Starting your own bookkeeping business is an opportunity to turn your knack for numbers into a rewarding career. As the need for small business accounting services grows, bookkeeping is a great industry to get into for those with an aptitude for numbers, organization, and helping others.
In this guide, we’ll provide an overview of the bookkeeping business, industry trends, and steps to get started so you can successfully launch your own bookkeeping practice.
Bookkeeping is the backbone of any business. As a bookkeeper, you’ll be responsible for tasks like processing invoices and payments, reconciling bank statements, tracking income and expenses, preparing financial statements, payroll processing, ensuring taxes are calculated and paid on time, and other accounting services.
While some businesses hire their own internal bookkeepers, hiring independent bookkeepers to help is becoming increasingly popular. 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. Operating as a virtual bookkeeping business increases a business’ access to potential clients, making for a larger client base.
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The bookkeeping industry is vast and varied, catering to businesses across all sectors and sizes. With the increasing complexity of tax laws and financial regulations, demand for qualified bookkeepers is on the rise, making it a stable industry with reliable income potential.
With the increasing complexity of tax laws and financial regulations, demand for qualified bookkeepers is on the rise. Over the last five years, the bookkeeping and payroll industry has grown at an annualized rate of 2.7% and in 2023 is expected to generate $66.2 billion in revenues.
Over the next five years, the industry is expected to continue growing at a moderate pace of 2-3% annually. Key trends shaping the industry include:
- Increasing use of automation and AI: Bookkeeping software and automated solutions are reducing the need for manual data entry and allowing companies to offer more streamlined services. Adoption of these technologies will continue.
- Shift to cloud-based platforms: Many bookkeepers are transitioning from desktop software to cloud-based platforms that offer more flexibility, collaboration, and real-time financial data/reporting for clients.
- Specialization: Larger players are increasingly specializing in niche areas like particular industries, while smaller players focus on localized services. Specialization allows tapping into specific client needs.
- Security enhancements: Data security and privacy regulations are increasing demand for security features like data encryption and access controls in bookkeeping software and systems.
- Consolidation: Mergers and acquisitions among large national players will continue as they seek economies of scale. Small localized providers will remain competitive.
- Competition from HR services: Bookkeeping providers face competition from expanding HR services firms adding bookkeeping to service bundles. Larger bookkeeping firms that can provide integrated services will have a competitive edge.
The target market for a bookkeeping business can be quite diverse, as almost every small business owner needs some form of bookkeeping. However, the specifics will depend on your business model and specialization.
The best clients for bookkeepers are small organizations without sophisticated internal accounting departments but with significant enough needs to justify outsourcing the work. Establishing a niche or specialization can also help target potential clients in a specific industry.
Checklist To Start A Bookkeeping Business
Starting a bookkeeping business isn’t just about having the technical skills to balance sheets and record transactions. It’s also about understanding the nuances of the industry, staying ahead of trends, and knowing how to market your services effectively. This guide aims to give you a strong foundation, from understanding the business landscape to answering common start-up questions.
Step 1: Research the Industry
If you’re considering starting a bookkeeping business, the first step is to familiarize yourself with the industry. This involves researching the bookkeeping services market, understanding the needs of potential clients, and identifying your competitors. Spending time working in a bookkeeping or accounting role can give you invaluable hands-on experience and insights.
To enhance your understanding, consider subscribing to industry publications, joining relevant forums, and attending networking events or webinars. These platforms provide opportunities to connect with industry professionals and stay abreast of the latest trends and developments.
Education is another crucial aspect. While a degree in accounting isn’t mandatory for starting a bookkeeping business, having one can boost your credibility. There are several online courses available that can help you master the basics of bookkeeping and accounting. Websites like Bookkeepers.com (Free), Skillshare, Coursera, and Udemy offer helpful courses.
Additionally, obtaining industry-recognized certifications can set you apart from your competition. The Certified Public Bookkeeper (CPB) certification from the National Association of Certified Public Bookkeepers (NACPB) and the Certified Bookkeeper (CB) designation from the American Institute of Professional Bookkeepers (AIPB) are two highly respected certifications in the industry. These certifications require passing exams and fulfilling certain experience requirements, but they can significantly enhance your reputation and earning potential.
Step 2: Assess the Market
You’re eager to start your bookkeeping business, and that’s great. But enthusiasm needs to be backed by data. Why? Because knowing whether there’s a demand for your services is essential. You don’t want to invest your hard-earned money and valuable time into a venture only to find out the market is saturated or simply not interested. So, the first step in your journey is all about researching, figuring out if there’s enough customer base for your bookkeeping business.
This research may also help uncover a particular niche or service to focus on. Specializing in a specific industry can set you apart from generalists. Whether it’s medical practices, restaurants, or tech startups, each niche has its unique set of bookkeeping needs. This information forms the foundation upon which the rest of your business plan and subsequent operations are built.
Step 3: Write a Business Plan
While this isn’t a required step, it is one to strongly consider. A business plan serves as a blueprint that helps organize your thoughts, outlines your business’s goals and how you plan to achieve them, and lay out strategies for growth.
Also, if needed, a business plan is needed when trying to get funding from lenders.
Related: How to write a business plan
Step 4: Source Funding
Starting a bookkeeping business can be comparatively low cost, especially if you plan to operate from home or virtually, which eliminates the need for a physical office space. However, even with low startup costs, you can’t go in without a financial game plan.
Take stock of what you have and make a list of what you need to get started. This will help you gauge whether you have enough money to get off the ground and figure out where to find funding.
If your personal savings are falling short, you may need to explore other avenues like loans or financial help from friends and family. If you’re considering a bank loan, lenders generally require that you invest a significant portion of your own money (often around 15-25%), have a solid credit score, and have sufficient collateral. If the bank feels the loan is too risky, they might recommend going the route of an SBA loan guarantee to secure additional funding.
Step 5: Register the Business
With the market research, business planning, and funding out of the way, the next crucial step is registering your bookkeeping business to make it legal of operate. Each state has different requirements, but let’s go over the general needs.
Business structure: First, decide on the business structure that best suits your needs. Generally, there are four types to consider:
- Sole proprietorship: Simplest and least expensive to set up. All profits and losses flow directly to you. However, this structure offers no liability protection.
- Partnership: This involves two or more individuals sharing ownership. Like a sole proprietorship, a partnership offers no liability protection but is straightforward to set up.
- Corporation: Offers liability protection but is the most complicated and costly to form.
- Limited Liability Company (LLC): Combines the liability protection of a corporation with the simplicity of a sole proprietorship or partnership.
Each structure has its pros and cons. For instance, LLCs and corporations offer liability protection and potential tax benefits. On the other hand, a sole proprietorship is quick to set up and inexpensive but offers no protection for the owner’s personal assets. As for what’s most common for bookkeeping businesses, there’s no one-size-fits-all answer, and it varies depending on your specific needs and location.
Related: Comparison of business structures
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:
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain business licenses and permits: Unlike the Certified Public Accountant (CPA), there is no licensing specifically for bookkeeping businesses. There is a national certification from multiple organizations that may provide credibility in your skills to potential customers.
While there aren’t bookkeeper-specific licensing requirements, 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 6: Set Up Operations
Getting your bookkeeping business up and running involves more than just paperwork; it’s about setting up your operational base. 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.
Purchasing equipment is another important step. A reliable computer with a good internet connection is a must, as most of your work will likely be done online. You’ll also need bookkeeping 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 7: Create a Marketing Plan
With most of the steps out of the way, it’s time to get a game plan together to let clients know you exist.
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, and online advertising. Bookkeeping businesses may also implement customer referral programs or network with local Certified Public Accountants (CPA) should they have overflow work.
Networking has always been a cornerstone in this industry, and joining local business organizations like the Chamber of Commerce can open many doors for you. If you plan to specialize, joining related industry organizations can be a great way to find clients as well.
Step 8: Prepare to Launch!
As you near the finish line of starting your bookkeeping business, there are some remaining steps that may still need to be wrapped up. Every business will have different needs, but here are some additional tasks to consider:
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. If you are working from home, be sure to check your policy to make sure it covers any business items.
Bookkeeping: Funny enough, as a bookkeeper, you’ll need to set up your own accounting and bookkeeping system. Utilize your expertise and establish a system for tracking your income, expenses, and financial reports.
Contracts: You’ll need to draft service agreements outlining the scope of your services, payment terms, and other details. For instance, a Bookkeeping Engagement Letter is a common contract used in this industry to define the relationship between the bookkeeper and client. RocketLawyer and Law Depot have free and inexpensive templates that may be helpful.
Bank account: A separate business bank account is important for managing your finances effectively and maintaining clear financial records.
Pricing: Determine how much you’ll charge for your services. Whether you choose hourly rates or fixed fees will depend on your target market and the services you offer.
Grand opening: Plan a launch event or special promotion to attract your first clients. This could involve hosting a webinar, offering a discount on your services, or partnering with local businesses to cross-promote each other.
Common Questions When Starting A Bookkeeping Business
How much does it cost to start a bookkeeping business?
Starting a bookkeeping business can be relatively affordable compared to other types of ventures. Total startup costs can range from $2,000 to $10,000, depending on various factors such as location, technology, and marketing efforts.
Let’s break down these costs to help you understand where your money will go.
Technology costs: One of the most significant expenses you’ll encounter is for technology. You’ll need a reliable computer and accounting software, costing approximately $1,000 to $2,000 for the computer and around $300 to $800 annually for the software.
Office supplies and furniture: If you’re working from home, your initial costs could be relatively low. But if you need to purchase a desk, chair, and other supplies, you could spend around $300 to $1,000.
Initial marketing: For your launch, you may want to consider a website, business cards, and some online advertising. Website design and hosting might set you back $300 to $600. Business cards and basic Google Ads could cost an additional $200 to $500.
Business registration and licenses: Registering your business and securing any necessary licenses can cost between $100 and $500, depending on your jurisdiction and the type of structure you choose.
Insurance: A basic liability insurance policy can cost anywhere from $250 to $500 initially.
Keep in mind these are general estimates and your actual costs could be higher or lower.
How profitable is a bookkeeping business?
Bookkeeping businesses have the potential to generate substantial profits due to the relatively low overhead and startup costs of this industry.
Generally, bookkeepers will charge an hourly rate or a monthly fixed fee. It may be tempting to set your rates low to get the first few clients, but 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 you need to price yourself too low.
Typically, freelance bookkeepers charge between $25 and $50 per hour. If you work with 20 clients at an average rate of $40 per hour, and each client requires 5 hours of work per month, your monthly revenue would be 20 clients x $40/hr x 5 hours = $4,000.
Your expenses could include software subscriptions, which are around $50/month, and possibly a coworking space at $200/month. Add in marketing costs, let’s say $100/month, and a budget for ongoing education and professional development at about $50/month. So, your monthly overhead would be approximately $400.
Now, let’s find the profit. Your monthly revenue of $4,000 minus the $400 in expenses gives you a monthly profit of $3,600. Annually, that’s $43,200.
This is a simplified example, and real-life scenarios will include more variables like taxes and possible employee salaries. However, it provides a reasonable estimate based on typical rates and common expenses in the bookkeeping industry. While the income potential varies greatly based on experience and client base, the relatively low overhead makes bookkeeping a very profitable industry for successful operators.
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 are 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.
Should I use a bookkeeping service agreement with clients?
A contract is a legally binding agreement between two parties. In the case of a bookkeeper and their client, the contract spells out the duties of the bookkeeper, the expectations of the client, and the consequences for breaching the agreement.
Having a contract in place protects both the bookkeeper and the client by ensuring that there is a clear understanding of the relationship between them. Without a contract, either party could make demands that are outside of the scope of the agreement, or that are simply unrealistic.
A contract also provides a level of protection in case something goes wrong. For example, if the bookkeeper makes an error while working on the client’s books, the contract can help to limit their liability.
An attorney is the best place to help write up a solid bookkeeping service agreement, but you can also find legally reviewed bookkeeping contract templates from companies like RocketLawyer and Law Depot, or searching online.
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?