Small business owners can often feel overwhelmed when it comes to managing finances. Keeping track of assets, liabilities, income, expenses, and taxes can be daunting, especially if you don’t have relevant experience in accounting or bookkeeping. That’s why many entrepreneurs turn to professional accountants and bookkeepers for help. But how much do accountants cost? And what about the bookkeeper?
The answer depends on the type of services you need and the size of your business. The fees charged by professionals vary greatly depending on their qualifications and experience level, as well as the complexity of your requirements.
In this blog, I’ll go over the difference between accounting vs bookkeeping, how much a bookkeeper and an accountant cost under the traditional hourly billing method, the range of fixed fee costs, and whether you should hire an accountant or a bookkeeper.
What is the Difference Between Accounting and Bookkeeping?
Accounting and bookkeeping are two related and crucial functions for any small business. While the terms are sometimes used interchangeably, there is a distinct difference between them.
Bookkeeping is an essential task for any small business, and bookkeepers play a crucial role in keeping track of all financial records related to the company. On a basic level, a bookkeeper’s responsibility is to record financial transactions accurately and consistently using accounting software. It involves tracking purchases, sales, payroll system setup, processing employee payroll, and reconciling bank and credit card accounts at the end of each month. It may also include creating customer invoices, filing sales tax returns (GST/HST and PST) and other tax forms.
The overall complexity of a bookkeeper’s job depends on the industry of the business, nature of the transactions, and the volume of transactions.
Accounting involves collecting the financial data recorded by the bookkeeper and transforming it into higher-level financial reports. This includes preparing adjusting entries to record items such as inventory adjustments, tax estimates and other accruals that have occurred but have yet to be recorded by the bookkeeper.
Accountants also analyze financial reports to help the business owner better understand the company’s financial performance, prepare and file corporate income tax returns, and provide advice on strategies to reduce taxes.
Most importantly, the accountant acts as a consultant in helping the small business owner make informed decisions about their finances that will be closely aligned with the company’s goals. This includes providing suggestions on how best to manage debts or investments, as well as mitigating taxes paid through careful analysis of cost-saving strategies. Furthermore, they can assess whether there are potential concerns associated with certain transactions or investments that could put the business at risk in the future.
It is important to note that accounting functions are typically performed by a Chartered Professional Accountant (CPA).
Accounting and Bookkeeping Costs Under Traditional Hourly Billing
How much does an accountant cost under the traditional billing model? Accounting and bookkeeping services are billed on an hourly basis. The time spent on your business is tracked in increments of 0.1 hours, and then a corresponding hourly rate is applied to determine the cost of the services. Time is being tracked on all inquiries, phone calls, emails, and other work requests.
Based on industry standards, the current market rates per hour are as follows:
- Bookkeeper hourly rate: $30/hour to $90/hour
- Accountant (CPA) hourly rate: $150/hour to $450/hour
The amount you pay for the services of your bookkeeper or accountant will depend on how long it takes to complete their tasks. For example, if an accountant who charges $300/hour spends 2 hours organizing your file and another 2 hours answering your emails and phone calls, you will receive a $1,200 bill for the service.
While traditional hourly billing was widely used in the past, clients don’t know the exact cost of their accounting and bookkeeping services until the work is complete. As you can see, this approach has some significant drawbacks that can be concerning. For instance, you may feel discouraged from asking questions or seeking advice from your accountant because they will charge for any time spent answering questions or providing support. Additionally, you may receive large surprise bills when more work is required than expected. This can be especially problematic for smaller businesses that rely on steady cash flow.
Accounting and Bookkeeping Costs Under Fixed Price Billing
At our firm, we believe it’s important to set a fixed price for bookkeeping and accounting costs before any work begins. This approach not only eliminates the need to track time and inputs constantly, but it also allows us to focus on the results for our clients.
To ensure transparency in pricing, we list all the services we will be providing and the total costs associated with the service package. It helps us to be very specific about our quotes and allows our clients to choose the exact level of service they need for their particular situation.
For a small business, the total cost of bookkeeping and accounting services will be within these price ranges:
- Bookkeeping: $300 to $700 per month
- Corporate tax return: $1,500 to $2,500
- Corporate tax return with Notice to Reader / Compilation Engagement: $2,000 to $4,500
- Corporate tax return with review engagement: $3,500 to $7,000
The actual costs of bookkeeping and accounting services will depend on a number of factors, including but not limited to the following:
- The services you need
- Qualifications and experience of the professional
- Accounting software currently being used
- Whether you need assistance with bookkeeping
- Quality of the existing bookkeeping records
- Frequency and extent of support required throughout the year
- Number of active employees on payroll
- Industry of the business
- Complexity of the transactions
- Volume of transactions
- Number of bank and credit card accounts
- If the business deals with foreign currency
- Ownership structure of the business
- Size of the business (e.g. annual revenue)
- How often do sales taxes (GST/HST return) need to be filed
- The method you paying yourself and other shareholders
- If the business has any debt or financing arrangements
- Whether the company has any investment assets
- Cash or accrual basis of accounting
- The requirement of formal financial statements issued by a CPA
- Level of assurance required on the financial statements
Should You Hire a Bookkeeper?
Outsourcing bookkeeping to an external service provider is a great solution for small businesses that don’t have the capacity to employ their own full-time bookkeeper. This kind of arrangement allows businesses to rely on specialized knowledge and experience in handling financial records, payroll system, and even controllership functions. Ideally, the bookkeeper should be familiar with popular cloud-based accounting software such as Quickbooks Online so collaboration can be carried out online efficiently.
Hiring a bookkeeper also provides businesses access to a range of expertise, allowing them to scale up as the business grows. This form of outsourcing is also cost-effective compared with taking on new staff, as there are no additional payroll or overhead costs associated with the service. The transition of any internal staff can also be seamless, as bookkeepers are used to dealing with change and understand how to ensure everything runs smoothly from the point of transfer. Additionally, segregating bookkeeping tasks and regular review can drastically reduce fraud risk.
Should You Hire an Accountant?
How much does an accountant cost is an important consideration, but it is essential to have an expert with the knowledge and skills required to ensure your financial records are accurate and up-to-date. An accountant can provide invaluable assistance in this regard and can help save money over the long term.
For starters, a qualified CPA is aware of the recent changes to Canadian tax regulations. This means the accountant can maximize tax savings while avoiding unnecessary penalties by completing your taxes accurately and on time.
An accountant can also help with cost-cutting strategies. They know your company’s financials in detail, so they’ll be able to advise you on where it is best to spend and where to save.
Finally, an accountant’s knowledge of the business financial statements can help you make informed decisions when it comes to managing cash flow and tax planning for the future. They can advise how to grow your business, depending on your goals and what you want to achieve.
Overall, hiring an accountant is a great way to ensure you get the most out of your finances and save money in the long run. They will be able to provide guidance on how best to manage your financial records, as well as help make your business become more successful.
Remember, while the cost of hiring an accountant or a bookkeeper will depend on your needs and budget, the opportunity cost of hiring internally or doing it yourself is often higher than what you would pay to outsource these tasks.
By taking advantage of the time-saving benefits of outsourcing, you can work more efficiently and use resources wisely. This will allow you to make better financial decisions for the business and drive it toward greater success in the future.