small business bookkeeping services

How Much Should A Small Business Spend On Bookkeeping And Accounting?

If you’re a small business owner, managing your financial books is not an expense you want draining your bank account. But, it can be challenging to know if your accounting costs are on track. How much should accounting cost a small business? The answer is not as simple as it might seem.

Determining the exact type of accounting help your small business needs will determine the price you pay. Do you need the services of a bookkeeper, an accountant or a CPA (Certified Public Accountant)? The rates for each differ, and the total charge a small business pays will be reflective of the specialty chosen and the amount of work to be done.

Are you paying too much in small business accountant fees? Assess what an accountant should cost and whether your accounting fees are too high.

Small business accountants help millions of business owners start, run, and grow their startups into successful businesses. With responsibilities ranging from collecting data to providing financial expertise, accountants can be an asset to your business’s operations.

To make sure your business runs smoothly, your initial reaction might be to pay accountants whatever quote they give. But, at what point are you paying too much in small business accounting fees?

If you’re looking for ways to cut business expenses, take a look at your accounting costs. Determine whether you are paying too much in small business accountant fees by asking yourself these questions.

As a small business owner looking to save on unneeded costs, you may hesitate to decide if you should hire an accountant. With all of the different business accounting software on the market, you might feel like accounting services are a cost you can avoid. However, even if you’re skilled at using your accounting platform, there could be valuable financial insights that your business is missing out on—that an accountant could provide.

That being said though, how do you know whether or not you should hire an accountant for your small business? And perhaps more importantly, how much does an accountant cost? There are a variety of different factors at play here to answer both of those questions. We’ll take you through those factors and how they relate to the average cost of accounting services for small businesses—so that you’ll know when you need a business accountant, how to find one, and what kind of accountant fees you can expect.

Hiring an Accountant: When Does Your Business Need One?

First, let’s consider what your small business can gain from deciding to hire an accountant. A business accountant or certified public accountant (CPA) can provide a wide range of services, including:

  • Setting up bookkeeping and accounting systems
  • Maintaining financial records
  • Tax planning advice
  • Preparing and filing your business taxes
  • Generating audited financial statements or auditing your business’s books
  • Providing business advice to help you operate cost-effectively
  • Creating a personal financial plan

Although you might be able to perform some of these tasks yourself, or with the help of your accounting software, there might be valid reasons to turn to an accountant for assistance. Some of the most common reasons are for business taxes and audits. These processes can be complicated, time-consuming, and they’re certainly instances where you don’t want to make errors. Choosing to work with an accountant, who is certified and has experience with these processes, can be a life-saver.

Additionally, an accountant can help you, not only with the physical accounting tasks but also with planning and offer sage financial advice for your business. You may not need to hire an accountant all year long, but it’s worth considering working with one when you do need their expertise. Whether you need an accountant to set up your accounting and bookkeeping software as you get your business started, or you want assistance with yearly business taxes, there are endless reasons (all of them valid) that you would consult with a professional for accounting services. Plus, don’t forget that by outsourcing some of these critical responsibilities to an accountant, you open up your time to spend on other parts of managing and growing your business.

What Is The Difference Between Bookkeeping And Accounting?

To understand pricing, it’s helpful to know the difference between bookkeeping and accounting. These two terms are often used interchangeably, but there is a significant difference between bookkeeping and accounting services.

Many small businesses in early stages are primarily concerned with compliance – paying bills, getting paid, recording transactions, ensuring payroll accuracy and following state and federal regulations. At some point, your business will cross a threshold, and you’ll begin to place more emphasis on the need for timely, accurate financial reports and intelligence. This is when you’ll need more advanced bookkeeping, accrual-based accounting and management or managerial accounting to help you make data-driven decisions.

So your first consideration is whether you need compliance – basic bookkeeping – or if you’re ready to graduate to full-service accounting that will help you drive increased profits, improved cash flow and growth. They require very different levels of effort and expertise, and as you can imagine, the cost of full-service accounting is much higher. However, most businesses leap to see the value and experience an ROI rapidly.

Bookkeeping

We have written in detail about what a bookkeeper does in Australia. Still, the fundamental function of a bookkeeper is to record the transactions of a business consistently. This includes:

  • Recording financial transactions and reconciling accounts at the end of each month or week
  • Recording and paying bills on their due date
  • Creating and issuing invoices
  • Processing and recording payroll
  • Tracking sales taxes and filing returns

The bookkeeper is in charge of making sure that all transactions are recorded accurately. The complexity of this job depends on the size of the business, the number of transactions to be recorded, and the nature of those transactions.

tax chart

Accounting

Accounting can be described as processes that use the information recorded by the bookkeeper to produce higher-level details and reports. Examples of these services include:

  • Preparing to adjust entries to record information such as inventory adjustments, tax estimates, and other accruals (expenses that have occurred but aren’t yet recorded by the bookkeeper)
  • Preparing and analyzing financial statements to help the business owner make decisions
  • Completing income tax returns
  • Tax planning
  • Business advisory

Accountants aim to provide business owners with an understanding of their financial reporting to drive intelligent, informed decision making. They also play a crucial role in reducing taxes where possible. At Avalon, we also add empathy and even emotional support to the role of an accountant; it can be a lonely road running a business, and we want to help entrepreneurs thrive; however we can.

When Is The Right Time To Outsource Your Accounting?

If you’re wondering when your small business should start outsourcing its accounting, the answer isn’t always straightforward. But if you’re spending 100+ hours a year on federal taxes (or even 30 hours a year), it’s safe to say that the time to outsource has come.

If it were just your time, that would be one thing. But accounting and taxes aren’t just time-intensive, they’re also inherently risky. Businesses and their owners find themselves in hot water all too often for making small accounting mistakes that turn into significant matters of contention. After all, there are entirely private and government agencies dedicated to investigating financial affairs. Even entrepreneurs who majored in business or finance can’t possibly run a growing company and manage their books the way a trained accountant would—it’s impossible.

How Much Does a Bookkeeper Cost?

According to PayScale, a website that provides salary and compensation information for a wide array of industries, a bookkeeper on average earns approximately 41K annually. PayScale notes the average hourly rate is $16.67/hour.

A bookkeeper does not require any formal training. This is why the pay is low, compared to that of an accountant—as such, hiring a bookkeeper may be an affordable option for many small businesses.

If basic bookkeeping is all that your company needs at this stage, you’ll need to decide whether to do the bookkeeping in-house or if you should outsource. If you choose to hire and manage a bookkeeper, you’ll also have to determine if the position is part-time or requires a full time, full charge bookkeeper. If you decide to outsource, there are a few ways to go, including local bookkeeping services, local CPA firms that offer bookkeeping services and specialized national outsourced bookkeeping firms.

The cost of a part-time bookkeeper can vary widely. Hourly rates for internal, part-time bookkeepers vary depending on job description and location. They typically are performing essential bookkeeping duties and will need to be supervised and managed.

If you can manage your job and some of the accounting each month but need a little extra help, a part-time bookkeeper might be a good fit for your business. They can do work such as inputting receipts and tracking employee timesheets, accounts receivable and accounts payable. When hiring a part-time bookkeeper, management still needs to have someone reviewing the work of the bookkeeper.

Often businesses try to train an office manager or other employee with the capacity to become the part-time bookkeeper. While this can work and is often the least expensive option on paper, there are risks associated if the part-time employee’s or office manager’s output does not measure up to standards. And the cost of oversight, usually in the owner’s time, can be high.

Conduct market research on your competitors and other small business owners to find out how much they pay in accountant fees. Remember that no two businesses are alike, so your fees will vary based on factors like your industry and specific business needs. But, knowing averages can give you a cost range for guidance. As Michael Caramagno of Caramagno + Associates, Ltd. points out in an earlier blog post, one of the most important questions to ask your tax professional is how their fees are charged.

The cost of an accountant depends on the provider. Some providers charge by the hour, others at a flat rate, and some charge on factors like business revenue. The cost structure can become more complex; the larger the business gets. What’s most important is that the accountant understands your business, its goals, and how they can help achieve them. The cost of an accountant also relies on the organization of your bookkeeping. To get good outputs, there first must be reliable inputs.

We can’t tell you that your company should spend “X%” of your revenue on your accounting expenditures. It simply wouldn’t be responsible to not take into account the complexities of your unique business and financial reporting needs. For example, if you require highly technical controller oversight and advanced reporting—perhaps you have considerable job cost reporting needs or inventory management issues—you will need a greater degree of expertise among your staff. This will directly increase your costs because you will have to pay for that level of experience and training. For very basic monthly reconciliations, your personnel costs will be much lower. However, there are other areas you also need to review for cost considerations.

How Much Does an Accountant Cost?

Now that we’ve discussed the services an accountant can offer and a few reasons why you might consider hiring one, let’s answer the question—How much does an accountant cost?—and break down what kind of overall costs you can expect and what small business accountant fees look like.

Cash Flow

As you might imagine, it’s very difficult to land on a definitive number and say: “This is how much an accountant costs per year for a small business.” The ultimate cost of an accountant is going to depend on a variety of factors, namely, the fees of the individual accountant you hire, the specifics of your business and its needs, and how frequently you require accounting services.

To explain, as with most service-based professions, accountant fees are going to depend on the individual accountant. Most accountants charge their fees on an hourly basis or at a per-service rate. This means, then, that your accountant could charge you an hourly rate regardless of the service, or they could charge for a specific task, say for your taxes, at one rate regardless of the time it takes. The exact average for accountant hourly fees is difficult to pinpoint, and the number you find may vary based on the source.

In general, an accountant with business-specific experience might charge more than a general, everyday personal accountant. CPAs also might have higher fees because of the additional qualifications they went through to become certified. Similarly, an accountant with 20 years’ experience in the field might have higher fees than someone just starting out in their career. Furthermore, fees will more likely be higher if you need access to industry-specific expertise or if you run your business in a big city.

The total cost for accounting services then, as we’ve mentioned, will not only depend on your accountant’s fee but also the services your business requires. If your business needs assistance with simple, more routine tasks, the cost is going to be less than if you require help with longer, more complex accounting tasks. Additionally, if you retain an accountant monthly, your yearly cost, as you might expect, is probably going to be more than if you hire an accountant for a one-time project.

Furthermore, it’s important to remember the other costs involved with this process, besides the actual cost of the accountant. You’ll need to invest time in finding and hiring the accountant, getting your books in order, and working with them to get started. If you’re trying to budget accounting services into your business finance plans, you’ll also want to remember to include the cost of any accounting or bookkeeping software you use as well.

Traditional Costs Of Bookkeeping And Accounting (Billed Hourly)

The traditional and most common method of charging for bookkeeping and accounting services is using an hourly rate. The bookkeeper or accountant will track the time they spend on your business in increments of 0.1 hours, add up the time spent and then apply their hourly charge-out rate. BOOM, there’s your bill! This means that you are on the clock anytime your bookkeeper or accountant answers your phone call, responds to your email or works on your file in any way.

This means that the bill for services provided will vary depending on how long it took your bookkeeper or accountant to complete those services.

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