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How much should accounting & bookkeeping cost?
There is no right or wrong answer to the question of bookkeeping cost. Some small businesses will only be spending few hundred pounds and obtain services like Annual Accounts and Corporation tax returns. Others will spend thousands of pounds a year on hiring bookkeeping staff internally and also having external Accountants for compliance related work e.g. vat, payroll, statutory accounts, corporation tax returns and audit etc.
It all depends on the size of the business, the volume of transactions, the complexity of the operations, and most of all on how much the business owner values the Finance & Administration side of his business.
Many small and young businesses don’t prioritise their back office and find the cheapest solutions in terms of maintaining bookkeeping records. Needless to say the result is often unsatisfactory. First of all records usually have more than acceptable errors and secondly regular & reliable management reports are simply unavailable.
No matter how small your business, it needs an accounting & admin ‘department’. Deciding on how well you want to develop that department is similar to a decision of buying a house. When getting a house we look for comfort, we want it to be suitably renovated; nothing should be broken or missing. It should be big enough to suite our family needs. We will want to live in a peaceful neighbourhood. Now based on our affordability we will do our best to find a house that will make life easy and living joyous.
When I see a messy accounting system in a company with incomplete records, wrong entries, threatening letters from HMRC and suppliers, stressful staff and management, it is like going into a house in a dangerous neighbourhood with a leaking roof, broken pipes, no gas or electricity, smell …well you get the picture!
Hence, whenever I am talking to new clients I stress that spending money in your back office is not just another expense, it’s an investment. Of course you don’t need to overspend and your budget should justify the size of the business. As a rough guide you should be thinking of spending 3-5% of your turnover on Accounting / bookkeeping needs but it can vary from business to business.
It is understandable that we don’t want to buy a six bed house for 2 people but it’s also important that we get a good location and a fully functional house so we know we will be happy there.
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