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If you’re a small business owner, there’s one service you can’t go without – bookkeeping. Unless you’re well-versed in numbers or have software that can guide you through everything, this is one area where you shouldn’t skimp. As quiet as it’s kept, bookkeeping is more than just putting all your numbers into a spreadsheet. When your books are in order, you’ll set yourself up for less stress and will have all your current financials available at the click of a button.
One of the most important things to consider is whether you need a bookkeeper or an accountant. They are different. As your business scales, you’ll need more financial information. A bookkeeper should be able to provide these documents, but at that point, you may need an accountant.
Bookkeepers do basic things unless they are also an accountant. They track your income and expenses, usually using some sort of software. They can give you an overall view of what went on during the month to assist in making certain decisions. Some of the tasks bookkeepers can perform include:
• Managing inventory
• Paying bills
• Issuing invoices
• Data entry
• Bank reconciliation
While many business owners try and take on this task, it is time-consuming. As you start considering looking for outsourced accounting services, you’ll find a diverse market to choose from. Bookkeepers are paid differently based on certain factors. This includes their education and experience, the type of bookkeeper they are – is it a service, or an individual? Are they working on a full-time or part-time basis?
The volume of work is also a factor, and the responsibilities they are required to manage. The most important factor is how much you can afford.
Costs of a Bookkeeper
Part-time, full-time, and bookkeeping services all come with different rates based on the criteria listed above. It’s important to consider the type of bookkeeper you need and pick the right one to serve your business. Over time, your business model will evolve, and you may have more demands. In the beginning, your needs may not be as demanding, so having a part-time bookkeeper may be the best solution. As you grow, the other options will become a factor.
When considering costs, the location of your business is key. If you are in a small town, you should not expect to pay as much as someone who has a business located in a huge city. Your costs will change from state to state, and city to city. Additionally, the choice you make can make the difference between whether you are paying $450 a month or $2500.
On average, bookkeepers make about $23 per hour and their qualifications matter. If you are dealing with a certified bookkeeper, expect to pay a little more. Individuals who have taken the time to take accounting classes and have a degree usually become certified by the National Association of Certified Public Bookkeepers (NACPB). That means they have taken the time to pay for and sit for an exam that gives them the Certified Professional Bookkeeper (CPB) designation. A good rule of thumb is finding a bookkeeper with this designation.
There is another certification available that may impact your rates: the American Institute of Professional Bookkeepers (AIPB). These individuals do not have formal education in this area but have taken the time to study and sit for the exam. If you use someone with this certificate, the rates will probably be more affordable.
The QuickBooks ProAdvisor Certification is another way bookkeepers may raise their rates. Most bookkeepers with one of the national certifications listed usually have the QuickBooks ProAdvisor certificate as well.
What type of bookkeeper do you need?
Now that you know how rates may change, it’s important to decide exactly what you need. If you are a very small business, having a full-fledged employee may not make much sense. In these cases, a freelance bookkeeper would work or use a service. The rates between the two will be significant because a service is going to charge based on its overhead expenses. A freelance bookkeeper will charge based on the scope of the work.
A part-time bookkeeper as an employee will cost anywhere from $450 to $750 per month. If your company offers benefits, this is an additional cost to consider. If you have a full-time bookkeeper on staff, the going rate is about $70,000 per year for someone with a lot of experience, but someone new to the industry may settle for a starting salary of $50,000. If you’re going to use a service, those fees will fluctuate based on the package you get. If it’s a simple package, you may pay about $500 per month, but if it’s comprehensive services, you could pay up to $2500.
Although experience level is one of the main factors besides the scope of work, bookkeepers have certain criteria they use when determining the final rate that may surprise you. It isn’t always based on how many financial transactions occur per month. Most bookkeepers take the following into account:
How organized are you when it comes to your financials? If you’re the type of client that loses receipts and can’t keep your paperwork in order, chances are you’re going to pay a higher rate than a company that makes sure they have everything together for the bookkeeper.
If you’re a small business owner that’s clueless about what you should and shouldn’t be reporting, that’s another indication to the bookkeeper that there’s a lot of work to do. Reporting requirements are important and will save you money. If your bookkeeper has to do the research and make sure you’re compliant, you’re going to pay for it.
• Co-mingling funds
If your bookkeeper is tasked with figuring out what’s a business expense and what’s personal, it could significantly raise your rates. They are being hired to do the financials for the business – not to figure out why you can’t keep the two separate. This adds to the scope of work and the rate you will pay.
Every business owner should have a fund where they are saving for year-end tax reporting. If that’s not happening, the bookkeeper will quickly realize your financials are in pretty bad shape. To clean that up and get you on the right path, it will take some work that will equate to you paying a higher rate.
• Data entry
Going back to personal and business expenses – when a bookkeeper has to continuously work to figure out the two, it becomes cumbersome. That extra work will come out of your pocket in the form of paying a significantly higher rate for services.
• Fixing problems
If you’ve decided to pay a bookkeeper to come in once a month, check everything out, and run your month-end statements, who is doing the data entry all month? If you are attempting to input things and have a lot of errors while figuring them out, the bookkeeper will be tasked with fixing your errors. That means doubling the work and doubling the pay. You don’t want to make that mistake.
Advantages and disadvantages of each one
Part-time and full-time
With an on-staff part- or full-time bookkeeper, you’ll be able to access information quickly. You won’t have to wait to schedule an appointment and if there is a discrepancy with your books, it can be handled immediately. Your on-staff bookkeeper can be an asset to your organization from day 1. Although the level and frequency of the tasks change based on part-time or full-time work, the management aspect will be a lot easier.
The disadvantages of having an on-staff bookkeeper for a very small business are the time needed to effectively manage this role, and the overhead expenses you will incur. That means you need additional office space for that role, benefits (if offered), and other variables. You will have to determine whether you can afford that type of responsibility depending on the size of your business and the revenue you bring in.
If you have payroll expenses, a lot of inventory to track, and accounts payable and receivable transactions, you may want to consider having someone on staff that can get this taken care of daily, rather than waiting to get the information input once a week or longer. Waiting to input your financials can cause confusion if there is a lot of paperwork involved.
A bookkeeping service is excellent if you don’t have space or manpower to get your financials in order. Another perk is you may receive more in your package than you would get by having someone on staff because you won’t have to pay the additional overhead costs. A bookkeeping service will scale with your company as you grow, adding flexibility. Additional services won’t be an issue and you won’t have to add an additional employee to handle complex financials.
The disadvantage is that while it can be more cost-effective, there are hidden costs that may show up and blindside you. Additionally, the control you had while having your bookkeeper in-house is gone. You can’t ask for something and get it five minutes later. When working with a service, there is an account manager that handles your account, and they may not be able to get back to you when you want them to. While a bookkeeping service is great for the possible reduction of fraud within your organization, you may not have the convenience of a local branch where you can go in and discuss your account.
What should I expect from my Bookkeeper or Service?
At a minimum, all your financials should be up-to-date. This includes any daily, weekly, or monthly transactions, recurring payments and expenses, reconciliations, and more. Your monthly financial statements should be included in this, as you won’t know how you did or where your money would go without it.
While hiring a bookkeeper in-house or with a service, it’s important for business owners to understand the basics of accounting. This way, everything the bookkeeper is doing will be transparent and the owner won’t be in the dark. The cost of bookkeeping services for small business owners can quickly add up over time, so being proactive and engaged in the financials of your business is key.
It’s very rare to find a bookkeeper that wants to work on an hourly basis. Most bookkeepers and services have designed packages based on standard services. In fact, hourly billing isn’t the standard in the industry because things fluctuate too much. Bookkeepers would rather have a standing agreement in place where they will get paid whether you provide the information they need or not (which is fair). The key is developing a relationship with your bookkeeper or service, so you won’t be in hot water for having mismanaged finances.
Here are a few things to consider when hiring a bookkeeper and deciding on the rate you are comfortable with paying:
• Will they agree to take a test for competency?
• How many years have they been in business or providing this service?
• Were they referred?
• Do they have reviews you can research?
• What methods and software do they use?
• What are their terms of payment?
These questions will help keep you on track in finding the right bookkeeper that meets your expectations and budget.
Disclaimer: Please keep in mind that the content of this post is not intended as tax, accounting or legal advice. The information presented here is for informational and educational purposes only. Before engaging in any transaction, be sure to discuss these matters with a trained, licensed professional.