Business owners using the world’s most popular small business accounting platform naturally want to know the price of professional support. While today’s online accounting significantly reduces the manual labor cost, these is always some requirement for skilled personal support. I am revisiting the topic now because I wonder about resetting my own fee structure: both what I charge clients and what I pay other accountants in collaborative work.
I am well aware of the price resistance and cost constraints of small businesses, including my own. The goal, of course, is to provide a service worth far more to the business owner than its price. The only way that is possible in accounting is when the service centers around business advice, not data entry or tax reporting.
I reviewed an Intuit QuickBooks rate survey report compiled by one of the leaders in the industry. The 2016 survey showed an unsurprising result that fees vary with experience, designations. location and type of work. For discussion purposes here, let’s just say that the average rate in the survey is $80 per hour.
That seems like a reasonable rate. If you do the math, adjust for non-billed hours and overhead costs that works out to the same earned income as the median as other comparable skilled professions; perhaps something in the range comparable to a salary of $50,000 to $60,000 per year. Again, I’m being liberal with the terms for this discussion since there is a wide range of variables to consider.
However, three things jump out at me:
First, most accountants work far more hours for clients than they actually bill. Again, for purposes of discussion, I guess that the median accountant works more than 2,000 hours per year but bill less than 1,000 hours. So while accountants may report that they bill at $80 or more per hour, the reality is that they are working for $40 or less.
Second, more than half of survey respondents (as well as most of the accountants I’ve spoken with anecdotally) say that they use fixed fees, not hourly fees. I am among the fixed fee group since I have no intention or ability to track and bill for time.
Third, a typical small business owner does not share the same vision of accounting services as I do. The business owner may still think of accounting as a necessary evil to avoid trouble with tax authorities. I think of those rote tax services are primarily an automated function. Instead, I think of small business accounting as a way to streamline and improve sales, manage inventory, reduce taxes, spark creative ideas, etc. The challenge of the accounting industry is to bridge this gap in understanding.
My own experience is that it takes an accountant a minimum of 3/4 hour per week to review a small company’s books, assuming that everything is working properly, and check that the data being reported is valid and meaningful. Projected out, that means the entry fee of professional accounting service should be in the range of $250 per month. I’ve read that figure in other places, so my arithmetic here seems to be a confirmation of industry reports. In the roughest terms, this translates to a conclusion that a business with less than $75,000 annual gross earnings is not able to afford the cost of accounting ongoing services. (Not coincidentally, these are the businesses that bring a shoebox of receipts to their tax preparer and face the highest risk of audits and penalties. But that’s beside the point; this blog post is not about tax services!). What that means to me is that I should not consider any engagement unwilling to commit to that allocation of financial resources.
When additional lower-level bookkeeping skill is required (like fixing or entering data) then I’ve found that this service can be arranged at a lower price of $45 to $60 per hour including the cost of higher level oversight.
My personal preference is to focus on business system design services, employee benefits integration, tax planning and other aspects of the accounting, that actually contribute to the profitability of the small business. These services tend to require a higher level of expertise, are more likely to be single event engagements, and are naturally offered at a higher price. A flat fee of $500 for analysis or $1,000 for setup service is a reasonable rate. My focus should remain on showing business owners how a fee like this will directly translate to immediate tax savings or increased profits of many times more than the fixed cost of accounting service.