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The most important part of starting a business as an independent professional is generating revenue. If you’re not focused on generating revenue or finding a way to scale or sustain your revenue generating activities, you aren’t making money. Having your books in order will help you make money because it will teach you how to sustain and grow.
When you become your own boss, you no longer have anyone above you telling you how good of a job you’re doing and how to get a raise – you’re on your own to figure out how to make more money. Fortunately, as an independent professional, your clients and customers will give you feedback and give you some idea of the value you’re providing them. Unfortunately, it’s easy for independent professionals to forget that they’re in business for themselves and they start to view their clients and employers and start doing employee things – like frontloading extra value without demanding extra compensation in return. Here is where good accounting comes into play.
With your books in order, you will have an accurate understanding of what it costs to bring a deliverable. For professionals, the biggest cost is there time – but it definitely isn’t spelled out that way. This is because, from a transactional point of view, owner-operators aren’t charging and paying themselves by the hour. This can give owner-operators the impression that their time is a resource that has some level of renewable abundance (8-12 hours per day, let’s say). It’s easy to think that, to earn more, they must start servicing more customers and clients. And while that is true, they often do without analyzing their costs and pricing. This can lead to an owner-operator being overwhelmed and hiring others to help and yet struggling to make payrolls. Either the company will be unprofitable with the additional help or the additional help will also be overwhelmed and company will experience high staff turnover. This shouldn’t happen and yet this is one of the most common pitfalls for a service business. With proper accounting and recordkeeping, professional businesses would be able to avoid these pitfalls.
Accounting records, on a surface level, will tell business owners how much money they made (or lost) in a given amount of time. While that can be helpful, it’s more helpful to juxtapose revenues against certain costs and time to see what services and activities actually make the company money and which activities are monopolizing time with very little, if any, compensation. Often times, this information can tell a professional which services and clients are lucrative and which are holding them back and force them to make tough choices (ie. moving on from certain clients or sunsetting certain services). While the immediate financial impact of turning down business can hurt, the long-term impact of focusing on better opportunities often results in more profitability and an easier time scaling.
Accounting although important, isn’t something an owner-operator should be spending much of their time on. Yes, it is possible for an independent professional to do their own books and taxes and I’ve seen some do it proficiently. But keep in mind that individuals who choose to DIY are also choosing to trade away their professional, billable time. In the beginning phases of starting as an independent professional, this will almost be necessary, but as soon as client work comes in regularly, it would behoove them to consider hiring a professional to help them with their accounting. Fortunately, many independent professionals come to this conclusion on their own.
I founded KE Consulting with the understanding that professionals need to spend more time doing what they do best. They don’t want to be bogged down by tax filings, surprise tax bills and bookkeeping and even analyzing their pricing models – they just want to work, manage and grow. That’s where we come in, and that’s what we’re paid to do.