7 Tips for Starting Your Own Payroll Service Bureau

Have you been selling payroll services for years and often thought ‘why do I have to sell so many new accounts every month, while the owner collects recurring revenue forever?’ Or maybe you’ve been processing payroll at a large corporation or service bureau and wondering, “Couldn’t I run a payroll business myself?’ Perhaps you are a CPA with clients begging you to do their payroll because they trust you as an advisor. Like Dorothy in the Wizard of Oz, you can see where you want to go, but you must overcome fears of lions…tigers…and bears (oh my) to start your journey to success. If you’re considering becoming the Wizard of your own payroll business, read on for seven tips to help you make your startup a reality. 

John Mason-Smith is the owner and managing director of Astra Payroll Services, founded in January 2019 in Richmond, Virginia. Prior to starting his own payroll bureau, John was a highly successful salesperson specializing in payroll software sales for nine years. Recently, he shared insights he’s learned from his first two years running his own payroll bureau startup.  

Tip #1: Start With a Plan

Before you launch your own payroll bureau, define your objectives, take stock of your resources, and create a business plan. If this will be your first business ownership role, the first year will probably feel like riding a tornado—fast and chaotic. Having that solid business plan in place will help you stay focused on the most important next steps.

In the case of Astra Payroll, John and his wife had saved capital to get the business started. And he knew his sales skills were strong. Consequently, their business plan involved starting with the core payroll service only, no partners and no outside funding. As John described the plan, “We don’t need to make money right away, but let’s not go into debt. We strategically launched this company with the idea of we’re going to grow it organically because we could afford to do that.”  

There were two top priorities at first: stop losing money and provide exceptional client service. Both objectives have been accomplished. Astra Payroll Services has taken on additional products and services, including HR consulting, background screening, and time clocks as customers have expressed the need for them. 

Astra Payroll Services lets John live a lifestyle he enjoys, with time for family and other business pursuits as well as the ability to get to know his small business clients. Long-term, his goal is to grow the business to between 500 and 1,000 clients. At that point, the business would support itself and allow John to pursue additional passion projects. 

Every entrepreneur will need to tailor a business plan to their aspirations and resources. “I know plenty of business owners who come from very different backgrounds and they say, ‘Well, I’ve got the skills and the desire. So, I’m going to get outside funding, and we’re going to launch as hard as we can,” John said. In such a business, they might not worry about profitability at first, but just hire a small team and try to grow as quickly as possible. Business owners like that prefer to sell multiple related services from the get-go to speed growth—including payroll, HCM, time and attendance, and benefits administration. 

Tip #2: Expect “Learning Experiences” in Year One 

Here’s the unvarnished truth: No matter how much you’ve planned, starting a payroll business will throw you some unexpected challenges. As Dorothy observed to Toto, we’re not in Kansas anymore. 

About the early days with his first few clients, John recalled, “I vastly underestimated how difficult it can be to run an entire payroll company by yourself. And I think that really made me aware of how much I had to learn. the biggest challenge is learning all parts of payroll and not just the technology. I mean about taxes in general, as a payroll salesperson, I thought I was pretty familiar with taxes. I promise you unless you’ve run a payroll bureau before, there are parts of this you can’t know.” 

If you’ve come from the sales side, you’re missing the skills and experience of the service side. If you’ve been on the service side of payroll, you may not know how to sell it. “It’s tough knowing that you don’t know what you don’t know, and you can’t even figure that out until you actually get a client and realize, ‘Wow. I really don’t know the answer to that question. I’ve got to make some phone calls.’ It takes a lot of research,” he acknowledged.  

So, buckle up and expect the unexpected. Probably not flying monkeys, but you never know. This is 2020. 

Tip #3: Define the Clients You Want

When John started his payroll bureau, he knew exactly the type of clients he wanted. Small businesses, all local. Some startups focus on a niche industry for their first target market and run the business virtually without geographic limitations. But for John—at least starting out—there was no place like home. He wanted to “make sure that my clients have the best freaking experience imaginable,” and sometimes, that requires being close enough to drop off a gift or swing by for a meeting. 

For his first clients, he looked carefully for companies with simple payroll and avoided complicated situations. “The idea here was to find companies that I could handle just by myself coming from a sales background with no operational experience,” he said. His first four or five clients had fewer than 10 employees each. Initially, he didn’t even offer paper paychecks to avoid the added complication of printing and delivery. 

Tip #4: Project a Professional Marketing Presence  

As an experienced sales professional, John knew it would be important to put together some basic, but highly professional marketing materials. He hired a local marketing business to create a logo, website, marketing video, and business card. The company also produced a brand book to guide the future design of any other marketing materials. Using the fonts, colors, and instructions in the brand book, he created his own matching PowerPoint sales deck. 

“If I’m willing to put a little bit of money on the front end, I can look like a legit business,” he explained. “And that’s important because if you’re sketchy, no one’s going to trust you with money. And fun fact—guess who our first payroll client was?” That local marketing business. 

One thing John enjoys about working with small, local businesses is the ability to work out deals to trade services. Today, the same marketing company puts together personalized thank you gifts for the CPA firms that refer business to Astra Payroll Services. John counts the value of the gift service in trade against the payroll service he’s providing.  

Tip #5: Choose Payroll Software Carefully 

Success in the payroll business comes from four things: the ability to sell your service(s), exceptional client service, deep payroll and tax expertise, and having the right payroll software. John knew a lot about payroll software from nine years of selling it, but he knew he needed to find the right one for the type of clients he was targeting. 

He started his search by looking up every local payroll company he could find, clicking to their login page and making a list of the payroll systems they were using. He then researched the 15 companies on his list further. He interviewed them on the phone and disqualified many based either on lack of functionality, too complicated an interface for small business owners, or an unwillingness of the software vendor to work with new bureaus. 

“I specifically chose Asure because of the model that I knew I was going after. I wanted to go after the under-50-employees space,” John explained. Asure was nice because my criteria for a payroll engine was that it had to be a system that was extremely intuitive for the client. I told people really what I want is one big button that says employees and another big button that says company settings and a third big button that says reports. Some of the other systems were just really complicated. The navigation had too steep of a learning curve.” 

Tip #6: Seek Out Mutually Beneficial Business Partnerships  

One of Astra Payroll Services’ avenues to growth has been through partnerships with CPA firms. Many CPAs that offer payroll services do so because their clients want it, not because it was in their wheelhouse. Therefore, their payroll processing is a side business, and often an inefficient one. Often, the payroll portion of the business is operating at or close to a loss, because the CPA has thrown payroll in for free in order to close deals with new accounting clients. 

John can offer these CPAs a mutually beneficial partnership. He doesn’t sell accounting services, so he is not competition. At the same time, having Asure technology makes Astra Payroll Services vastly more efficient at payroll.

“Buying Asure Software is like buying a tractor with a lawn mowing attachment on the back of it. And these guys are out mowing lawns with a push mower,” he explained. “So, if we’re both bidding on a contract to mow the grass for a military base, we both technically have the technology to do that. It’s going to take the CPA an entire week to mow that whole base. We can knock it out in an afternoon because we’ve got the equipment to do payroll more efficiently. I meet a lot of CPAs who built up a book of business, 75 to 100 payroll accounts, over the years, and they’re going to be referral partners for me. They’re at the point where their margins are so razor thin, and they either have to hire another person to deal with the payroll they’re doing by hand or QuickBooks, or they have to invest in the kinds of technology that we built our business on.” Instead, John can process the payroll more efficiently and still maintain his margins. He also becomes a resource for the CPA and his clients when payroll tax questions arise.

Tip #7: Growth Is Out In The World, Not At Your Desk  

One easy startup misstep is spending too much time working in your business and not enough working on your business. Let’s face it—payroll processing gets pretty involved. And with the pressure to get payroll out on time, it can be too easy to sweep aside all other priorities. Including growing your business through new sales. 

John cautioned, “It’s very easy to be working, but not be growing. everything in my to-do list is split into offensive and defensive tasks. An offensive task is something that’s going to grow my business and make me money. And a defensive task is something that just must get done at some point. And the goal is prioritizing those offensive tasks to normal business hours and putting those defensive tasks to the less productive parts of the day.” Eventually, defensive tasks could even be shifted to administrative employees.  

It’s important to keep making connections with new clients. Growth means being out in the world, not just behind your desk. You need to get in front of potential business clients, so make the time to attend those Chamber of Commerce meetings. Join your local chapter of the Society for Human Resources or the American Payroll Association. Attend small business trade show events, networking groups, and meet and greets. Put in the time to stop and talk at local businesses or make cold calls. Following your Yellow Brick Road to business wealth will require wearing out a few pairs of Ruby Slippers.

Ready To Take The Leap? 

If you have been thinking about starting a payroll bureau for a while, now is an optimal time to start your business. Begin with a solid plan for success. If you need help with the technology side of your payroll service, give us a call. Be sure to inquire about our special pricing for start-up service bureaus. Talk to an HCM partner specialists today! 

More on this topic… 

• eBook: Why Banks, CPAs & Benefits Brokers Should Offer Payroll Services 

• On-Demand Webinar: A Pulse on the State of HR for Growing Companies 

• Growth Study: Helping Small Businesses Reach Growth Goals and Survive COVID-19