Starting a Process Service Business? Welcome to Financial Management 101

Author:  Richard Farrell, is the driving force behind our mission to help process servers achieve consistent quality in service of process. His extensive experience in training and education development brings a modern approach to finding practical solutions to the process service industry.
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​Starting a small business is a big adventure, and process service is no exception.  Perhaps you have experience in law enforcement or investigations. Maybe you are a private investigator or a retired veteran who runs a process service business. The startup of any small business involves a big learning curve. You have the experience, the background and the passion to build and grow your process service business, but how are you with managing finances and other business basics?

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According to a U.S. bank study, more than eight out of 10 new businesses fail because of poor cash-flow management. Don’t let your new business fall prey to that likelihood. From bookkeeping strategies to financing options, here’s what you need to know to set your process service business up for success.

Understand Cash Flows.
Cash flow is the lifeblood of any business, including process serving. In essence, cash flow is any money coming in or going out of your business’s hands during a certain time period. Money coming in is known as positive cash flow; money going out, negative cash flow. Obviously, the goal of any process serving business is to have more positive than negative cash flow.

For many process servers who are just getting started, the early stages of operation may be defined by lots of negative cash flow, as you make investments in equipment, inventory or marketing all the while trying to build your customer base. The risk in not understanding your cash flow — and, consequently, why so many new businesses fail — is running into a situation where you have more money going out, whether to pay rent, utilities, other process servers or so on, than you have coming in, on hand or access to by other means, such as via bank overdraft protection or a short-term small business loan. 

Particularly for businesses that experience a lot of seasonality, and process serving definitely has its ups and downs in volume, understanding how your cash flow varies throughout the year will help your process service business make the most of the strong-sales months and better able to weather the weak-sales periods. Just another reason you’ll stand to benefit from meticulous bookkeeping.

Keep the Books.
Getting a firm grasp on all aspects of your process serving business’ cash flow is critical to its ongoing success for a myriad of reasons, and you should establish an airtight method for logging money coming in versus money going out. 

Having your process service business key numbers at your fingertips will be helpful for all manner of business matters, including keeping track of unpaid payments, scheduling expenditures, cutting wasteful spending, identifying your most profitable services or routes, helping secure investments or business loans, and many other important tasks.

Keeping the books, or accounting, is simply the process of recording all the financial transactions pertaining to your process serving business, and you’ll need to decide whether you’re up to the task or would benefit from a professional’s assistance.

The number one problem shared among entrepreneurs today is finding, vetting, hiring, and retaining expertise. For many small- to mid-size process serving companies, a cloud-based accounting service like QuickBooks is a cost-effective service that makes bookkeeping easy. As your process service business grows, you may want to consult with a certified accountant in addition to using a cloud-based accounting service.

QuickBooks’ software allows you to track your process serving business' sales, invoices, bill payments, employees’ wages, other process server payments, loan repayments and so much more. And, because they’re part of the Intuit suite of software products, you can easily roll relevant numbers over to another one of their products, TurboTax, come tax time.

But QuickBooks isn’t the only option, and other bookkeeping software services may be a better fit for your process serving business. Some of other options include:

• FreshBooks may be more user-friendly if you’re a sole proprietor or a very small process service business. 
• Sage may suit you better if your business requires sophisticated tracking capabilities for your process service jobs.
• Zoho has an especially good mobile interface if you’re accustomed to using a smartphone for a lot of your process serving business activities.
• Wave may be more cost-friendly with its array of free services. Another advantage is that many of these programs can auto-generate reports like cash-flow projections at the click of a button.

Don’t Forget about Taxes.
Does using an accounting software service eliminate the need for a professional accountant for your process serving business? Definitely not, especially if you have a unique or complex tax situation. 

While your accounting software may integrate nicely with tax-prep software and having all your process serving business figures documented and in one place will surely expedite preparing your taxes, tax codes change frequently and only a certified CPA can advise you on the most advantageous filing. Plus, going through a CPA limits your liability. Speaking of taxes, what kind of taxes should you be prepared to pay as a process server?

As a small process serving business owner, your business is likely categorized as a Sole Proprietorship, Partnership (Limited and Limited Liability), Limited Liability Corporation (LLC) or S-Corporation. All of those categories are considered “pass-through entities” for federal tax purposes and must pay an income tax for the owner’s personal income tax rate. If you’re expecting to owe more than $1,000 in income tax in a year, then you should pay these as estimated taxes according to the IRS’s timetable in order to avoid penalties and interest. Additionally, if you have employees, you’ll be responsible for employment taxes, which includes Social Security and Medicare taxes, Federal Unemployment Tax (FUTA), and their income tax. While technically that last one is paid by employees and withheld from their wages, you’re the one who needs to see that it gets to the U.S. government.

Know Your Financing Options as a Last Resort.
At some point you may need to inject outside cash into your process serving business, whether to cover a short-term cash flow problem or to invest for future growth. We advise you do that only as a last resort! At that point, it’s good to know the range of financing options available. Here are the most common types of financing for small businesses including process service:

• Bank loans: This is one of the most traditional financing options for small businesses. With good credit, your business should be able to choose from a variety loan types, terms and repayment options from a wide variety of lenders. In extreme cases, where money is needed immediately, such as to cover payroll or emergency expenses, short-term business loan options may be available, though the risk will be greater.
• Small-Business Grants: Even better than a small business loan is a small business grant, since a grant doesn’t need to be paid back. The catch is you’ll have to research grants currently accepting proposals, make sure you meet all the criteria, complete the application, and win against other applicants seeking that same funding. Many non-profits have full-time grant writers for this express task.
• Crowdfunding: An unconventional source of financing that’s gaining in popularity, crowdfunding basically asks for small-scale donations from as many people as possible through websites like Kickstarter, Indiegogo, or GoFundMe. Typically, a business seeking crowdfunding offers something in return for a donation, whether it’s future merchandise from the company or exclusive membership perks. Many new business ventures go this route pre-launch to help get their company up and running. 
• Venture Capital: If you think your small business has high-growth potential, then you may be able to seek out venture capital from professional investors. The funding can be significant, much more than a typical small business grant, and may often come with expert guidance from the investors, though they’ll typically want a stake in the company in return, which may also involve ceding some of the decision-making power.

Taking charge of your process serving business’ finances shouldn’t be a headache, and it should be about a whole lot more than just keeping the lights on. With the financial data at your fingertips, you should feel empowered to make strategic decisions for long-term business success.

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​Source: Entrepreneur