Thursday, September 17, 2009

How Much Should You Pay for Bookkeeping?

How much should you pay for a bookkeeper? And how do you find a good one? A quick look at Craigslist will show a "million" bookkeepers with rates from $25 per hour to $50 per hour. In my mind, I think $35 per hour is average. But there are a lot of factors here.

First of all, you know you can hire an employee for a rate of between $12 and $20 per hour for basic bookkeeping services. This is less, but the other costs of an employee have to be factored in - basic employer payroll taxes will average about 11% (in Oregon), if you have benefits that has to be added in, but you also should not forget the other costs of an employee. They take time off, some of which you pay for - they need to be trained; you need to be available to deal with whatever comes up in their lives and if you turn over the position regularly, well, it starts all over. This is all time consuming and your time is definitely worth more to your business than $12, $20 or even $35 per hour.

Now, contractors have their problems also - the most important one being accountability. I can not even count the times I have gone into a new client and heard their prior bookkeeper/accountant say, "No one told me about that, so I did not book it." Another draw back to a contractor is that you are subject to their schedule - you may not get something done today, but rather when the next bookkeeping packet goes out. Finally, are your records at your location, at their location or a mix of both? Who knows what is really going on in your business from the dollars side? And which software are you going to have to use?

Okay, back to the $35 per hour average. I think it is important to point out that you get what you pay for. Right now, the better bookkeepers that I have sub-contracted with from time to time are actually charging $50 per hour. I have one that I pay $65 per hour and at this point, you are probably thinking, WHAT??? $65 per hour??? Well, frankly, she is really fast, really good and I very minimally have to supervise her. She gets it done and she is worth every penny. 2 hours of work at $65 per hour is $130. Another less efficient, less experienced bookkeeper might take 4 hours to do the same work, which would be $140. And I still have to spend time answering basic questions and providing extensive supervision. This exponentiates as the job gets bigger.

Having said all of that - we have all been burned by an accounting person during our careers. We have overpaid for someone who just sold themselves but have no practical ability. There is just no way to tell who "gets it" and who doesn't. Experience, education and/or personality don't seem to actually factor in to the person who just understands numbers. When I hire bookkeepers for my staffing needs, I have actually gone to "working interviews", so that I at least know what I am getting into in terms of software capabilities and accounting knowledge. That has really helped and I recommend it if hiring an employee is your preferred method of getting the books done. See one man's perspective on this at http://www.arboristsite.com/showthread.php?t=31486.

Okay, let's switch over to what you can do. I think billing by the hour is actually really tricky and not very useful when dealing with regular bookkeeping activities. It is much more useful to use a "value" billing approach that contemplates what this work is actually worth. Bookkeeping is a fairly consistent activity. There are busier times - usually in January when 1099's have to be prepared and other times that your business may have natural cycles, but it is much easier to forecast cash flow if you know what you are going to pay each month. It is also easier for the bookkeeper to deal with cash flow if they know how much they are going to receive - less billing headaches and a consistent flow of cash - a win for everyone.

Let's take an example: what if you were to pay $1,000 per month for a bookkeeper? Does that sound like a lot? That works out to $12,000 per year, all in all, less than an employee, but maybe more than you wanted to spend. But what if you get an amazing person that takes accountability seriously and who really gets how numbers work? What if your experience with your tax accountant is both much more timely and much less stressful? What if your tax fees actually go down? What if you never had to worry about finding another accountant again (no transition pains)? Would it then be worth $1,000 per month? What about $500 per month? What price makes sense when you actually get the headache of bookkeeping off your plate in a competent and useful way?

Pricing is always negotiable and when I come to this point in the proposal process with a new client, I try to find a price point that gives the client value and at which I can still make money. Because that is my job. To figure out how to make money at the price the client is willing to pay. Isn't that your job when you set prices for your products and services? We are all running businesses here.

Value billing lets you know that you are getting what you are paying for and not worrying about how many hours someone is working and what their rate may be. Try this out with your contractors and see how it works. Understand that you will be billed separately for extraordinary activities, but that the regular work just is what it is. And enjoy the feeling that you can actually call your advisors once in a while without pausing to think about how it impacts your monthly bill. Wow.

6 comments:

  1. it's good to see this information in your post, i was looking the same but there was not any proper resource, thanx now i have the link which i was looking for my research.

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  2. Thanks so much for the post! It has so much good information about accounting services for small business. I'm glad that I now know what I need to in order to hire a responsible bookkeeper.

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  3. I've seen anything from £10 to £40.

    IMHO, £20, give or take, is the right ballpark.

    Anything more than £25 per hour and I'd expect them to be providing some kind of management accounts as well (or be an accountant providing bookkeeping services).

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