If you have a growing business, this is one of the most common dilemmas you face. We hear this question from both potential new clients and businesses, and existing clients almost every day of the week.
What is easy is to put companies in a group and recommend that when their business reaches x in monthly or annual revenue, then it is time to act. Yet experienced business people know that the decision is far from being so simple or easy.
That leaves the question of how far can your current accountant take you and remain cost effective? The answer may surprise you.
It is no secret that the development of online accounting software such as Xero and Quick Books has changed the way businesses do their accounting. And you can now hire in a quickbooks pro advisor as an example of how someone can help you make the right decisions in this area so you’re not alone. Entrepreneurs can now do everything from invoicing to generating reports to simply connecting to their bank and view and conduct daily transactions simply by clicking a mouse button. The software also allows businesses to remotely connect with their accountants online. If you are someone who does their work while traveling, the benefits of having online accounting software available are many. There are also many popular accounts if your business or one you know of has not already invested in one, you can visit this site for an example of one – https://www.eidebailly.com/locations/tulsa.
Instead of having your accountant pay you a visit at your office to perform monthly tasks such as bank reconciliations and preparing monthly and quarterly reports, you can leave those days behind and trust your accountant to do their work online, leaving you free to run your business uninterrupted. Of course, a growing business will require more of your accountant’s time. So the question is, when do you reach the tipping point?
The Tipping Point
The mathematical tipping point is a simple calculation, detailed as follows:
1) A quality bookkeeper will usually cost you between 35 and 50 per hour. Compare that value with the typical annual salary of a bookkeeper that ranges between 22 and 25 per year, the adding in expenses of employment rights and national insurance.
2) Take the lower of the values for each case (multiply the per hour salary by the number of actual hours you expensed for the bookkeeper). The point at which your accountant or bookkeeper should be hired in-house and be cost-effective is when 30 percent of their billable hours are expensed to you.
Now this says when it is cost-effective but does not actually define the tipping point.
Based on our considerable experience, the number of transactions per day is the key. Less than 80 transactions, whether they are from sales, purchases, or are bank transactions, should have you stay put and leave your accountant or bookkeeper to do the work outside of your company. Bringing them in-house before rising above 80 total transactions will likely cost you more.
We have a chart that summarizes the revenue estimates for select industries where the tipping point is reached or exceeded, and makes hiring in an accountant good financial and business sense. Notice that media and professional service businesses can top revenues of 1m and still realize a cost advantage by continuing to leave their accounting and bookkeeping services outside of the company.
It is folly to think that the decision is purely about the cost.
There are a number of intangible benefits in keeping your accountant outside of the business, including:
l Reducing employee expenses because you do not have to incur expenses of sick pay, maternity/paternity leave, holiday, pension, and other employee benefits
l Office space is freed up for other productive tasks
l You still have all the advantages of an in-house accountant, including informed expertise, cash flow advice, tax planning, and VAT support
l Reduced end of year costs because your accountant knows your records are in order and will be able to finish the job quicker
l The familiarity with your business that enables you to get the best advice from someone who has a personal knowledge of the business operation
I could use another pair of hands
This is a consideration that has not been discussed, but for some businesses is a critical point to address. There are advantages that hiring in a bookkeeper can bring, including freeing up some of your time to tend to other business functions. A situation where this is especially true is where a small business owner has skills that are essential to the day-to-day operation of the company, such as in the creative or professional services industries. In such cases, the owner begins to consider a “fixer” – someone who is able to manage a variety of office and administrative functions, such as HR and accounting.
When dealing with these types of situations it is important to analyse the whole of the situation, including the broader context of the business and the company’s overall growth strategy. Your accounting needs may have to be reprioritized to meet the broader goals of the company.
There are generalisations that can be made, and hold true in most businesses. At the same time, it is also true not one size fits every situation or business. When the time comes to evaluate and consider the financial direction your business is going – You may discover that the best long term plan is to let an outside accountant work with you, leaving you free to run your business.
Accounts And Legal provides accounting services to small and medium sized businesses with entrepreneurial aspirations. And aims to do it in a way that translates into growth. Their Commercial Managers typically have an industry specialism, so you can be sure you are dealing with someone who understands your business and your industry. www.accountsandlegal.co.uk/