How Much Does Bookkeeping Cost?

So maybe you’ve had an administrator doing your bookkeeping thus far, or perhaps even numerous people in the business have been helping with the bookkeeping and it’s no particular person’s full responsibility. You know that the job could definitely be done better because certain things don’t make sense or don’t add up properly. Chances are that your financial statements aren’t telling you the whole truth, and it’s hurting you with your decision making capabilities. The question that has been crossing your mind is, how much does bookkeeping cost? Well, that very much depends on the kind of bookkeeping that you want as well as the volume and complexity of transactions that you have.

Perhaps you’re confused with the many different price points in the market, seemingly for a similar job. In the back of your mind you probably know that the services offered are going to be vastly different. I’m going to cover a few points in this article to help you navigate this territory.

Establish your needs and wants

Firstly, it’s a good idea to establish what you need and want. Going to a bookkeeping company and asking them how much it’s going to cost can be a futile exercise until you have some of this information, as the quote you get may not include the value-added services that you’re really after. In addition, it may be difficult to compare quotes for bookkeeping if you have more than one. If you understand a little bit about the subject, start writing a list of the things that you need and that would make a difference to you. They may not be compliance related, and that’s actually a really good thing.

As bookkeeping and accounting is a subject that goes over many business owner’s heads, it’s a good idea to have a decent base of understanding before you begin your hunt. I’ve written an article on how to find and evaluate bookkeepers. This may help you whether you’ve got much of a clue about bookkeeping or not. Click here for this article, which also provides a downloadable resource of some of the questions that you could ask your prospective bookkeeper. This will arm you with some great information.

Once you have your list of questions in hand, as well as your wish list, you will at least feel more empowered to choose between the options available. You will start to see that certain packages offered to you will include a limited range of services, which may or may not suit you. If you’re wanting a more comprehensive service that will provide a huge amount of value to a sizeable small business, then you may wish to choose a package that includes a larger range of services. You really want as much as possible taken care of and dealt with by a professional so that someone else doesn’t need to worry about it.

What determines bookkeeping costs?

In my analysis of what drives bookkeeping costs for clients, I’ve come to the conclusion that it’s based on a number of variables, some of which are weighted more heavily than others. I’ve listed them here with a short description of each one. Think about how each ones applies to you.

1. Transaction volume
   This is based on the number of transactions running through your accounting software. This is not the total number of bank transactions, but it’s closely related. If each bank transaction needs to be split, i.e part of the transaction includes GST and the other part doesn’t, then the transaction volume will be double the bank transaction volume.
2. Transaction complexity
   This relates to how complicated the individual transactions are. Simple transactions are like purchases for one item with 10% GST. Complicated transactions are like purchases for motor vehicles with chattel mortgages and their ongoing loan repayments or customs clearance, which includes GST on imports, stamp duty and freight.
3. Number of add-ons used individually as well as in combination
   This relates to how many add-ons are connected to Xero, how complicated they are in their interaction with the software and whether it’s posting data into the software. It also relates to whether multiple add-ons are in use with data input flowing in multiple different directions.
4. Payroll
   This is based on whether the business has lots of casual staff with rosters and timesheets, high staff turn-over and/or coverage by complicated or multiple modern Awards. In addition, it may also relate to the business owner’s understanding of, and current adherence to, industrial relations laws.
5. The use of tracking categories
   This is a feature in Xero that allows transactions to be tracked at a more detailed level such as by branch, department, client, job, sales person or running costs per individual motor vehicle.
6. Client complexity
   In my analysis, this factor has a heavy weighting on cost. I didn’t find this surprising, but I know that business owners might. This has to do with how prompt and proactive a client is at supplying all of the necessary paper work and answers to follow-up questions that bookkeepers need to process their transactions. Bookkeepers often rate this as their number one biggest issue to getting work done quickly and efficiently.

Getting a quote to establish the cost

If you’re speaking to a bookkeeping company regarding a quote and they’re offering a one-size-fits-all price for doing all of your bookkeeping for you for a particular bank transaction volume from the price list on their website, then my recommendation is to turn around and run the other way. If you turn out to be a client with high complexity in any of the areas above, then one of three things is going to happen.

1. The bookkeeping company is going to lose money
2. The bookkeeping company is going to cut corners on your work to stop losing money
3. The bookkeeping company is going to need to charge you more

None of those three scenarios above are beneficial. The first one is unlikely to prevail for long. The second one is detrimental to the business owner, even if they don’t know that it’s going on and the third one may end up being an unpleasant surprise, especially if it’s quite substantial. Make sure that the bookkeeping company quotes you for your particular needs.

My final recommendation

My biggest recommendation is to be clear about what your business needs and wants and find a bookkeeper that can deliver these. If you’re a sizeable small business, the budget for a proficient bookkeeper should be within reach and it will make an extraordinary difference, probably in ways you hadn’t even considered possible.