How Much Should I Pay for a Bookkeeper? Redux

Almost two and a half years ago, I wrote a post called How Much Should You Pay For Bookkeeping? and it is consistently the most viewed post on this blog.  If I was a blogging genius, I couldn't have named it any better as traffic comes here from that very search term.  I am not a blogging genius - I am just a gal who likes to write and sometimes I indulge that need through this professional outlet.

Anyway, I thought I would come back to this subject today.  That post is longer than I thought and not everyone has that kind of time.  Unfortunately, even two and a half years later - the answer is no easier.  More goes into setting a billing rate than just trying to make as much money as possible.

For those who don't like to contemplate things like I do, here's the short answer:  You get what you pay for.  And sometimes, you pay too much for what you get.

For the rest of us, I am reminded of an illustrative conversation I just had with a client regarding maximum allowable rates on grant agreements.

The grantor will let them source out a deliverable as long the source does not exceed $X per hour.  And they will not allow you to pay a premium from another source over that amount.  My rate is over that amount.

So, like all good accounting consultants, I batted around a few ideas with the client on how to bill to this grant if I was going to help with this deliverable.

In the end, we decided not to do it.  And here is why:

1 - It isn't fair to my other clients.  I bill everyone the same.  It is always nice to get a deal, but it is never nice to be the one paying more - so it is better to be consistent.

2 - My billing rate is a stretch for most when they hire me.  And before too long, they know they are getting more than they even knew to expect.  This isn't hubris - often an organization is going from a bookkeeper to a full service accounting system and the change is valuable.

This client I was working with is still going to have me help with the deliverable, we just will put that part of the grant money towards the salary of the employee I will be working with.  She gets the value.

3 - My actual rate of pay works out to $10 less than $X.  Trust me, I do the math.

The reason I set my rate where I do is because I do aspects of bookkeeping (that you can get for $35 an hour) all the way up through CFO-ing (that would cost you $150 per hour, or more), so I am in a blended area between that.

I am also a CPA and I have extensive experience in one industry, both of which gives me a premium in the marketplace.  One thing I know to be true - if you bill too low, you are treated accordingly.  So, you have to pay attention to the marketplace.  (And if you don't think that is true - tell me, is there a price that you think is too little to pay for a hotel in New York City?  I mean really, if you get a hotel there for under $100, you know there are going to be bed bugs.)

And finally, I think I have a better working relationship with my clients because I don't bill for travel time, or for random phone calls (I want you to tell me that stuff is going to hell in a hand basket before it is too late), or even for a lot of quick e-mail exchanges.  And if I am only visiting a Board once a year, I don't charge for that either.

I don't even charge for random calls and e-mails from the auditor.  My clock really starts when I open Excel and start putting something together or when we spend an hour reviewing a tangible item.  Or when I walk in the door to work for you and only for you.

I could charge a lower rate and I could track all that stuff and I could spend two days putting together a monthly invoice and my client could spend two hours reviewing it and begrudgingly pay it and I would probably make more money, but life is too short for me to run my business that way.

I know how much I work.  And I do track a lot of that stuff that I mentioned above, even though I don't bill it and I know that my actual working rate comes out to $25 less per hour than I bill for my major clients.  And knowing all that, I know that my rate can't change for one strange grant request.

And my client, who is smart, knows that too.  (I try to only work with smart people.)

So when you are trying to figure out how much you are willing to pay for a bookkeeper, maybe some of the points I mention above should be in your consideration.  Billing rates are not really apples to apples and you should not take a number at straight face value.

Speaking of face value, since it is your finances - please meet them before hiring them to make sure you are not paying too much for what you are getting.

Recession? Or Situation Normal?

I was interested to read in the newspaper last Monday that we are now in a recession.

Apparently, the last one ended in June 2009 and a new one has now begun.  Leaving aside the technical definition of recession, I mentioned this to several people and no one felt they had been a part of any period of economic expansion.  "What?  It ended? When?"

If we can't tell the difference between recession and expansion anymore, then what are we facing as we go forward?

It has dawned on me that this economic environment might be typical for the rest of  my working life.  And my retirement, which I now expect to take when I am 88 or so.  That the world everyone jokingly talked about "leaving for their kids" is here.

Sadly, when I mentioned this realization to a couple of people, no one disagreed.  In fact, one person supported the idea further by saying that the inequities we see with wealth are so divergent that it will likely take decades for them to wash through the system.

Another person showed me a graph of where America stands in investment in social services relevant to investment in medicine and how we are not being efficient with proactive help socially and that we need to do more of that.  (Another post, another day.)

I may be a bit of a Pollyanna, but as soon I acknowledged to myself that this is what I am going to deal with forever, my outlook went through a slight, yet significant, shift.  "Okay," I thought.  "I can work in this.  I HAVE worked in this."  Some people say that we have been contracting since the tech bubble burst in 2001.  I have been out here that whole time.

If things get better, I guess I can be pleasantly surprised.

Meanwhile, over the last four years, I have improved my personal balance sheet and the balance sheets of others.  I have reduced my reliance on leverage and I have contained my footprint.  I have become comfortable and accepting of the home that I possibly will live in forever (because it is so far underwater I can never contemplate leaving).  I have been grateful to work with the organizations I work with.  I decided that if I was going to work for another 50 years, I could slow down just a bit.  I have settled in to life and taken time for the meaningful along the way.

I know there are many who are out of work.  I know there are even more who are underemployed.  I know that I could become one of these at any moment.  For now, though, I am setting my sights on the long haul because if you have no choice, then you work with what you have.

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.