly management accounts and reports
  • annual accounts preparation (final accounts for sole traders, draft final accounts for companies)
  • payroll services
  • VAT returns and reconciliation
  • self-assessment tax returns
  • online filing and payment of VAT, PAYE/CIS and tax on clients' behalf. You can find out more about enrolling for online services as an agent on the Gov.uk website
  • pension auto-enrolment services

The introduction of Making Tax Digital (MTD) will mean that your clients' records will have to be maintained digitally and returns will have to be made to HMRC on a quarterly basis. You will need to be familiar with the software needed to meet HMRC's requirements under MTD.

You might offer specialist services which are particular to an individual client. For example, a golf club might require you to handle their membership list or you might look after subscriptions for a magazine publisher. You might also consider acting as an authorised reseller, installer and trainer for book-keeping, e-commerce or expenses claim packages. Some book-keepers also do some work for local accountants during their busy periods.

If you have the space in your premises and adequate staffing resources there are a number of other services which you might consider offering, such as:

  • CV preparation
  • copy and audio typing
  • photocopying
  • faxing
  • telesales
  • mailshots from client's database

Advertising your services

No matter which book-keeping and business services you decide to offer, it's very important to make sure that your potential clients know about you and the assistance you can provide.

There are a number of things you can do to promote your business:

  • advertise in your local newspaper and any local directories
  • launch your own website, setting out the services you offer and how this will help your potential clients. If you decide to become a software re-seller this can be highlighted on your website
  • become a member of the Institute of Certified Bookkeepers or the International Association of Book-Keepers - your business will be included in their online Find a Bookkeeper tools
  • play an active part in your local business community so that your services are well known
  • specialise in offering services to a specific trade sector - and make sure local trade associations are aware of this
  • have leaflets printed which you send out to your target clients
  • contact local accountants who might be prepared to recommend you to their clients
  • join LinkedIn so you can keep in touch with other professionals
  • use social media like Facebook and Twitter to demonstrate your book-keeping skills and get referrals
  • contribute to online business forums and bookkeeping blogs
  • make sure your services are always reliable and of top quality so that you benefit from word of mouth referrals

Your fees

How will you decide on the level of fees to charge?

Generally speaking all businesses are keen to keep their costs to a minimum and there is likely to be pressure on you to keep your fees low - especially when there's a downturn in the economy.

However, it's very important to make sure that the fees you charge for your services are enough to cover all of your operating costs, including staff wages and your own drawings.

When you set your fees, take into account:

  • the time each task will take
  • the complexity of each task
  • how much responsibility you have agreed to assume
  • any expenses you incur (for example travelling, postage and so on)

You might charge a fixed monthly fee for undertaking specific, regular tasks such as payroll administration. This might include all the record-keeping, production of payslips and online submission of RTI files to HMRC. Or you might charge on a per entry basis with additional charges being made such as for the printing of statements, sending out customer payment reminder letters and so on. If you are dealing with your clients' digital record keeping and quarterly returns after the introduction of Making Tax Digital (MTD), you will also probably aim to charge a fixed monthly fee.

According to the Institute of Certified Bookkeepers, the average hourly rate for bookkeeping services is between £22 and £25. Some bookkeeping businesses offer a discount to new clients - for example for the first month.

Try to find out what rates your immediate competitors are charging. Many book-keeping firms set out their fee scales on their websites so this will help you get an idea of what to charge. Although you will have to base your own rates on your costs and on the level of income you want to bring in, it's also important to remain broadly competitive.

Remember too that bookkeeping software has become so easy to use that some of your clients may decide to tackle the more straightforward recordkeeping tasks themselves (although the record keeping and quarterly returns under MTD may mean that the software required for this is less easy and more time consuming to use). Of course they'll still need your expertise to pull all the figures together, but they may be reluctant to pay for what they think of as just 'number crunching'. It's important to add value to your services and to justify your fee by helping your clients understand what the figures mean - how their business is performing and what they could do to improve things.

Buy an existing business

You might decide to buy an existing book-keeping services business rather than start your own venture from scratch. Buying a going concern can mean that:

  • the premises and business equipment are already in place
  • there are established clients
  • the business can generate income immediately
  • the business has a track record, which can help if you are looking for finance
  • staff may already be in place

However, look critically at any business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up.

Your market research into the sector as a whole and the locality in particular will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high.

Other matters to consider include:

  • the state of the premises, fittings, equipment and so on. Will you have to spend money refurbishing or replacing assets
  • existing staff rights
  • how to retain key personnel once you've taken over
  • does the business owe money that you will be responsible for
  • if you are paying for goodwill, to what extent does this depend on the skills and personality of the seller

Look critically at the business accounts for the past three years and consider the selling price in the light of what the accounts reveal. Don't forget to budget for professional fees such as legal fees and valuation and survey costs.

Alternatively you might decide to consider a book-keeping franchise opportunity. This might allow you to work from home, using online web based ('cloud') software to access your clients' records in real time. Franchise packages typically involve an initial fee plus an ongoing management fee, based on turnover. In return the franchisee receives:

  • a licence to trade under the franchise brand name
  • training and ongoing support
  • access to online software platform
  • promotional material and marketing activity

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