If you’re running a small business, every dollar counts and so does every hour. One of the most crucial services that can help you maintain financial clarity is bookkeeping. However, many business owners find themselves in the dark when it comes to what they should actually pay for bookkeeping services. There are no easy answers here, as the rates can vary greatly depending on location, complexity, and experience. This blog will explore common factors that affect how bookkeepers price their time so you can better understand what you are actually paying for.
Why is Bookkeeping an Important Investment?
Before touching on the pricing structure, it is important to appreciate that bookkeeping is more than just number crunching. A bookkeeper will help you:
- Track your income and expenses
- Reconcile your bank and credit card accounts
- Create and interpret financial reports
- Prepare for tax filings
- Comply with regulations
By keeping your books in order, the bookkeeper helps you make more informed decisions, better forecast, and ultimately grow your business.
Types of Bookkeeping Engagements
Not all bookkeeping agreements are the same. Although a bookkeeper may charge for their work in several different ways, charging methods usually depend on the type of work performed and how much involvement is required.
- Ongoing monthly services: This is best for businesses that have regular transactions and want continuous oversight.
- Catch-Up or Clean-Up work: This is for businesses that have fallen behind or need to correct previous mistakes.
- Project-Based or Advisory work: This may include setting up a chart of accounts or software migration, or payroll setup.
How Bookkeepers Set Their Pricing
There is no standard approach. Bookkeepers will contemplate numerous variables in setting their prices.
- Experience and Qualifications: A registered BAS agent or someone with certifications may set a higher price because of their specialised knowledge.
- Nature of the Business: Businesses that are in industries that have a high compliance requirement (such as healthcare, NDIS or construction) will often pay higher fees.
- Volume of Transactions: If there are more invoices and/or expenses, this equals more hours required each week or month.
- Software Being Used: Cloud tools such as Xero, QuickBooks or MYOB can make some tasks quicker, requiring less time (and costs), as all transaction data is available in one platform and automatically inserted into ledgers.
- Customised Reporting Requirements: If you wish for your business to include detailed weekly reports, budgeting or forecasting, this will create more time to complete.
Pricing Models and Rates
There are three typical pricing models that bookkeeping services may use:
Hourly Rates
For project-based or shorter period work, hourly rates tend to be common. Hourly pricing is flexible for the bookkeeper and transparent for the client. However, this pricing model can produce a level of ambiguity in terms of billing if the scope of the project is not clearly defined.
This is why understanding bookkeeping hourly rates is important. Bookkeeping hourly rates vary depending on your provider’s credentials, your business size, and the geographic area you operate in. As such, it is wise to gauge your rates against others in your industry prior to making a commitment.
Fixed Monthly Fee
A flat fee pricing model is best suited for businesses where the workload could be predicted to be more everyday-like. A flat fee would involve a defined set of services at an agreed price. This type of model provides pricing certainty and would typically suit ongoing engagement business.
Package Pricing
Some bookkeeping services may offer package pricing that uses a tiered model depending on volume (transactions) or size of the business. Examples may be “Basic” may suit a sole trader while “Premium” may suit an employer with payroll and multiple accounts.
Each pricing model has its pros and cons, and objective value should be used to decide which model best suits your businesses objectives and values.
What’s Included in the Cost?
When determining what your bookkeeping cost is, you need to define what Is included:
- Data Entry
- Bank Reconciliations
- Payroll processing
- BAS / GST lodgements
- Superannuation
- Accounts Payable / Accounts Receivable
- Reporting (Monthly/Quarterly/Yearly)
Establishing Expectations with Your Bookkeeper
Initial clarity is everything in any bookkeeping relationship. Here are some best practices to consider:
- Define the Scope: Be clear what services you will be receiving.
- Define Milestones or Deadlines: This is particularly useful with catch-up or clean-up work.
- Decide upon a Communication Method: Agree on how regularly updates are provided to you.
- Be Transparent: Provide accurate and timely information to your bookkeeper to avoid delays and added costs.
- Review Regularly: Regular check-ins will help keep the service adaptable to the changes within your business.
Common Assumptions about Bookkeeping Costs
“Bookkeeping is just data entry.”
The fact is, bookkeeping is a strategic function in today’s world. Good bookkeepers understand accounting principles, compliance and guidelines and even undergo some financial analysis.
“I can just use a piece of software.”
Software makes it easier, however software is only half of the solution. If it is not set up correctly or if data is not entered correctly, it can create more problems than it fixes.
“It is too expensive.”
While hiring a bookkeeping professional can appear to be an additional expense, the peace of mind and accuracy that comes from working with an expert could save you quite a bit in penalties, missed deductions and in poor decision-making.
Real-World Examples: Small Business Considerations
Let’s look at a small café. They do over 100 transactions a week, they pay five staff every fortnight, and they do quarterly BAS. It may be tempting to hire a casual or junior person to save money but if they make an error or miss a BAS date, there will be a penalty. In this case, hiring a professional, even at a higher hourly rate for bookkeeping services, will save them money in the longer term whilst reducing risk.
Contrast this with a sole freelancer who issues two invoices a month and has no staff members. As you can imagine, since the cost of bookkeeping services for small businesses with all the minimal requirements itemized above aren’t going to cost much. If you align the price of your services with your real needs, you will not be overpaying or under-resourcing your business.
Tips for Finding the Right Fit
In your search for a bookkeeper, consider the following:
- Check Qualifications: Are they a registered Tax Agent with the Tax Practitioners Board (TPB)?
- Ask for Recommendations/Referrals: Speak to other small businesses who are in your industry.
- Trial Compatibility: A short meeting will determine whether they appreciate your business, and don’t speak jargon.
- Trial Periods: Some providers might even give you the first month free or a trial period to test the service relationship.
Finally, look for someone who can grow with your business, starting with a basic service, and providing extra services as needed as you grow.
Conclusion
Understanding how bookkeepers price their services allows you to make better financial decisions. Whether you have a need for occasional help or require full service financial management, evaluating value, as opposed to price, is important. With so many companies adopting outsourced bookkeeping solutions, the market offers a growing number of flexible pricing models designed to suit different business needs.
The best approach is to identify what services you need for your business, approximate how much time a bookkeeper will realistically do, and take that to a provider who is honest, transparent, experienced, and proactive.
