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Understanding the Cost of Bookkeeping for Small Businesses

If you have just launched your business, there are several core things you’ll find yourself trying to figure out. Bookkeeping is one of the basic requirements for running a company, but it is also one of the most complex and challenging aspects of business ownership. Understanding your options for bookkeeping services and their costs will help you tremendously in ensuring the long-term growth of your company.

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Bookkeeping vs Accounting

 

The first thing you need to do is determine your company’s needs. Just about every small business requires a basic form of bookkeeping in the beginning. In this initial stage of establishing your business, you will be primarily concerned with smaller responsibilities like recording transactions and paying bills.

As your business grows, you will need to focus more on detailed financial reporting and following state & federal regulations. This requires a more concerted effort and direct oversight by a qualified professional. You will need an advanced accountant to help you put together the financial intelligence to help you make sound business decisions.

Before looking to hire a full-time employee to maintain your books, you should first figure out what kind of responsibilities you need to have handled. A full-time accountant is an upgrade over a basic bookkeeper, as they require less oversight and provide greater expertise across the board.

As you may expect, salary requirements for an experienced accountant are typically higher, but investing in a great accountant is an ROI-positive step in growing your business as they can help you increase your company’s profitability with their ability to provide insights through financial analysis & reporting.

 

What Do Bookkeepers Do?

 

A small business bookkeeper has several basic responsibilities. They are in charge of maintaining your financial books by keeping track of expenditures and revenue. This is performed by entering data into an accounting software like QuickBooks.

Their job, in essence, is to make a record of financial transactions and collate information to make a general financial report that can be used by business owners to make financial decisions to further drive a company’s profitability & growth.

There are other smaller duties that bookkeepers may be asked to handle on a daily basis. These include:

  • Data entry
  • Bill pay
  • Inventory management
  • Invoicing
  • Reconciling financials (bank accounts & credit cards)
  • Maintaining vendor & client lists (accounts payable and accounts receivable)
  • Preparing & organizing key financial documents
  • Collecting past due payments

 

Bookkeeper Salaries & Cost of Outsourcing

 

A lot of newly-launched businesses choose to do bookkeeping themselves in the early stages, which is a cost-conscientious decision. Eventually, however, your business will demand more of your time and bookkeeping will need to be sourced to another person. The cost of bookkeeping will vary depending on many factors, including:

  • The bookkeeper’s experience level
  • Type of service (part-time employee, full-time employee, or an outsourced accounting service)
  • The amount of work involved (hours required daily/monthly)
  • The type of responsibilities involved on a regular basis
  • Your company’s ability to support this service

Depending on the amount of work involved, you can hire either a full-time bookkeeper or a part-time bookkeeper. A business that doesn’t do a large volume of transactions and is cash-strapped may choose to hire a part-time bookkeeper, whereas an established company that has hundreds (or thousands) of transactions daily may require a full-time bookkeeper to keep up with the work.

The average salary for a bookkeeper in the United States in 2018 is around $14-$17 per hour (per Indeed) which is about $2,400 to $3,000 per month. The average annual salary for bookkeepers is between $37,000 to $47,000 (per Salary.com). In addition to the hourly charges, state & federal laws will also likely require you to pay for the employee’s benefits such as health insurance and vacation time. These benefits add a significant amount to the annual cost of an in-house bookkeeper.

The associated costs with in-house bookkeeping has led many companies to outsource their bookkeeping needs to an external agency. The fees are considerably lower than in-house bookkeepers (starting around $400/month on average) and go up depending on quantity and complexity of services involved.

 

Part-Time Bookkeeping

 

Part-time bookkeepers typically perform smaller tasks like inputting receipts and keeping tabs on employee timesheets. Companies will often choose to train an existing employee or office manager to take on the extra responsibilities of a part-time bookkeeper. While this may be a lucrative option on paper, any oversight or error in the sheets will come at your company’s expense.

The lesser cost of a part-time bookkeeper (as opposed to a full-time employee) is the biggest benefit for companies. A part-time bookkeeper will usually cost more per hour than full-time bookkeepers, but the total monthly cost will be less. The actual hourly fee of part-time bookkeeping can vary according to location, duration, and daily responsibilities.

To illustrate the cost efficiency of a part-time bookkeeper, consider the following example.

Hiring a part-time bookkeeper at 20 hours per week at a rate of $17 dollars an hour (the high end of the average hourly cost cited above) will cost you $340 total for the week.

Hiring a full-time bookkeeper at 40 hours per week at a rate of $14 dollar per hour (the low end of the average hourly cost cited above) will cost you $560 total for the week.

Below is a table to help see the difference:

 

Part-Time Bookkeeper Full-Time Bookkeeper
Hourly Fee $17 $14
Weekly Hours  20 hours 40 hours
 Total Cost for the Week  $340  $560

 

One of the biggest disadvantages of hiring a part-time bookkeeper is that they provide only partial support in an area of business that requires a lot of attention and detail. You will need to dedicate some of your time to audit their work on an on-going basis, and you may still be required to do more of the high-level accounting work, such as projecting and reporting. This is an added burden to any company owner who is also responsible for many other key areas of the business.

In addition to the above, a business owner may also be wary of trusting a part-time bookkeeper with some of the critical financials and records of their customers and/or clients. Such nuances can make the division of labor and trust a real strain on the employer and their company.

 

Full-Time Bookkeeping

 

A full-time bookkeeper is typically expected to handle everyday accounts, keep account books in order, and take care of tasks that are small and large (invoicing, timesheets, generating reports, etc). If your company has a lot of employees, records a lot of transactions daily, or has complex financial systems, a full-time bookkeeper is a necessity rather than an option.

You may still have to audit a full-time bookkeeper’s work from time to time, but having them at the office every day allows you greater access to them and lets them learn your processes & systems more efficiently. Full-time employees also tend to be more involved with the company for which they work, and you should receive greater long-term benefit from working with someone who knows your business thoroughly.

As with any full-time employee, the biggest drawback of a full-time in-house bookkeeper tends to be the overall associated cost. The salary alone can easily exceed $50K annually for an experienced bookkeeper, and this is before you add the cost of benefits and other overhead that can add approximately 20% more to the total cost of a single employee.

 

Outsourced Bookkeeping

 

Perhaps the most cost-efficient option for bookkeeping for a small business is hiring a third-party firm that specializes in outsourced bookkeeping solutions. There is a number of key advantages to outsourcing your bookkeeping, including lesser costs, greater value for every dollar spent, and other tangible business-related factors.

One of the biggest advantages of outsourcing your bookkeeping is the cost. On average, a bookkeeping firm will charge anywhere between $300 to $2,000 per month depending on the amount and complexity of work required.

Using outside firms to handle your bookkeeping is similar to hiring an in-house bookkeeper to handle basic bookkeeping responsibilities without the added overhead cost of carrying employees on your payroll. This is highly beneficial to companies entering a growth stage without having to provide additional office space or pay salary benefits.

Another key benefit to outsourcing bookkeeping to a professional accounting firm is the level of expertise received. Small businesses and even mid-size companies don’t always hire the best talent to handle their daily and monthly bookkeeping responsibilities. Without significant prior experience in bookkeeping, it is impossible for a business owner to gauge the expertise level and capabilities of an in-house bookkeeper.

This is why accounting & bookkeeping service firms are so useful to businesses worldwide. They know how to hire the best talent to handle the workload efficiently and have a system of internal checks and balances to make sure clients receive the best possible service. This eliminates the need for interviewing and taking a chance on an individual who might end up being poorly-equipped to handle key finance-related activities at a company.

Firms offering outsourced bookkeeping services tend to also be flexible to make sure their solutions fit your specific needs. These firms specialize in bookkeeping and accounting, so their specialists will likely be more experienced and provide greater expertise than hiring an in-house bookkeeper.

The biggest disadvantages cited of using an outsourced bookkeeping firm include: lack of direct access to the person handling the books, lack of immediate visibility into daily activities, and inability to efficiently integrate your bookkeeping with other departments (such as sales, operations, etc). These are often the primary reasons for why larger companies use in-house accounting teams. However, outsourced bookkeeping remains a terrific option for cost-conscientious and/or small companies who are worried about the cost of having an in-house bookkeeper.

 

Picking the Right Bookkeeping Option for Your Business

 

Not every business has the same bookkeeping needs as others, and their needs will likely change as the company experiences growth. Part-time bookkeepers and outsourced bookkeeping firms are a sound solution for new businesses, while full-time bookkeepers tend to benefit more established companies more. It’s up to the decision makers in the company to determine the best appropriate solution to maximize their profitability and ensure their growth.

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