From the Best-Selling Author of The E-Myth SAMPLE CHAPTER Myth Bookkeeper Why Most Bookkeeping Practices Don t Work and What to Do About It MICHAEL E. GERBER
C h a p t e r 6 The Bookkeeping Business Journey Debbie Roberts Peter Cook This journey has always been about reaching your own other shore no matter what it is, and that dream continues. Diana Nyad As Michael says, having a plan in place is critical, and yet most of us are guilty of starting our bookkeeping business without a plan. As you can see in Debbie s story, we include ourselves in that bucket. Even when we started doing Debbie s planning annually, it didn t come easily. Deb s Story Every year in January, Pete and I would have a full-day planning session. Although I knew that it was necessary to set goals for the year, it was not something that I particularly looked 49
50 The E-Myth Bookkeeper forward to. I felt more comfortable in the details of the work rather than looking at the big picture. I knew that was because I was a technician, as Michael explains in The E-Myth. But making decisions was excruciating when I had to provide the answers for difficult questions like How much turnover do you want to achieve by the end of the year? What is the right number? Bookkeeping is about right and wrong. It s clear cut. It either balances or it doesn t, which is the way it should be when you re actually doing the bookkeeping. However, when you set goals as the leader of your business, it s not about being right or wrong. Pete helped me understand that I had to change my mindset from being a technician to being the leader of my business, how important it was to set goals and to create the vision that unites and inspires the team. The main reason I was afraid of setting goals was that I feared failure. How would that make me look if I said I was aiming for a goal and then didn t reach it? What would people think of me? Pete helped me understand three things. First, most people fail to set goals because they fear failure. The reality is that no one really cares if you achieve your goals or not. They are your goals. You own them. They are there to keep you and your business on track they have nothing to do with anyone else. Second, he explained that if I didn t set a goal, it would be like jumping in a car and going on a journey, but not knowing the destination. How will you set the navigation in the car if you don t know where you re headed? Third, he explained that you are more likely to get close to your goal if you set one first. So if I set a goal to go from $300,000 to $400,000 in a year but failed and reached, say, $380,000, would I still be happy with that? Yes, of course! He helped put the whole process in perspective. After we set the goals, I put on my manager s hat, and Pete and I worked together on the strategy that would make them happen. We would go into great detail about how many clients I would need, what type of clients, and how many bookkeepers I would need. We set
The Bookkeeping Business Journey 51 budgets and key performance indicators (KPIs) to measure the progress and then looked at the figures each month to see if we were on track. To help you create your plan and vision, we ve added a template to record your twelve-month and five-year visions, as well as a video of Pete taking you through that vision exercise. You ll find them at www.purebookkeeping.com/emyth. When you plan the growth of your bookkeeping business, it s useful to understand the nature of your journey. Bookkeeping Business Journey Successful Practice Successful Business Profit Start Up Transition to Business Leverage We think about the bookkeeping business journey in terms of profit and leverage. Earlier, we talked about profit this is the money you get to keep. And in this case, we define profit fairly loosely as the money that ends up in your pocket (whether that s as salary, drawings or profit paid as a dividend). Leverage in a bookkeeping business comes primarily from having other bookkeepers working in your business.
52 The E-Myth Bookkeeper Startup The first phase of the bookkeeping business journey is startup. Obviously, when you begin your bookkeeping practice, you re not making much (if any) money, and you have no leverage. It s just you. During the startup phase, bookkeepers usually lack confidence. Typically, when they start their business, bookkeepers have been trained in bookkeeping and have experience as bookkeepers in Michael s language, a classic technician. However, most bookkeepers don t have any experience or training in running a business: in management, marketing, sales, HR, and so on. And, like Debbie, many bookkeepers don t even know if they are good enough at the bookkeeping itself to make a go of it on their own. So their confidence is understandably low, and that generally leads to bookkeepers not charging their clients enough in the startup phase. Also in this phase, we mostly see bookkeepers who don t have any systems in place. They don t have systems for how to do the bookkeeping itself, how to do the marketing, or how to run the business. Successful Practice The next phase is being a successful practice. We define a practice as you working on your own, and a business is when you have other bookkeepers working for you. Your practice is successful when your books are full and you are billing clients for most of your hours thirty to thirty-five hours a week. At the successful practice stage, the profit is obviously higher. However, there is still no leverage. It s still just you. Most bookkeepers who do a good job and look after their clients will grow by word of mouth and eventually get to the successful practice stage. Our benchmark for this phase is turning over $100,000, of which $80,000 should be profit. In other words, on your own, working from home, your expenses should be less than 20 percent of
The Bookkeeping Business Journey 53 revenue, or in this case less than $20,000. If you follow the advice in this book and charge accordingly, you should be able to turn over at least $100,000 on your own. This is the stage at which most bookkeepers decide to transition their practice into becoming a business. Transition to Business What usually happens at this point is that your schedule is totally full. You often work nights and weekends, tax time is a nightmare, and still more people are lining up to ask you to do their bookkeeping. So you think, I know, I ll hire another bookkeeper. And most of us have the fantasy that when we do that, our profit will keep going up, but our hours will go down. Unfortunately, in the transition to business phase, the opposite happens. We see lots of bookkeepers with two or three or four bookkeepers on their team, who are actually making less money than they were on their own. That was definitely the case for Debbie in her business. And even worse, they work harder. They still look after their own clients, but also check the work of their team. And try to get the administration done, and manage the team, manage the clients, and still try to do some marketing and sales to grow the business. Of course, stress levels are rising, too. Without the right systems in place, and without charging your clients appropriately, this phase can be a disaster. We want your dip in profits as you engage a team to be as shallow and brief as possible before you move into the successful business phase. Successful Business As we said earlier, a successful practice is just you, with a full schedule, charging thirty to thirty-five hours a week and turning over $100,000.
54 The E-Myth Bookkeeper A successful business is you with a team of bookkeepers. And really, we need to have at least three or four other bookkeepers in the business to make it worthwhile to transition from a practice to a business. In the successful business phase, we want to be turning over $300,000 to $1 million plus, and taking home $150,000 to $400,000 plus. Typically, a bookkeeping business in the successful business phase has great systems in place for how to do the bookkeeping, sales and marketing, HR, and management. The other advantage of the successful business is that you have an asset that you can sell. Somebody looking to buy a bookkeeping business will pay a lot more for a successful business than simply for a successful practice. After all, if someone buys your practice, they are essentially buying a list of clients and a job. As you move through the bookkeeping business journey, it is crucial to understand what business you are in. Empowering Business Owners around Their Finances Michael talked about this critical piece of your business plan being clear about the business you are creating and its purpose. In other words, what business are you in? We don t think you re in the bookkeeping business. We think you are in the business of providing business owners with impeccable books. Of course, the bookkeeping is part of it, but it s not the end in and of itself. The bookkeeping is a means of empowering business owners around their finances. There are three elements to achieving this. The first is to provide your clients with impeccable books. You are probably thinking, Of course. That s what I do. But don t take that for granted. Not all bookkeepers do this. Just about every bookkeeper we ve ever spoken to has cleaned up messes left behind by bad bookkeepers. We bet you have, too.
The Bookkeeping Business Journey 55 Because of your skills, experience, and education, you are in a position to provide your clients with reliable information. For some clients, this will be the first time they have been up-to-date with their figures. The second element is providing your clients with the right information at the right time. There is information in the financial reports that a business owner needs in order to run a business, and, as the bookkeeper, it s your job to provide this. However, this can be challenging. The client doesn t necessarily want to spend time reading (let alone understanding) financial reports. There are some clients you have to tie to the chair in order to show them a Profit and Loss statement, and they won t go near the Balance Sheet! However, if you are in the business of empowering your clients around their finances, it s imperative that you overcome this resistance and put the right financial information in front of your clients. The information in their financial reports is critical to their ability to make informed, strategic decisions in their business, and you are the only person who can provide that information in a timely manner. The third element is to educate your clients so that they understand the information and also the importance of the work you do. Every business owner knows how important money is to her or his business. If you talk to them about income, profit, cash flow, and equity, they will agree that each of these is vitally important. And yet many business owners have almost no understanding of how the different elements of money work in their business, or how they fit together. The sad fact is that many business owners look at their Accounts Receivable (how much money they are owed) and their bank balance... and that s it. It s like trying to drive a car without a fuel gauge, a speedometer, a temperature gauge, or any mirrors, and only being able to see out of half the windshield. No wonder so many businesses get into trouble. Part of your job is to remedy this. Slowly, over time, bit by bit, install the fuel gauge, and then the speedometer, and so on, and teach your client how to use them. Then, not only do you empower your
56 The E-Myth Bookkeeper clients around their finances, you become an irreplaceable strategic partner in their business and life. Most bookkeepers only aspire to the first of these three elements providing impeccable books. If that is all you do, then you are a commodity. If a prospective client is talking to two bookkeepers, both of whom provide impeccable books, they are ostensibly the same. The client can then simply shop on price. However, if you are in the business of empowering this prospective client around their finances, if you not only provide impeccable books but you also use those books to provide the right information at the right time and educate your clients so they can understand and use that information... then it s a whole different game. Then you sell value rather than a commodity, and you can charge accordingly. Now that we ve seen what business you re in and the nature of the bookkeeping business journey, let s see what Michael has to say about managing that journey.