Episode 23-- Business Owners – Figuring out a Plan.
Welcome to a different kind of episode this week. Today, we’ll talk about how to shape your business and maybe even come up with a plan that will work for your specific life needs. I’m Paul Rosenblum.
I’m not talking about the traditional business plan. I’ve listened to other podcasts, and I haven’t found another episode anywhere talking about what is on my mind today. So, here goes!
When I started my business back almost 30 years ago, I knew that I wanted to be a freelance bookkeeper, but really didn’t know what kind of client I wanted. I didn’t know if I wanted to build a practice serving larger companies, or smaller companies, or even non-profit organizations. One of my first ‘gigs’ that I got after quitting my very last full-time job was to do bookkeeping at a larger company whose bookkeeping staff was in a separate building than the rest of the company. I was there for a few months and did a good job and they were very happy with me, but I realized that I didn’t love it because I was just a cog in the big accounting machine. I was doing just a little bit of the total accounting picture. I, as well as the accounting, didn’t feel ‘complete’. So, I started to concentrate on smaller companies, where I could do the entire accounting myself and I started building my client base.
I felt much better when I was doing bookkeeping for the entire company, so that I could put the puzzle pieces together and see the entire puzzle when it was finished. I had found my niche.
I do, however, have exceptions -- I do bookkeeping for a couple of larger companies, but 98% of my practice is working with startups or smaller companies. I also know myself very well -- I get bored working on the same thing for more than about 2-3 hours at a time, generally, so I took on companies that I’d estimate would take me less than 2 hours to do the bookkeeping monthly, so that I could then go on to other companies and keep me fresh. That worked and still works for me over the years. However, I also realized quickly that if I work mostly with small businesses or startups, I can’t charge higher rates, even if I thought I deserved it. I had to work with the budgets of the companies (within reason of course).
However, with smaller companies as my base, I needed to build the quantity of clients (as well as the quality at the same time) since I’d charge less than some other bookkeepers charged. There’s a lot more passion for me working with smaller companies than larger ones, because, as I have said in other episodes, smaller companies have ‘personality’, and larger companies have more straightforward bookkeeping and inputting numbers.
Of course, we all have rent to pay, and any business is always about making money and planning for the future. The idea is not to financially martyr yourself by taking on clients for a lower hourly fee, but if that is your decision, then you have to either stick with that philosophy and deal with it, or have a few larger companies in your client portfolio, so that you can charge a higher rate for them.
I have clients whose monthly bookkeeping takes me 20 minutes to do from beginning to end. Do I get frustrated with them because they don’t really want to grow their business to anything larger? No. I can’t do that. I have two choices -- either keep them as a client and get their bookkeeping done monthly and make enough money to buy a cup of coffee each month or drop them as a client. I’ve made the decision to keep them because it’s easy bookkeeping, the client is extremely responsive when I need answers about something, and she pays me whenever I bill her within 48 hours.
I also think about doing the right thing as a human being. It would be almost prejudice against very small businesses if I were not to continue doing their bookkeeping, even though I’m making very little money.
Other small business clients, where the bookkeeping takes me 2 hours per month, I charge them a slightly higher hourly rate than some other businesses because the bookkeeping is tougher and not straightforward, and they are making more money and can afford to pay me more money. As the startups or the smaller businesses grow, I raise my hourly fees knowing that an extra $5 or $10 an hour based on two hours a month, with some additional hours at year end won’t break the bank for them.
Even if a client has a company that I’m doing bookkeeping for and I’m charging them, let’s say -- $65.00 an hour, if they open an additional company and that company is in startup, I will charge them less money per hour, because I realize that each company, even though owned by the same person or persons, have different budgets for services that they need to pay for. I also can’t walk away from them if they are growing their company at a slower rate than I’d personally want to see for them. It’s the ‘potential’ that keeps me going.
So, I think that when you are building a company, one needs to think of who or what kinds of businesses the company that you are creating wants to do work for, especially if you are a service company. Manufacturing a product isn’t really going to be the same matrix, because you are going to sell the product nationally or internationally to all kinds of people and businesses. However, service-based companies can and should have a philosophy about what kinds of clients they would like to serve. Do you want to work with larger companies, or would you rather want to work with smaller companies, or a mixture of both?
I have a bookkeeper friend of mine who has 5 clients, all larger companies. If she loses one of them, it hurts. It’s a bigger part of her financial pie and she’d need to replace that client with someone else ASAP. In my practice, I have so many clients that I’m usually behind and have to prioritize the work that I do. There are clients who never look at their Profit and Loss or Balance Sheets – and there are clients who study them every month when I get finished with their monthly bookkeeping. I have to always think of who needs their reports first, and who can wait, and who really doesn’t care much about reporting. I also have to think of clients who want to be on extension every year, so that I’m not stressing myself working on their books if they are just going to be on extension automatically.
If I lose a client or two, I don’t feel it at all, and that’s the advantage of having a larger number of smaller clients. The disadvantage, as mentioned earlier, is that the hourly charge for them is less than I could be charging, but I’m betting on the fact that they will grow and as they grow, I can raise my hourly fee. It’s a very careful balancing act that I do every day of every month. This is one reason why I offer my advice about building a business, even if it’s not solicited by my clients. As they grow, my fee grows as well 😊
But I do know and understand that I have bills to pay, and inflation in the U.S. has been very high the last 2 years. I have raised hourly fees, but now that it’s December, I will send out email to many clients, telling them that my fees will have to reluctantly go up when I start working on their 2024 books, which will start in Feb or March, so I give people at least 2 months’ notice.
But I do have to admit, that if I ever win a multi-million dollar or a billion-dollar lottery, my hourly fee wouldn’t be important to me at all -- I would do a lot of bookkeeping for free. (Does anyone have a winning lottery ticket that you want to share with me? I’ll do your bookkeeping for free!)
Just a few thoughts here toward the end of the year and the beginning of the next to help shape why you have a business, and what the general shape of that business could be and will be going into the future.
All of this, as business owners, has to be merged with trying to be a good human being on this planet and to try and do the right thing. Easier said than done, in these trying times. But I, of course, digress again. (as usual)
I’m (getting back to bookkeeping now and working toward the end of the year) – Paul Rosenblum