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- How to Offer Cheap Bookkeeping Services
Hey đź‘‹ - Brandon here.
Happy Saturday to 1,796 growth-minded accountants.
Here’s one growth tip for you and your firm.
Today’s issue takes less than 5 minutes to read.
The big news this week was Bench’s sudden closure.
With no notice, a company that serves 35,000 businesses and raised over $100M from VCs shut down. Customers reported being unable to access their data and many were sprinting to find a new accountant.
It’s a good warning to any fintech company entering the space.
Fintech companies offering bookkeeping services are not tech companies… they are service companies. And if they aren’t diligent enough to adjust their pricing and business models to accommodate this nuance, they will go the same way as Bench.
Tech companies burn incredible amounts of cash acquiring customers.
But once they have a customer locked in on their software there is relatively little ongoing cost to service that customer. In this model, the goal is to acquire as many customers as fast as possible without regard to cost because the ongoing contract fees often come with 70%+ gross margins.
Service companies don’t work like that.
To run a low cost bookkeeping service like Bench, you are easily looking at 50-60% direct labor cost to deliver the service. This cost is incurred every single month, forever, not just upfront when acquiring the customer.
The solution deployed by fintech companies to overcome this fact is to automate their way to higher gross margins.
But you can’t automate accounting when the inputs are trash. Garbage in = garbage out. Even in the face of the AI revolution, I think accountants have strong job security mainly due to this fact.
Eventually, the fintech company gets stuck.
They can’t raise prices without significantly sacrificing growth (and their VCs won’t like that). They are still spending tons of money on customer acquisition, technical debt, and building custom tech solutions. They can’t automate the accounting like they thought they could, so they are stuck with low gross margins. And they can’t offer higher quality work because they can’t afford the higher quality talent - this leaves them susceptible to churn, refunds, and chargebacks.
It’s a recipe for disaster.
That said, I think accounting firms could go downmarket successfully. You may not want to help those customers as they tend to be price sensitive and needy. But it’s clear the TAM is huge and if you figure out how to win at scale you will win big.
Three ideas for you to consider if you want to move downstream:
Offer fractional bookkeeping services to CPA firms. Let the CPAs deal with the client interactions… you focus on setting up a streamlined back office that CPAs can plug into.
Hire accountants who want work life balance and are willing to trade career paths and high salaries for it. Have them manage a small book of clients and the offshore team of 2-3 that will help deliver the work monthly. And give them a bit of equity so they have upside. Net margins would be low, but I bet you could scale this to the moon.
Become an offshoring expert. If you could get the bookkeeping and the review work done offshore, your U.S. team will have a lot more time to provide better customer service and identify advisory opportunities. The litmus test for success here is: if your U.S. team was not allowed to open up the accounting software, could your team produce high quality work?
That's all for this Sunday. See you next week.
Cheers,
Brandon
Ready to grow your firm? Here’s how I can help:
→ Apply to join four15, the community I launched for ambitious firm owners doing $1M+ in revenue (23/30 spots filled)
→ Book a demo to get accurate salary data from B4Transparency so you can always attract top talent by paying top of market (I own a minority stake)
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