By Liz Gold
Managing a payroll company isn't for the faint of heart.
Think about it - no matter what's happening at any given moment, people expect to get paid.
"Payroll is constant," said John Shank, founding shareholder at Barfield, Murphy, Shank & Smith (BMSS) in Birmingham, Alabama. "If Hurricane Isaac hit us, guess what - people still want their payroll on Friday."
BMSS formed in 1991 when Don Murphy, Keith Barfield, and John Shank decided to spin off from a large local firm to follow their entrepreneurial spirit. At that point, they were meeting in a basement in one of their homes, without any clients. Now more than twenty years later, they have 100 employees and three sister companies - Abacus IT Solutions, Benefits Administration Services, and Payroll & Benefit Solutions.
Tips for Starting a Payroll Business
If you're thinking of starting a payroll business, here are five helpful tips:
- You can't run a payroll company like you manage your accounting firm. Have a dedicated group of people who are only doing payroll. It's like the mail; it runs every week and every week there are deadlines. Every week is a busy week, whereas a CPA is used to a tax season.
- Invest in software that's functional that will be scalable while you grow. (PBS uses Time Plus.)
- Once you reach critical mass, hire and invest in a full-time business development person. You can only live on internal referrals for a period of time, and then you have to get out there.
- Acquiring the designation Certified Payroll Profession (CPP) makes you more marketable. It's a great sales point that gives you credibility and lets your clients know your people are well trained.
- Hire the right people. The employees of your payroll company must share the same attitude, vision, and commitment to service as your CPA firm.
Founded in 2005, Payroll & Benefit Solutions (PBS) focuses on the same sect of BMSS services clients - small to midsized businesses that are owner and family operated earning between $3 million and $50 million in revenue. "We've stayed pretty loyal to that profile over the years," Shank said.
The formation of PBS is a direct result of clients requesting the payroll service.
"We're pretty hands on with our clients - we enjoy that proactive counselor, trusted advisor role," Shank said, adding there were multiple reasons they went forth with offering payroll services. "When we started, people would say, 'I wish you all were doing our payroll,' or 'we received this notice,' or 'this goofed up.' We have all the big national payroll companies in town, and they would ebb and flow in terms of service level, and we kept hearing that."
Shank said that aside from that pull, clients who were coming to them for benefits administration services were saying, "hey, you're doing our employee benefits, it would be great if you were doing our payroll as well."
At first, most PBS clients were coming directly from BMSS, but now, according to Jason Harkins, PBS managing member, about 75 percent of the company's clients are standalone - meaning non-firm clients. Today, the company serves companies that hold upwards of 350 employees.
"If we went north of that, we would really have to understand the client requirements and ask would we really be able to provide what they're looking for," Harkins said. "Typically when you get above the 300 number, you get into some reporting requirements that we may or may not be able to do."
PBS offers multiple services, but their bread-and-butter offerings are the payroll process and taxes - which go hand in hand. They also offer such services as new hire reporting, 401(k) contribution submissions, online time-keeping, and direct deposit.
PBS has a seven-person staff - five payroll specialists, a full-time business development person, and Harkins. Three of the specialists hold the Certified Payroll Professional designation, and the others are working toward their certification.
The marketing focus is mostly on the Birmingham area - though the company serves twenty-eight states because of where employees may be located throughout the country. It's important for PBS - as well as BMSS - that there's some connection to the client beforehand - either personally or from a trusted referral source. They're heavily involved in local business associations and nonprofits in their community and work with a variety of churches.
"If we have a prospect in another state, there has to be some relation back to Birmingham," Harkins said. "We're not getting in a car and making sales calls in Tennessee, Florida, and Georgia."
PBS collects its payment every time it processes payroll for a client - so there's no accounts receivable. Clients are charged a base fee for each pay cycle (whether that's weekly or monthly), a per-check fee, and then additional charges based on services provided.
The company cuts about 19,000 checks per month - but Harkins has seen his clients' check numbers decrease when the economy took a hit a few years ago. "We have a few specialty companies we've seen grow, but on a whole, once we saw the big hit where everybody is cutting back, we haven't seen an increase in hiring," he said.
Shank calls being in the payroll business "an exact science," and that people will call if their check is a quarter off from the last cycle. "You've got to strategically look out and say 'this person is gone this week and here are their fifty payrolls.' Our people do a great job handling clients, responding to questions, and if something has gotten screwed up - usually because a client has given us bad information - we can run a manual check, hop in the car, and drive it over to them. I think that's what distinguishes us in the marketplace."
About the author:
Liz Gold owns Rhino Girl Media, offering writing and editing services to companies of all sizes. A published journalist for sixteen years, Liz writes about business and culture. She can be reached at firstname.lastname@example.org.