In this episode, Legislate meets James Watson, Director and co-founder of PennyBooks, the refreshingly different accounting firm, giving small business owners what they really need. James shares tips entrepreneurs can follow to better manage their cash flow and the importance of making contracts easy to sign.
Listen to the episode below:
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Charles Brecque: Welcome to the Legislate podcast, I'm excited to welcome James Watson, the CEO of PennyBooks. Would you like to share your background?
James Watson: Thanks very much, yes, thanks for having me on Charles. So, we set PennyBooks up probably about 2 and a half years ago, myself, and my business partner Brendan, we're both big 4 trained accountants. We spent 6 or 7 years at big 4 firms, we did various roles in industry. After that, got fed up with big corporate hierarchies, wanted to do our own thing, and thought that the SME accounting space looked like a good thing that we could get into and position a good workable service that actually gave these small businesses an attractive product, and a very process driven product, and essentially what we thing they need. So, that's how it all came about, yes, we've grown quite nicely in that 2 and a half years. I think we're now quite happy with the product that we provide, we've got good growth of clients, and yes, I think we're in a nice position now.
Charles Brecque: In those 2 and a half years, what's been your favourite moment?
James Watson: Favourite moment, I would say actually when we first moved into the shared office that we're in now, I guess we started it, then we went into COVID, everyone was working from home. I think we were well and truly fed up with working from home, at the end of it, and we actually really like the office, it's great, it's a nice environment. It's actually been quite good for us in terms of picking up a few clients, because it's just for start-ups like ourselves. So, I think that was a real positive step forward.
Charles Brecque: What do you wish you'd known before starting PennyBooks?
James Watson: Good question, I think it's funny because we're accountants, and this is basically the story that we trot out to everyone all day long, but just how important cashflow is, when you're a start-up. Yes, I think you live and die by it, and I think it's good that we are a start-up and we've grown with the growing pains of being a start-up, and we've seen first hand how important it is to get your cashflow. For us, it almost makes it more important when we're preaching it to our clients, because we've been through the same experience. So, yes, I think respecting your cashflow, and planning that properly, and making sensible decisions around that.
Charles Brecque: Great, what tips would you give to an entrepreneur to better manage their cashflow?
James Watson: I think actually you can do it, quite simple things and improve it quite quickly. Actually having some proper processes around your invoicing is important, invoicing on time, chasing your invoices. I know it all sounds like quite simple, boring stuff, if you send your invoices out late and you never chase them and people never pay you, then that's the root problem right at the beginning. I think everyone should be putting together a simple cashflow forecast, it doesn't need to be a complicated accounting model, it can just be very simple you can do it yourself, you don't need an accountant to help you, map out your cashflow for the next three months, the next sixth months. And keep it updated, that's a good skill to have, and I think just being realistic as well, you need to create the worse case scenario, and almost plan to that. There's no point being too optimistic, when you're cashflow forecasting, because, again, there are always going to be a few bumps, and a few surprises along the way, so it's best to try and factor them in.
Charles Brecque: Planning for the worst is a good piece of advice.
James Watson: Yes, definitely.
Charles Brecque: What's the vision for the next 3, 5 years?
James Watson: Yes, we're basically trying to scale it as quickly, but as responsibly as we can. And I think there's lots of small businesses starting in London, and then actually most of our services online, so we can take on a new client anywhere, but there's plenty of small businesses out there. I think, where our competitors who might be a few years ahead of us, where they tend to fall down is the client service, levels go down, and it slides, and they bring on too many clients, and yes, the client service goes out the window. So, we're pretty conscious that we need to keep those standards high, but our big target is getting to, we say internally we're trying to get to 1500 clients. We'd like to be there in 3 to 4 years, but we'd like to still have the same standard of product and service that we're offering at the moment. So, that's our internal challenge, how do we get there, A how do we get there, get all those new clients onboard, but B, how do we grow the team, and how do we keep the same level that we're providing now?
Charles Brecque: I think scaling quickly and responsibly is important, we're in a similar position. As a CEO, what are the key contracts that you interact with?
James Watson: I'd say for us, probably the biggest one is with Xero, and Xero's the cloud based accounting software that we use with all of our clients. We're a Xero partner, so we've pretty much got a Xero licence set up for all of our clients. So, that's our, if you look at our P and L, it's probably our biggest contractual payment that we make. There's a few other key bits of software that we use, where we have pretty high annual costs and then it's probably down to other bits of software, then it's typical operating expense type expenses that we'll have contractual agreements around, rent and things like that.
Charles Brecque: And with those contracts, are there any areas of friction that you've encountered and how have you overcome them?
James Watson: This is a good lesson for any company, I'd say my business partner initially had a 1 person office in the old office base that we were in. He thought he'd agreed and signed up for a monthly rolling contract, but he'd actually signed himself up for a twelve-month contract. So, we had an additional 7 months of that that we didn't want to. I guess we tried to negotiate our way out of that, we tried pretty hard and didn't really get anywhere. So, that's, again, from us, from a cashflow perspective, that's probably given us the most friction. It's funny, I can't think of many other areas where we've had contractual issues, that I can think of. We've been lucky with employees so far, we haven't faced any problems there, touchwood, I'm sure there's plenty of time, but I'd say I think that office rent one taught us quite a good lesson. We're now pretty careful when we do sign any contracts.
Charles Brecque: It would be better if contracts didn't hide this type of information.
James Watson: Yes, I agree.
Charles Brecque: If you've been sent a contract to sign today, what would impress you?
James Watson: I think, it's got to give me the option to sign it digitally, luckily I think most people are sending you stuff, it does now, but I've got somebody who sent me something a couple of weeks ago and asked me to print it out and sign it, and I don't think I've done it yet. That just adds friction, I think something that's, it's not too long for the sake of being too long, I guess it gets all the points across succinctly, in a nice summary. I know some contracts need to be long, but yes, that would impress me, and something that I can understand. Ideally, I don't want to have to go away, and talk to Tom and Alice to try and get me head around a contract that's positioned at me.
Charles Brecque: Thank you for taking the time, best of luck, hopefully we can have you on again.
James Watson: Yes, perfect, thanks very much Charles, I appreciate it.