Business owners are aware of the importance of accounting for their small business, but how much should they expect to pay for it? What is the average cost of accounting that small businesses with transactions pay on average?
In order to answer these questions, we will need to look at the process of small business accounting (more on the difference between bookkeeping and accounting can be found here). We will also look at when it becomes necessary to hire someone to do the bookkeeping and accounting for you and finish by summarizing the benefits of implementing a well-oiled accounting structure, even for very small businesses, outlining the true accounting fees for a small business that owners need to keep in mind.
How do small businesses keep their books?
Everything you need to know about small business accounting starts and ends with your business bank account. Double-entry bookkeeping, transaction-recording, reconciliation, getting invoices paid and bills covered – the entire process is centered around making sure that your actual bank account situation is balanced with what is recorded in your books. That’s why opening a business bank account is an important first step – in case you don’t have one yet, learn how to do it here.
If you sell services, most of your accounting will revolve around transactions. If you are in retail, you will have to pay a lot of attention to keeping the inventory clean – it’s a science in itself. If the word inventory alone frightens you, I recommend reading a detailed how-to accounting guide for retail stores.
The rest of the process goes as follows:
- You record transactions in your books. An increasing number of business owners do not do it by hand and can record the transactions themselves, without using the help of a bookkeeper, by subscribing to a service like QuickBooks (starting from $25 a month), and utilizing add-ons such as Synder, which eliminate the manual data entry for online transactions.
- After all of the transactions have been recorded, you can reconcile your accounts, which is very important for maintaining an overview of your financial health, and getting ready for the tax season.
- When transactions have been recorded and bank accounts reconciled, you can generate important financial reports, such as the balance sheet and profit and loss statement.
- Invoicing and paying bills, as well as recording the entire process is also a part of the bookkeeping cycle and happens regularly (depending on the type of business).
- If you have employees, payroll is a big part of the bookkeeping cycle.
- Generating correct tax reports, paying the taxes, and maximizing the deductibles is one of the most important imperatives of taking care of your business’ accounting process, as it allows you to keep going, avoid IRS fines, and save as much of what you are entitled to as possible.
In short, there is a lot of routine bookkeeping work that needs to be done for the accounting to unfold. What are the monthly bookkeeping costs you need to anticipate?
The costs and when to stop doing it yourself
If you run a small service-based business, you might only need a subscription to an accounting software with an easy interface that you can use on your own. In order not to get buried by manual data entry utilize apps such as Synder to automate the bookkeeping. The total recurring accounting fees for a small business this way look as follows:
QuickBooks Online subscription – from $25 a month,
Synder App subscription – from $20 a month.
Alternatively, if you don’t want to deal with bookkeeping or don’t have the time for it (e.g. your own billing rate x the time you yourself would spend on bookkeeping is higher than what you would spend on hiring a bookkeeper), you can hire a bookkeeper either by outsourcing the bookkeeping needs or hiring one part-time or full time:
Outsourcing the bookkeeping – from $500 a month,
Part-time – from $500 a month + benefits,
Full-time bookkeeper – from $3000 a month + benefits.
If you run an inventory-based business, you might want to invest in a sophisticated POS that will enter the sales in your accounting software. They vary drastically by the type of business, but services such as Square and Shopify could be a good start. Consult the websites further for a fitting quote.
If you have employees, it is advisable to hire a bookkeeper at least part-time to manage the payroll.
Should I hire an accountant for my small business?
On top of the bookkeeping cycle, many small businesses need the help of an accountant or a CPA. Apart from startups seeking funding, who will need professional accounting help in order to have all necessary reports to present to their potential investors, most small businesses would only need to hire an accountant once a year, in advance, to help prepare their taxes. It’s also necessary to seek help from an accountant when you are just starting out and choosing the correct legal type fitting your business.
A good rule of thumb is that every time you are dealing with the government – hire an accountant.
According to the SCORE report, average accounting fees for a small business end up being around $1000-$5000 a year.
When you seek accounting help for a specific purpose, the average you can expect to pay is around $146 to $457 according to Investopedia.
Even the smallest businesses need to think about bookkeeping and accounting for their business. In order to arrive at the tax date fully prepared it is necessary to take care of the bookkeeping regularly (starting from $45 a month), and it is beneficial to seek help from professional accountants every time you deal with the government (from $150 an hour).
Even though these costs might seem quite high, you will thank yourself by minimizing your tax bill by recording all deductible expenses on a regular basis, avoiding audits, and maintaining a clean financial record, necessary to keep your businesses running and growing for years to come.