How to Start a Bookkeeping Business – Do You Need Professional Indemnity Insurance?

If you are in the process of starting a bookkeeping business there are many aspects which you will need to consider. One of the most important insurances you will need to consider for your business is professional indemnity insurance. With out it you might be risking the long term future of your business.

As a service based business, you will be promoting your own professional services and know how to clients. If there is a time where your clients accuse you of substandard work which causes them a loss of some description, professional indemnity insurance is there to help you with this problem.

Historically, professional indemnity insurance for bookkeepers was quite expensive as this type of career choice was seen to be a risky profession. Additionally there was not a lot of choice in the market place for insurers who would even offer professional indemnity insurance and this also meant higher premiums. Consequently, many public practice bookkeepers did not either consider it, or after investigation, they ascertained it was too expensive for their small business.

Fortunately as times have changed and bookkeeping has become a recognized mainstream career choice, it is getting easier to obtain not only a cheaper premium, but there are also more insurers to choose from. In Australia in particular, with the introduction of goods and services tax (GST) in 2000, bookkeeping became widely recognized as many small business people looked for an in house bookkeeper for the first time. With this influx of requests for bookkeepers and more people seeing an opportunity with the relevant skills to start their own small bookkeeping business, professional indemnity insurance has seen a rise of interest and a reduction of premium cost.

If you are starting your own bookkeeping business, professional indemnity insurance can save your business from ruin if there is ever an issue or a time where you may need to make a claim. Since it is such a vital part of any bookkeeping business, it is important to look at different options to source a quote.

If you are a member of a professional association, and I mist admit I highly recommend this for many reasons, your professional body will most likely be able to offer a premium for its members. Many professional associations can provide low premiums due to bulk purchasing power and discounts offered by insurers for obtaining the associations business. If you are not a member of a professional association, you can always research which organizations they use and obtain an independent quote.

Be sure to obtain a number of quotes and look at each policy and assess them against your own needs. Policy prices these days are quite affordable and like any insurance will pay for itself many times over should you ever need to use it.

How to Start a Bookkeeping Business – Your Business Structure

When you are commencing your bookkeeping business, you will need to decide on the structure you will use to trade. Are you going to be a sole trader or are you registering a Company? Will you go into the business in partnership with another bookkeeper and split the profits?

Although most bookkeepers understand the different business structures, it is import to be reminded of the pros and cons of the most popular choices available.

Sole Trader – This is a very popular business start up method due to the minimal cost involved. It is cheap to set up, administer and maintain. In Australia, a sole trader can apply to the Australian Taxation Office (ATO) for their ABN and they are underway.

Additionally if you wish to trade as a sole trader under something other than your own personal name, you can register a business name with the State you operate in. As business names are administered on a State basis if you want to trade in more than one state you will need to register your business name in each state. Being a bookkeeper, this probably will not apply as you will most likely operate in one state only.

Once you have your business name registered, you can then take your certificate of registration and open any accounts you require such as bank accounts and post office box accounts in your business name.

Some of the benefits of being a sole trader include access to personal income tax rates from the profit of your business endeavors, the cheap set up costs and minimal reporting requirements.

One of the biggest downsides to being a sole trader is the lack of asset protection. If anything goes wrong ion the business you are liable and if you are sued you do not have any asset protection. Anything in your name personally is fair game.

Another aspect which you may need to be aware of if ustilising a sole trader structure is the alientation of personal services income legislation. As a sole trader you will need to meet certain requirements to deem yourself a business. As a bookkeeper you may already be aware of this, but it is important to look at the legislation so you can be sure you will be classified as a true business to maximize your deductablilty of expenses in your business.

Company – This is more expensive to set up and administer as there are registration of the company fee payable to the Australian Securities and Investments Commission (ASIC) currently $400 for a Company registration. Then there is an annual filing fee of $65. There are also administrative requirements to run a company as well as the standard ATO reporting.

The main issue for people when choosing a Company set up is the cost and the ongoing administrative requirements. The positive aspect of choosing a company however is the limited liability protection available. This way if anything goes wrong, it is the Company which gets sued and generally not the owner of the business and your personal assets are protected as you are not personally liable for Company debt.

Additionally the taxation rate of a Company can be of influence. Since Companies are taxed at a flat rate of 30%, for some people this is better than their personal taxation rates and it is a positive factor. For others this tax rate may be much higher than their personal tax rates and it is a negative. It just depends on your personal circumstances.

Partnership – Sometimes people want to split the risk of a business venture and going into partnership with others. Predominantly most bookkeepers start out by themselves, but if you are interested in starting your bookkeeping business with someone else you might investigate the partnership opportunities.

Basically the partnership records all the applicable income and expenses and the ending profit is split between the partners and included as income on their personal tax returns. Partnership income is then taxed at your own personal tax rate which for some people is advantageous.

A draw back of a partnership is having to consider the other partners in business decisions. Additionally the partners are jointly and severably liable for any debts of the partnership. This means if you owe money to some one, even if you and your partner split things 50/50, if your partner can’t pay their 50% you are liable for it.

Think about your structure before you start your bookkeeping business and it will serve you well for many years to come.

Bookkeeping Business Secrets For Goal-Setting Success

Goal setting is crucial to the success of any business, but is particularly important for entrepreneurs in the bookkeeping service business who can become distracted with multiple priorities. Goal setting allows us to be proactive, instead of just being reactive. We’ve all had days where we leap from one crisis to another, but we know that’s not a preferred mode of operation for our bookkeeping services! Goals direct actions, give us something to aim for, and serve as a yardstick for measuring our bookkeeping business’s success.

When setting business goals, I use a successful goal-setting formula that a business coach
mentor taught me. The formula incorporates a strategy or strategies for accomplishing the goal: “I will (goal + performance measure) by (specific actions).”

For example, suppose that you want to increase revenue. First specify the goal: “I will increase revenue this month by twenty-five percent.” Setting a specific goal builds in the criteria you will use to evaluate your success.

In this case, at the end of the month, you’ll either have increased sales by twenty-five percent compared to the previous month or not. Then, specify the strategy that you will use to work towards accomplishing the goal: “I will increase sales this month by twenty-five percent by offering a ten-percent-off sale on all inventory and advertising this sale in the local newspapers.”

This makes evaluating your success or failure easy because your goal is specific rather than general. Suddenly, instead of just having a goal that you may or may not achieve, you have a specific plan to follow to achieve the goal you have set.

If you avoid setting goals, here are a few bookkeeping business secrets for goal-setting success:

Bookkeeping Business Secret #1: Have Short-Term and Long-Term Goals

The first thing I do when setting goals is to consider where I would like to be five years from now. Once I have determined my long-term goal or ideal scene, I work backwards by breaking this ideal scene down into short-term goals and specifying milestones that need to be achieved along the way.

If the task seems too daunting with a five-year plan, establish 90-day goals. Limit goals to three specific things that you want to accomplish. Write out each goal and put a due date next to it. Then write out each step that needs to be taken, by when, and what type of support you need to accomplish that goal. Then schedule in your calendar time to honor the commitment you just made to yourself.

Bookkeeping Business Secret #2: Be Relevant

Goals should help you attain a specific aim. Beware of goals that keep you busy but do not contribute directly to the overall goal you have set for yourself and the success of your bookkeeping business. If you don’t believe your goals are worthwhile, you won’t make the necessary effort to achieve them. For example, several years ago I wanted to work a four-day work week. I set the goal, but did not really believe that I could or should work only four days a week. Guess what? It never happened because I was not truly aligned with the goal.

Bookkeeping Business Secret #3: Review Your Goals Constantly

Review your goals daily. Keep them in plain view – by your desk or next to your computer. Goals are not something that you write down and file in a drawer. The more you embody your goals, the more real they become and the more aware you are of opportunities that cross your path to help you achieve those goals.

I write my goals on colorful 4×6 index cards and keep them by my bedside. I read them first thing each morning and then again before I go to sleep at night. This keeps me focused and moving toward my goals.

Bookkeeping Business Secret #4: Stay on Track

Once you establish clear goals you will begin to notice that opportunities begin to present themselves. When this happens, I ask myself a very important question which helps me to decide whether I should look further into the opportunity or let it go – “Does this opportunity bring me closer to my goal or further away from it?”

By asking yourself this simple question, you’ll be able to take decisive action towards accomplishing your goals. For example, a lovely salesperson from ADP has been calling me to schedule a meeting to show me their services and how they have changed. By asking myself, “Does this opportunity bring me closer to my goal or further away from it?” I have no problem deciding whether or not I should schedule the meeting.

Bookkeeping Business Tips For Developing Reliable Financial Projections

Financial forecasting reminds me of the weather – you make your forecast at a moment in time based upon the information currently available. You draw a conclusion and state your financial forecast. But then, the information changes, now it’s raining, and you’re caught without your umbrella!

Financial forecasting, unlike the weather, isn’t a science but it’s not pure guess work either. It is a combination of:

o knowing your business;
o understanding your marketplace;
o setting goals; and
o using common sense.

As a business coach, I know that every small business needs to make reliable financial projections at one time or another. Forecasting is critical during the following stages of a company’s life span:

o when seeking financing
o gauging the profitability of a new product or service
o determining the impact of staff expansion or cutback
o assessing other business decisions

The many components of forecasting boil down to the following five bookkeeping business tips that for years I’ve shared with business coaching clients:

Bookkeeping Business Tip #1: Review Actual Year-To-Date Results

Start by looking at where you’ve been. If you use an accounting program like QuickBooks you can print out a Profit & Loss statement showing year-to-date results. Check the statement for all financial transactions that occurred up to the date of the report. Reconcile the report to your bank statements. (If you don’t use an accounting program or bookkeeping service, then take the difference of the total year-to-date cash receipts and total expenditures. This should equal your profit or loss.) Examine each line item to make sure that it makes sense – is your year-to-date revenue figure where you anticipated, or has it fallen short? Are expenses higher than expected?

Bookkeeping Business Tip #2: Establish Goals and Incorporate into Your Forecast

What do you wish to accomplish by year’s end? Do you want to introduce a new product or service, increase revenue on existing products or services, decrease spending, hire a new employee, outsource a bookkeeping service, or launch a marketing campaign that will position the company for the beginning of next year?

Write out your objectives and then choose three to five which are the most important to accomplish by the end of the year. Determine the needed steps to achieve the objectives. Which Profit & Loss line items will be impacted? Adjust your forecast accordingly. For example, your goal may be to increase revenue 10% by year’s end or to launch a marketing campaign now so its benefits will be felt in the first quarter of 2009.

Bookkeeping Business Tip #3: Forecast Variable Costs

Variable costs are costs that change in step with revenue change. For example, you are selling more widgets; therefore, your labor costs and materials costs will increase in relation to the revenue increase.

Using the concept that Forecast = Projections + Predictions, combined with the knowledge that variable costs change in step with revenues, forecast each month’s variable costs. Forecast each line item separately. Look for opportunities to reduce costs, and be aware of likely future influences on each cost.

Bookkeeping Business Tip #4: Forecast Fixed Expenses

Fixed costs are relatively stable costs that recur every month. Examples of fixed costs are rent, telephone and bookkeeping service fees. Forecast the month’s fixed expenses by using the same concept used to forecast variable costs (Forecast = Projections + Predictions) and the knowledge that fixed expenses tend to be relatively stable and do not change in step with revenues. Again, forecast each line item separately, looking for opportunities to reduce costs, while keeping in mind any likely future influences.

Bookkeeping Business Tip #5: Forecast Net Profit

The final step is to evaluate your forecast for net profit. Is the profit forecast is reasonable and acceptable? If not, re-evaluate each line item including revenues and make appropriate adjustments. Also, anticipate non-operating income and expense items, and include them in your forecast.

Your financial projections may not be perfect at first, but we didn’t learn to walk without falling down. As a business coach I’ve seen others get a few bumps along the way. But I guarantee that if you follow these bookkeeping business tips, set your financial projections on paper and revisit them frequently, you will achieve your goals faster.