Payroll continues to be one of the most talked about topics in the profession—earning exposure in trade publications and across educational forums -- and there is good reason for this.
The fact is payroll is a “money tree” service, that is, it’s an offering that is easy to launch, grows rapidly, and is highly sustainable. Payroll is also an “entry point” service, opening the door to other high-value client offerings such as accounting, tax preparation and planning, and dedicated advisory services.
Despite the hype around payroll, however, the broad profession has yet to embrace payroll as a sound and lucrative revenue generator. And until recently, the answer to why many professionals are still resisting entering the payroll arena has been unclear.
After speaking one-on-one with more than 200 tax and accounting practitioners over the last few years, it’s apparent that resistance to payroll is primarily based on fear— specifically, fear of the bigger commitment to launch a new business.
Accounting professionals have become comfortable with being technicians’ in their firms and handling day-to-day tasks. To move beyond this role means taking steps to initiate and manage a new business, and that can be intimidating.
The fact is that starting a payroll business does not have to be overwhelming. If practitioners adopt the right business model, launching a sustainable payroll venture can happen more quickly than you think—and with far less stress. The key is understanding the common fears associated with launching a payroll business, and then combat those fears with the facts.
Many practitioners still question if payroll offers any real opportunity. That answer is simple: yes, it does. In fact, payroll represents a large untapped revenue stream as many small businesses outsource payroll, first and foremost, based on its complexity. Business owners don’t have the required background to deal with labor relations, tax filings, and ever-changing government regulations. The Affordable Care Act is a good example of a highly complex law that requires in-depth knowledge of staffing and federal payroll reporting requirements.
Also consider that the number of small and midsized businesses is growing in the U.S. and continues to be a viable prospect pool for firms. The United States Census Bureau reported the following statistics: since 1995 small businesses have generated over 65 percent of net new jobs; approximately 543,000 new businesses launch each month.
Large national payroll companies continue to enjoy elevated revenues from the billion-dollar payroll industry. More interestingly, a large amount of business comes from referrals by tax and accounting professionals. Why not keep these clients for yourself instead of handing them over to the large payroll agencies? The opportunity is there and up until now, firms have simply been giving it away.
Upfront investment is another concern among practitioners, but the fact is that payroll is a business that is cost-effective to launch. In general, many other types of business ventures require a sizable investment in both time and money—including procuring commercial space, leasehold improvements, furnishings, equipment, staffing, inventory, training, and development of a business model. Added up, the initial capital investment can be upwards of $250,000 to $500,000 and hundreds of human resource hours.
Payroll is different. The average capital investment to launch a branded payroll business from the ground up is between $50,000 and $100,000. And with the right resources, the business can be fully operational in weeks, not years.
The bottom line is that upfront investment need not be a major concern. There are many sources available to help practitioners launch a successful payroll business without breaking the bank and without costing hundreds of hours in time. It’s advisable to run a projection in order to gain a clear picture of the value of running a payroll practice. Firms may also want do some research into other successful payroll businesses and/or franchise opportunities.
“It’s too hard” is a typical response of a firm partner when approached with the idea of offering payroll. However, if you study the basic business model of an accounting firm versus a payroll firm, you will find that a payroll firm is easier to staff, manage, requires less technical acumen, and is relatively simple to brand, market, and sell. For many practitioners, growing an accounting firm into a million-dollar business is a life-long effort, while it’s possible to build a million-dollar payroll business in less than eight years. Over the past few years, many small and midsized payroll company owners have reported that they have achieved annual revenues of 1M or more in less than 10 years.
Payroll represents an untapped revenue stream currently dominated by large payroll companies and it’s time practitioners took another look at payroll and cash in on this money tree’ service. Fear should no longer be an issue, especially when you look at the number of firms that have successfully launched a payroll business and are reaping the benefits of elevated profits and the assurance of a sustainable business. Launching a payroll business is neither costly nor time draining if the right business model is applied. In fact, payroll is one of the easiest services to manage and sell. Practitioners have the skill and expertise to offer payroll, but continue to hold themselves back based on common myths, including:
1) There is no real opportunity in payroll
2) It’s too costly to launch; and
3) It’s too difficult.
Building and managing a payroll company represents an exciting and lucrative opportunity for firm owners and understanding the real opportunity is just the beginning.
Look for the next installment in this article series, “Wake Up and Smell the Payroll Part 2,” for additional, in-depth insights on managing, marketing, and selling a new payroll business.
Sean Manning, CPA, is owner of Manning & Company, a full-service CPA firm, and Payroll Vault, a full-service payroll company. He has dedicated the past several years to building and perfecting a sustainable, profitable payroll services model. He is a nationally recognized speaker on the topic of payroll services and building a successful business model. Sean can be reached at firstname.lastname@example.org.
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