Bookkeeping is often seen as an afterthought, an activity that happens in the background while business owners focus on making sales, prioritising customers, and growing their business. But when neglected or underfunded, bookkeeping becomes the root of confusion surrounding cash flow, impeding compliance and erroneous decisions.
Our understanding of the value of bookkeeping can be expanded by stepping outside the financial numbers and understanding how bookkeeping enables more efficient ways of making choices in the business. But to what extent is it reasonable to expect businesses to invest in this form of professional service and is there a value in incurring the costs?
In this blog, we’ll review some of the components of bookkeeping, how the costs are calculated, and other considerations that make bookkeeping much more than adding up income against expenses. Lastly, we’ll break down why bookkeeping is so important for small businesses looking to scale, stay compliant, and maintain a healthy cash flow.
The Role of Bookkeeping in Business Success
Bookkeeping is not data entry. Bookkeeping is a process of recording, organising, and safeguarding your financial records to allow for business success, and compliance with local tax requirements. And most importantly, bookkeeping is part of:
Cash Flow Management
Reliable records help you understand when to invest, when to hold and when to shrink. Poor cash flow is one of the highest reasons for small businesses failing.
Financial Reporting and Decision Making
Up to date financial statements provide operators with real time insight into performance. Therefore, you can make comprehensive decisions and plan for the short to long term.
Tax Preparation & Compliance
Tax time can become a total disaster without proper records. Even thinking about tax time can be stressful! Bookkeeping is the process of getting everything in order to minimize mistakes and penalties.
Investor Preparedness
If at any point in the future you need funding, tidy and believable books send signals to potential investors that you are serious about looking after your own finances.
What Are the Services That Come with Bookkeeping?
The services of bookkeeping will vary according to the size and complexity of your business, however here are items could typically be included in your bookkeeping package; i.e.
- Recording daily financial transaction,
- Bank and Credit Card Reconciliations,
- Payroll,
- Accounts Payable and Accounts Receivable,
- Preparation of BAS (Business Activity Statement),
- Financial Reporting (profit and loss, balance sheet),
- Cash Flow Monitoring,
- Software Management (i.e. Xero, QuickBooks, MYOB)
Some packages may include other services such as budgeting, forecasting or inventory tracking.
Cost Factors For Bookkeeping Services
Each business is unique, and bookkeeping needs can vary widely. Here are a few of the major cost factors:
1. Volume Of Transactions
The number of financial transactions your business processes will directly impact the time it takes to do bookkeeping. Think about your purchases and sales, payroll entries, and reconciling your bank statements.
2. Complexity
If you operate in multiple countries with different currencies, are managing inventory, or are doing several types of the business that have multiple revenue sources, this is generally much more work for your bookkeeper.
3. Frequency
Do you need daily, weekly or monthly bookkeeping services? Regular service allows for real-time adjustments to your financial reporting, but it will be more expensive.
4. The software Used
Many bookkeepers will use cloud-based accounting software which may require you to pay for additional software and to some extent, your bookkeeping costs will depend on how much you can learn about the software and how proficient you can become using it. Generally, cloud based accounting tools will provide you with improved efficiency and greater data accuracy.
5. In-house vs Outsourced
Costs associated with hiring an in-house bookkeeper include the salary, benefits, on-going training and, sometimes, unacceptable employee behavior. Outsourcing bookkeeping provides you with flexibility to use professional staff without worrying about these traditional employer costs.
Understanding these variables can help small businesses assess the cost of bookkeeping services more accurately and ensure they’re not overpaying for what they actually need.
Typical Pricing Structure for Bookkeeping
When you engage a bookkeeper, you are likely to encounter one of the following pricing structures:
Hourly Pricing
This is fairly common when working with freelancers or where it may be unclear how many hours are required. Hourly quotes can vary anywhere from $40 to over $100 depending on where the bookkeeper is located and how experienced they are.
A Fixed Monthly Package
Best suited for businesses with regular or predictable needs. Starting packages for small businesses may start around $300/month and go up for container more complex businesses.
Project Fees
For particular one-off services like end of year clean ups, tax time preparation, or audit to produce financial reports.
For example, the price for bookkeeping services for a retail business with a medium amount to process, managing inventory and payroll, is likely to be more than the price of a freelance consultancy business with few transactions.
Considering the Value of the Price
Business owners often place more energy into reducing their expenses, than thinking of bookkeeping as an investment. Here are some ideas to consider:
- Time Value: You can spend your time growing the business, not chasing receipts or fixing mistakes.
- Accuracy & Compliance: You will have reduced risk of an ATO audit or tax penalty due to prior mistakes.
- Scalability: A bookkeeper can help you design your systems for the growth of your business.
- Understanding: Up-to-date records, you will know what revenue is and how to control your costs, and make decisions with conviction.
Small Business Bookkeeping Costs: What is Fair?
Most small businesses in Australia are likely to be charged between $300 and $1000 per month depending on what services are provided. In fact, those bookkeeping prices for small businesses may incorporate not only data entry, but also compliance, software oversight, and strategic competencies.
When considering price points always ask:
- What does the package include?
- Are there additional fees for BAS lodgment or payroll?
- Are they providing insights and reports, or only transaction entries?
- Is the license for the software included, or billed separately?
Doing It Yourself vs Professional Bookkeeping
With the emergence of cloud accounting applications available, many entrepreneurs are tempted to do their own bookkeeping. In the beginning, this may be “fine”, but as the business is developed, it can be a risk.
Cons of Doing It Yourself:
- More opportunity for errors
- More time consuming
- Limited insight
- Missed deductions
Professional Bookkeeping Advantages:
- Accuracy
- Timeliness of financial reporting
- Strategic support
- Peace of mind.
Ultimately you do not need to sacrifice quality for price, there are many bookkeeping firms that can provide quality scalable services to suit your needs and budget.
When You Should Consider Hiring a Bookkeeper
Here are some indicators that may suggest it’s time to get some help:
- You’re behind on your financial records
- You are spending more than five hours a week on bookkeeping
- Tax season is coming and you feel behind
- You don’t know how your business is financially doing
- You are growing and need better systems
Conclusion: Work Smart, Work Confidently
It’s true, bookkeeping isn’t the most exciting part of running your business, but it is one of the most important functions, without a doubt. By understanding what services are available, what they will cost, and the overall benefits they bring, small business owners will be much better positioned to make wise choices about how they manage their finances.
If you are just starting out, or are already scaling up in your business, investing in quality bookkeeping services can bring rewards in the form of lower stress, better decision-making and surety when it comes to your business growing.
