With numerous desktop and online solutions available, many think it would be best to do the bookkeeping themselves. However, online solutions often still cost money and are only sometimes accurate. Some of the worst things a business owner can do is try bookkeeping alone or decide not to do it at all. Bookkeeping services cost a lot less than many realize, and this article addresses determining what is more cost-effective.

How Much Do Bookkeeping Services Cost?

The short answer is “a lot” if you try to do it yourself. A reasonable range might be $35 to $100 per hour, depending on the services required, the staff assigned, and the experience and qualifications of the professionals involved.

Many businesses think bookkeeping, accounting, and tax services are expensive, but you can find bookkeeping and accounting services for small businesses at just about any price.

Case Study: What Happens When You Cut Costs by Not Having a Bookkeeper

One businessperson worked as an independent consultant and operated a single-member Limited Liability Company (LLC). They kept receipts in envelopes for the first three years of their business and further compounded the problem by mingling business and personal receipts.

The business owner wanted to get a loan but did not have the required financial statements (income statement, balance sheet, tax return, etc.). So, the business owner consulted an accountant. They needed to address the following items:

  1. Sorting the receipts into categories. (Make sure to separate business, personal, and non-deductible items). Receipts should include a business purpose. If they don’t, the item’s deductibility becomes questionable. The business owner, not the accountant, has to go back through receipts to ensure their deductibility or validity. Doing this on an ongoing basis is most cost-effective.
  2. Totaling the receipts by category.
  3. Showing sources of income. (You can do this with bank statements, but they still need to be totaled).
  4. Preparing financial statements and tax returns.

What Happens When You Do Bookkeeping for Three Years

In this case, the entire procedure took significant time and cost the business owner over $4,000. This does not include the thousands of dollars in tax penalties and interest incurred by not filing returns and paying taxes on time.

If the business owner had a proper set of books correctly tracking his transactions from the beginning and categorized them into a financial statement acceptable to a lending institution and for preparing tax returns, they likely would have significant savings. 

The accountant fees alone would probably be less than $3,000 over a three-year period. 

This is not to mention the savings from not paying penalties and interest. In this example, the estimated cost of not using a professional, such as a Certified Public Accountant, was about $15,000. 

An accounting and bookkeeping firm can also provide valuable business insight, helping to maximize profit and manage cash flow. Although it’s difficult to place a dollar value on that service, it undoubtedly provides an economic benefit.

Do-It-Yourself Dangers

Many options are available for desktop or “cloud” bookkeeping. Marketed as “do-it-yourself” solutions, they promise to save the business time and money. This may be true, but only if used correctly.

The purpose of these tools is to manage and record transactions. Most are very good if correctly set up and used by someone trained in the program. The problem lies in untrained users.

The Accuracy of Bookkeeping Software

Our first example of “do-it-yourself” bookkeeping is a law firm using computer software. Attorneys have many skills, but they may not have training in bookkeeping. Unfortunately, bookkeeping software is not always accurate.

In this example, the business owner installed the software, and the automatic features decided where to put things. The software also allowed payments through a cell phone.

The problem occurred because the software was deciding where transactions should go in the books, but attorneys often hold funds such as retainers in trust. No one set up the software to determine where to put these funds.

The books were balanced but inaccurate. An accountant discovered discrepancies while preparing the tax return. The accountant then spent many additional hours reconciling the trust accounts so the attorney would not face disciplinary action.

Case Study: Computer Software Limitations

The next example is a firm using an industry-specific billing and management program for its day-to-day operations. Unfortunately, the program did not generate meaningful financial statements.

The program also didn’t interface with popular accounting software, so someone at the firm manually entered the information from the billing program into the bookkeeping software. 

Because of this, a relatively straightforward process became a nightmare for the employee, who did not have bookkeeping expertise, and management alike.

An accountant’s fees to fix the problem would have been thousands of dollars. The firm decided to try to resolve the issue itself, so the ultimate cost is currently uncertain.

Reduce Major Bookkeeping Costs by Hiring a Professional

The most straightforward solution to the above issues is hiring a professional. There is nothing wrong with using a computer program, but the cost of fixing the problems in the last two examples far outweighs the benefit of using the do-it-yourself software. 

Businesses could save thousands of dollars if they take the following steps:

  • Have an accountant analyze your business and design a tailored chart of accounts to import into a program. Programs make assumptions, but accountants can consider a business’s real needs and nature.
  • Have the accountant train you in using the software. It may initially cost extra, but it is well worth it in the long run.
  • Consult your accountant if changes are necessary. This includes add-on services, especially cloud-based programs that may change the program’s setup automatically.
  • Have the accountant monitor activity every month to ensure the software is running correctly, being appropriately used, and generating meaningful information.
  • Have the accountant analyze the generated numbers and provide insight on how to use them to maximize profits, manage cash flow, and legally minimize taxes.
  • Have the accountant help plan and prepare for taxes so you don’t face penalties.

The Cost of Bookkeeping Services

So, is the cost of bookkeeping services worth it? Every business owner must decide. As with anything, you generally get what you pay for, but fixing problems is far more costly than preventing them.

Competent professionals, such as certified public accountants, are available in all price ranges. Quality bookkeeping services are an investment that will save you and your business money in the long run. For your business’s financial health, seek out one that understands and meets your needs.