Why Outsource Your Bookkeeping?
September 27, 2021
Most business owners hate dealing with admin work. When it comes to bookkeeping and tax, not only is it a lot of admin work, it can also be intimidating.
A business owner has three options to handle their bookkeeping and accounting: (1) Hiring a bookkeeper, (2) Doing It Yourself, and (3) Outsourcing.
In this post we will examine each option and compare their respective advantages and disadvantages. We believe that businesses are better served by outsourcing their bookkeeping to a professional accounting firm.
Hiring a Full-time bookkeeper vs. Outsourcing Bookkeeping
Hiring a bookkeeper
If you decide to hire a bookkeeper full-time, you will have to pay him/her the equivalent of a full-time salary. The average salary for a bookkeeper in Toronto is $45,000 (Source: ca.talent.com). In addition to a salary, the bookkeeper (like all full-time employees) will be entitled to mandatory and discretionary benefits. Therefore, you will be required to pay the employer’s portion of CPP and EI which for a salary of $45,000 is approximately $3,500.
Therefore, the total cost to hire a full-time bookkeeper in Toronto is $48,500. This is before any other discretionary benefits you provide to your employees which will only drive the cost up.
Instead, if you choose to outsource your bookkeeping for $1,000/month to a professional accounting firm, your total cost for bookkeeping for an entire year would be $1000/month x 12 = $12,000.
When you compare this to the cost of hiring a bookkeeper at $48,500, the outsourcing option is only 25% of the cost of hiring fulltime. In other words, hiring a bookkeeper is 4 times more expensive than outsourcing your bookkeeping. This is a huge cost saving!
Conclusion: From a cost perspective alone, outsourcing your bookkeeping to a professional accounting firm is a much cheaper option than hiring a bookkeeper.
Doing Your Bookkeeping Yourself vs. Outsourcing Bookkeeping
One of the most common things we observe is founders and entrepreneurs attempting to do their own bookkeeping.
Although we respect the hustle and believe that founders are smart and can figure out their own bookkeeping – there a number of reasons why we believe doing your own bookkeeping as a founder is not a good idea:
1. Opportunity Cost
Let’s face it – you have a business to run. Any time you spend doing bookkeeping or admin work is time taken away from an activity that could be helping your business land a new customer, win a new deal, or grow. Opportunity cost is exactly that.
We can quantify the opportunity cost of you investing time to do your own bookkeeping by using the following example:
Let’s assume Jane is a freelance entrepreneur. She provides marketing services to small businesses. Jane charges her clients $200/hour.
In order to save some money, Jane decides to do her own bookkeeping every month. She spends 10 hours each month doing her bookkeeping because she believes that outsourcing her bookkeeping would be too expensive.
The opportunity cost for Jane is the 10 hours she is spending doing bookkeeping every month. Imagine what would happen if she spent that time generating leads and getting more clients? If she spent 10 hours doing client work at her rate of $200/hour, she would have made $2,000 in additional revenue per month. She could easily afford to spend $500/month to hire a bookkeeper and not spend any time on her bookkeeping.
In the end, Jane would still be $1,500 ahead ($2,000/month in revenue from 10 hours of client work less $500/month for outsourcing her bookkeeping) each month.
Conclusion: The opportunity cost of doing your own bookkeeping is the additional net profit you could have made if you devoted that time to grow your business. You can use the time you would have spent doing your bookkeeping to grow your business and generate more revenue and profit.
2. Save Time & Prioritize
Closely related to the opportunity cost of doing your own bookkeeping, is the time you could save by using an outsourced solution.
When I first started Vertical CPA, I met an engineer who was the founder of a startup trying to figure how depreciation worked. He spent ten hours doing google searches and watching YouTube videos to learn how to book depreciation to prepare his yearend financial statements.
Is this really the best use of time for a founder?
A founder should be focused on building a great product for his/her customers and growing their company. Spending time trying to understand how an obscure concept like depreciation works is NOT a valuable use of a founder’s time.
A Startup would be better served if its founder was focused on growing his company, attending to his customer’s needs, and nurturing his employees. Spending time doing bookkeeping is a non-value add activity that doesn’t help a Startup grow.
Luckily, I was able to convince this Startup’s founder to re-evaluate his priorities and re-focus his time on growing his business. He decided to outsource his bookkeeping to our firm.
Conclusion: Save your time and re-prioritize your schedule towards value added activities. If the work you’re doing isn’t helping your start up grow, solve customer pain points, or helping your employees win – why are you doing it?
Find someone who can help you and delegate to an outsourced professional accounting firm
3. Get an Expert
When your car has a breakdown, do you go to a professional mechanic to get it fixed?
When you’re sick, do you go to visit a doctor?
Your answer to both questions is probably an emphatic “YES”.
Well, using an accounting professional is the same. An CPA has decades of expertise and can handle your books in a manner that you can’t quite do yourself.
Our firm’s team of accountants are not just bookkeepers, but professional CPAs who have an in depth understanding of bookkeeping and accounting.
The advice and foresight you could get by using a CPA to work on your financial statements can’t be understated. If you’d like to grow the valuation of your company, increase your revenues, or decrease expenses – a trained accounting professional can help.
Occasionally we notice that companies try to hire an operational staff member on their team to handle administrative tasks and bookkeeping. This person becomes a “jack of all trades” type of person that handles a little bit of everything. Although this may seem like a practical solution, in our experience non-accounting professionals make mistakes and don’t have bookkeeping at the top of their priority list.
This leads to unforeseen errors and inaccurate record keeping. All of which would have never happened if you hired an experienced accounting professional.
Conclusion: Taking shortcuts and finding a cheaper alternative is completely understandable. However, it could lead to problems and messy bookkeeping as your business grows and scales. Hire a professional CPA and save yourself the anxiety later.
4. Derive Insights
Lastly, accounting isn’t just about making sure all your financial records are up-to-date. Accounting is a measurement of performance for a business to use to determine its financial viability and success.
Your financial statements help you answer fundamental questions about the health of your business such as:
- Are you growing?
- Are you profitable?
- Are your expenses too high?
- Which expenses can you reduce?
- And much more…
Answers to these questions help you determine how your business is doing and which parts of your company need attention. A good accounting professional can provide advisory and FP&A services to help you answer these questions and help you derive insights for decision making.
Once your business has reached some level of stability, we highly recommend that you start to obtain advice from an accounting professional that provides CFO services on how to increase your sales (via volume or pricing), which expenses ratios could be used as benchmarks to decrease your spending, and how to generate a higher valuation for your business.
Conclusion: A good accountant can provide insights and help you make better decisions to improve the health of your business and ultimately help you increase the valuation of your business.
Let us help you. Would you like to outsource your bookkeeping? Email us: firstname.lastname@example.org
The accounting and tax information provided in this post does not constitute advice and is meant to be for general information purposes only. The information is current as at the date of this post and does not reflect any changes in accounting and/or tax legislation thereafter. Moreover, the information has been prepared without considering your company or personal financial/tax circumstances and/or objectives.