How to Start a Bookkeeping Business
The digital age has brought endless possibilities to start online businesses of all shapes and sizes, so there’s something out there for all types of people.
If you’ve got a knack for numbers and a good head for organization, starting a bookkeeping business might just be the right choice for you.
It’s also a very in-demand area. All businesses need to keep bookkeeping records by law, and someone has to do that work for them.
It might sound overwhelming to start from scratch, especially if you have no previous experience with running a business or even with bookkeeping, but we’re here to break the process down for you.
Whether you’ve been in the accounting industry for years or you’re considering starting a bookkeeping business with no experience, there’s something for you to learn in this article.
What is a bookkeeping business?
Essentially, bookkeeping is about accounting – helping businesses to ‘balance their books.’
The term encompasses a broad range of services, including the following:
- Managing accounts receivable and accounts payable
- Income tax and self-employment tax preparation
- Invoice preparation
- Supplemental financial reports (e.g. budget)
- Tracking long-term assets (e.g. equipment)
These services fall into three primary categories: balance sheet, income statement, and statement of cash flow.
When the financial year ends, and it’s time to submit taxes, all businesses need accurate records of their income and outgoings.
But there’s more to bookkeeping than this – most business owners don’t just want to know the numbers, they want to understand them, too.
This means looking at assets, liabilities, equity, and profit, and figuring out what they mean for the business in question.
As a result, a bookkeeping business offers the chance to help your clients grow their businesses by offering them advice as well as getting nerdy with the numbers.
It can be an enjoyable and fulfilling career path for the right person.
Starting a Bookkeeping Business
Here are the steps to consider when starting your own bookkeeping business:
The good news is that there aren’t many costs involved in starting a bookkeeping business. Assuming you already have a good laptop, you won’t need to buy much – you can do the work straight from your computer. However, a laptop alone is unlikely to suffice.
Bookkeeping Software: Since most clients will expect you to work with their accounting software, it’s essential you buy or subscribe to the relevant programs. These can be relatively expensive, which is another good reason to only focus on one piece of software.
For example, QuickBooks costs between $15 and $150 depending on the package you choose – and since you’re a professional, it makes sense to choose the Advanced option.
Errors and Omissions Insurance: Another must-have is insurance. Bookkeepers take on a role of serious responsibility since they take care of sensitive information for clients and promise to keep records accurately. If you make any mistakes, this could have serious consequences, and your client might end up suing you. Insurance protects you in the event this happens. The name of the insurance policy you’ll need is errors and omissions insurance, which usually goes for a cost of around $200 a year.
Training/Certification Classes: If you’re entirely new to bookkeeping, there may be some further expenses involved. You might want to carry out training or take a certification to demonstrate your capabilities if you don’t have the experience to back them up. We’ll go more into this later.
Finally, there are a few optional, but not essential, costs you might want to consider:
- Business Cards
- Office Supplies
- Website Creation and Hosting
- Email account linked to your domain
- Computer Safety Software (disk encryption, password management)
- Business Start-Up Costs
There are a few different ways you could structure a bookkeeping business.
- Sole Proprietorship: The simplest option is to start as a sole proprietorship – this means you’re a self-employed individual rather than a business. Although it’s easier to set up as a sole proprietor, it can also be riskier since you’ll be personally responsible for anything that goes wrong with the company. For example, if someone sues you, you could potentially go bankrupt and lose all your assets.
- Limited Liability Company (LLC): If you want to go down the route of being a full-blown business, you could launch a limited liability company (LLC), which is the most popular choice. As the name suggests, you won’t be personally liable for anything that goes wrong – even if the business goes bankrupt, you can keep your personal savings. Choosing to become an LLC results in greater startup costs than a sole proprietorship, as you’ll need to pay to get your business license, taxes, and registration. You’ll also need a business checking account. However, it’s likely to increase your earning potential since clients will see you differently to how they might see a lone entrepreneur.
- S-Corporation (S-corp): You could set up as an S-corporation (S-corp): a business that passes income, losses, deductions, and credits through shareholders for federal tax. This sounds slightly complicated, but it basically means that profits can be paid as dividends, a way to reduce your personal tax bill. In addition, a C-corporation is a structure designed for large entities; it’s unlikely to be applicable to your business, at least not for a few years.
You can’t expect to earn a living from bookkeeping unless you actually know how to bookkeep. If you want an in-depth idea of the principles of bookkeeping then it’s a good idea to consult a training program or book on the topic, but here are some key aspects.
Double-entry bookkeeping is a way of accounting that ensures you do every transaction and formula twice to minimize the possibility of errors. If a firm buys something as a business expense, this needs to be recorded both as one asset (cash) being spent and another asset (the purchase) being obtained. Make sense?
You’ll also find yourself having to prepare general ledgers, or a record of each transaction the company makes – including the date, description, quantity, and price. This is almost always done using online bookkeeping software to make it easier.
Similarly, classifying business transactions is an important part of bookkeeping. Different classifications include profit-making, sales and expenses, investing, and financing activities.
There’s no need to panic if these concepts are completely new to you – everyone has to start somewhere, after all.
You’ll also need certain soft skills like accuracy, reliability, and organization. Since bookkeeping involves working with sensitive information and keeping it confidential, you’ll need to project yourself as a professional who they can trust.
Yet it’s not just about how good you are at your job and how professional you are. You also need to be likable. While working as a bookkeeper, you’ll often be sitting one-on-one with your clients – if you have zero social skills and they don’t enjoy spending time with you, they might find the experience uncomfortable and want to go elsewhere next time.
This doesn’t mean you have to put on a mega-extroverted, charismatic front if that’s not who you are. Listening to the problems of your customers and enjoying helping them will take a weight off their shoulders and show them you’re genuine and truly care.
Bond over the fact you’re both entrepreneurs and willing to do anything for your businesses.
These days most businesses work with some form of accounting software, so being familiar with these programs is a must. It’s tempting to learn how to use every single piece of accounting software out there, but in reality, quality is often better than quantity.
If you not only know how to use the program but also aim for an in-depth understanding, you can position yourself as an expert. Clients may be suspicious of somebody claiming to know how to use ten different programs. For this tactic to make sense, ensure you choose a popular piece of software!
QuickBooks is probably the biggest player on the market, and that is who we recommend you use for your business.
Where Can I Learn The Skills Needed To Started a Bookkeeping Business?
First, we want to make it clear that there are no laws or regulations requiring that bookkeepers hold a specific license or certification to operate.
So, theoretically, whoever you are and whatever experience you have or do not have, you could start your bookkeeping business right now and start working from home.
Of course, if you really have no experience or knowledge, doing this would be irresponsible, to say the least.
The good news is, there’s a wealth of resources out there for you to become a certified bookkeeper, which will only make your business more profitable in the long run:
Bookkeepers.com is a website full of online resources tailored to those who want to launch an online bookkeeping business. Whether you’re completely new to the world of bookkeeping or you’re a professional who wants to take things to the next level, there will be something suitable for you on the site.
Their ‘Bookkeeper Launch’ course is one of the best products out there for learning how to launch a virtual bookkeeping business in the twenty-first century. The program covers everything you need to know to build your company from scratch – there’s a three-pronged approach encompassing learning bookkeeping skills, building efficient systems to run your business, and marketing to prospective clients.
If you’d like to test it out before buying, there’s even a free intro class, so you can be sure the style will look for you before you commit yourself.
The ‘Bookkeeper Lab’ is a program for people who want to go from being a standard bookkeeper to building a thriving business. You’ll have access to a great community and advanced learning content. However, you’ll need to have at least five clients already to join it.
Finally, the ‘Bookkeeper Elite’ is for those who are already running a successful business but want it to be self-sustaining enough to run without them. This membership includes regular meetups and entry to a mastermind, as well as the most advanced strategies available.
Accounting Program Certifications
Some accounting programs offer their own certifications. If you’re planning on specializing in a single piece of software, then it could be a smart move to obtain such a qualification; potential clients will recognize the name and feel reassured that you know your way around the program.
QuickBooks Online offers the chance to get certified as a QuickBooks ProAdvisor through a series of comprehensive training courses. Once you’re qualified, QuickBooks will place you on their ‘Find a ProAdvisor’ site for free, increasing your probability of finding clients. There are other perks, too, like a discounted Squarespace website builder and email marketing service.
Likewise, Xero offers a Xero Advisor certification, which teaches you how to use Xero and find clients. There are a few different levels you can go through, depending on how many clients you have, so there’s something there for everyone to learn.
Courses and certifications are great for learning the fundamentals of bookkeeping, but sometimes you might feel like you need support or to ask questions – that’s when you might find a community to be useful.
These days you can search for a Facebook group about everything from baking cakes to watching Game of Thrones. Bookkeeping is no exception! Searching for a bookkeeping professionals group on any social media – especially Facebook and LinkedIn – can be a great way to find other people working in the same industry.
Let’s face it – entrepreneurship can be lonely. Even if you’re meeting with clients every day, it can be isolating if there is no one there to share the burden of your business with. Don’t be shy to reach out to others or ask for advice if you have any doubts or just want someone to talk to.
Which Software For Bookkeeping Should I Use?
There are a few pieces of great software available for bookkeeping purposes. If you’re not sure which to use, you’ll be pleased to know that most of these services offer a free trial for at least a month.
Potentially you could try them all out for a full month each before deciding which to purchase, but in reality, this might be unwise if you want consistency with your finances.
As mentioned previously, Quickbooks is the biggest and most popular software used by bookkeepers and businesses. It’s been a leader in the industry for a while, and with good reason – it has a huge number of features available.
You can use QuickBooks for a range of tasks, including tracking project profitability, managing bills, invoicing and payments, monitoring cash flow, finding tax deductions, and calculating professional estimates. Depending on which plan you choose, you may not find all the features available.
There’s both an online and desktop application you can use, but it’s best to choose the online version.
Quickbooks Plan Options:
- Self-employed: $15 a month
- Simple Start: $25 a month
- Essentials: $20 a month
- Plus: $35 a month
- Advanced: $150 a month
You’ll also have access to tutorials and webinars to ensure you continuously learn more about your trade.
Xero is another huge name in the world of accounting software. As you’d expect, it works very similarly to QuickBooks. They both have cloud-based, mobile features available and are almost identical – you can manage invoices, projects, bank connections, inventories, expenses, bills, and more.
However, there are a few subtle differences. QuickBooks is better for invoicing and project management, and offers some features Xero doesn’t, like tax support and lending. On the other hand, Xero lets you add more users to one account for less – an important consideration if you want to have a larger business with employees.
They also have a few price plans. At first glance, Xero seems cheaper overall than QuickBooks, but that’s because their cheapest plan is very limited. In reality, QuickBooks is cheaper for smaller businesses, and Xero is cheaper for larger businesses.
Xero Plan Options:
- Early: $9 a month
- Growing: $30 a month
- Established: $60 a month
Sage One is another piece of software that bookkeepers should be aware of. It’s slightly different from QuickBooks and Xero since Sage excels in its project management and invoicing features and but has a more basic approach to bookkeeping.
As a result, it’s probably not going to be your program of choice as a professional bookkeeper – but it’s smart to know what it is and how it works in case you encounter clients who use it.
Sage One Plan Options:
- Accounting Start: $10/month
- Accounting Standard: $25/month
The former is primarily for sending invoices, along with the ability to track what clients owe you, whilst the latter also allows you to generate reports, estimates, and cash flow statements.
Although you’ll hear about accounting software like Quickbooks and Sage the most, there are also a few programs designed for more niche uses.
Bill.com is a site for handling accounts payable and receivable, which also integrates with the accounting software named above.
They let you process bills in the cloud for clients and approve them without anyone needing to print or mail checks.
Bill.com Plan Options:
- Essentials Plan: $39/month
- Team Plan: $49/month
- Corporate Plan: $69/month
- Enterprise Plan: Custom Fit for Your Needs, Price Varies
Hubdoc automates the process of obtaining and downloading bank statements. Even though accounting software connects with bank accounts, it’s not enough to know the income and outgoings of a business – you’ll also need to access the source documentation.
It can be time-consuming to do this manually, so Hubdoc fills in a useful gap. They also download bills, receipts, and emails.
Hubdoc Plan Options
Unlike the other software discussed, Insightly doesn’t directly help with the bookkeeping process – instead, it’s a customer relationship management (CRM) and project management tool.
If you have lots of clients and projects to work on at once, it’s easy to lose track of what you’re doing. But having a tool like Insightly is vital for keeping on top of everything without wasting time.
Use it to track leads, set tasks, and manage your sales funnel.
Insightly Plan Options:
- Marketing: price not disclosed
- CRM: price not disclosed
- Build Your Bundle: price not disclosed
Starting a Bookkeeping Business FAQs
How much does a bookkeeper charge per hour?
As with most services, the amount you can charge for your bookkeeping business depends on your level of skill and experience.
According to the Bureau of Labor Statistics, the average bookkeeper can expect to earn $18.87 an hour – this won’t quite make you rich, but it’s not bad for a basic starting salary. If you’re successful at building your business and attracting high-quality clients, you could easily charge more.
Bookkeepers.com has trained more than four thousand bookkeepers, and claim that the average hourly rate for their graduates is $60 an hour. Not bad!
Of course, bear in mind that, as a business owner, you’ll need to cover your business costs and pay more taxes. A portion of your wages will go toward business expenses, so you should expect to earn more than an employee would.
How much can you make with a bookkeeping business?
When you start a bookkeeping business, there are a few different approaches you can take. You can approach your business as a chance to be self-employed and create work for yourself, or you can aim to hire employees and eventually create a self-sufficient business.
If you choose the latter, the profit of your business will be limited to your hourly rate – so, if you earned the average rate of $18.87 an hour, you could expect to make around $49,000 in a year. You could feasibly make a six-figure salary if you work a lot, and you’re an excellent bookkeeper, but ultimately your salary will be capped.
On the other hand, if you create a self-sufficient business, the earning potential of your business will be unlimited – you can continue to hire employees and expand your operations without even having to do anything yourself! Of course, this is a challenging route that not many people will be able to take.
Is bookkeeping a profitable business?
The earning potential of bookkeepers and their businesses proves that it’s certainly a profitable area. At the end of the day, businesses will always need to record their profits, and doing this requires a bookkeeper. It’s about as safe an industry as you could find, and having a steady flow of clients means there’s a good chance of making a healthy profit.
Of course, you can’t run a profitable business unless you’re good at what you do, no matter how much potential the industry has. Before you decide to pursue a bookkeeping business, you need to make sure it suits your skillset and strengths.
Is starting a bookkeeping business a good idea?
Having the ability to run a successful bookkeeping business depends on your skillset and experience in the field. If you already have a substantial professional background behind you, then you have a greater chance of making things work than somebody who only learned what bookkeeping was yesterday.
Having said that, even if you fit into the second category, don’t rule out the possibility of starting a bookkeeping business. You might have to work for free and undergo training before you can make the business work, so don’t quit your day job immediately, but remember that everyone has to start somewhere.
Do I need a degree to become a bookkeeper?
In a word, no, you do not need a degree to become a bookkeeper. Of course, a degree in a relevant subject, like accounting or finance, will be advantageous. It’s a signal to clients that you’re serious about what you do and that you know your craft. But, at the end of the day, that’s all it is: a signal.
It might be slightly harder for you to find your first client if you don’t have a degree, but once you have your first client and some experience and testimonials behind you, future prospects are unlikely to even ask whether you have a degree.
Pros and Cons of Starting a Booking Business
If you’re still unsure of whether bookkeeping is the right choice for you, let’s break down some of the advantages and disadvantages.
- Low startup costs
- Lots of demand
- Easy to establish steady clients
- Possible to work virtually and flexibly
- Certification and experience not necessary
- High responsibility
- Chance of error or being sued
- Need to keep client data secure
- May require expensive software
Should You Start a Bookkeeping Business?
There’s little doubt that the world of online bookkeeping jobs offers an exciting and profitable opportunity. For many people, the idea of working on your own terms to your own schedule while helping clients and earning a great income sounds like a dream come true. And you really could have all those things.
But there is a caveat: bookkeeping is a specialized skill and requires a certain type of person. You need to be not only a numbers person but also a people person – it’s an unusual combination that few people have.
In addition, you have to be motivated and tough enough to go through the process of setting up your business alone, which is an isolating experience for many people.
If you think you meet all the above criteria, then congratulations – you have a skill set which is in short supply and high demand. If not, you might want to think about what your biggest strengths are and consider starting a different business instead.