How Much Should Accounting Cost a Small Business?

If you’re a small business owner, managing your financial books is not an expense you want draining your bank account. But, it can be difficult to know if your accounting costs are on track. How much should accounting cost a small business? The answer is not as simple as it might seem.

What are accounting costs?

Accounting costs vary widely. Even companies that are the same size and industry pay very different amounts for accounting. Before we get into dollar figures, let’s talk about the expenses that go into small business accounting.

Accounting overhead costs

Accounting expenses are part of your business’s overhead. Overhead expenses are costs that do not directly turn into a profit. Though these costs do not convert into cash, they are necessary for running your business. For example, rent for your business location is overhead.

Your accounting program will not directly earn more money. But, you need to maintain records of your company’s transactions.

As a small business owner, try to keep overhead costs low. The smaller your overhead costs, the more profits you get to keep. You don’t want to cut corners, but you should look for cost-effective solutions that fit your business’s needs.

Accounting fees for a small business

Your accounting costs largely depend on how often you use bookkeeping and accounting services. Financial experts can help you maintain accurate records, interpret reports, and file taxes.

The average accounting fees for a small business depend on the kind of financial professional used. A bookkeeper helps with tasks like recording transactions, processing payroll, invoicing customers, and balancing your books. Accountants and CPAs help with more advanced tasks, such as filing small business taxes, generating statements, analyzing costs, and giving advice.

Bookkeepers and accountants usually charge a fee per hour of service. The average cost of accounting services for small business differs for each unique situation. But since bookkeepers do less-involved tasks, their rates are often cheaper than accountants.

Your financial service fee depends on the work you need to be done. The average monthly accounting fees for a small business will rise as you add more services and the tasks get harder.

Keep accounting costs down by taking care of some financial tasks yourself. For example, you can record transactions and process payroll using online software. You enter amounts into the software, and the program computes totals for you. In some cases, payroll software for accountants allows your accountant to offer payroll processing for you at very little additional cost.

Software solutions come in all shapes and sizes. You can spend a lot of money or pay a small monthly fee. The more features you add to the software, the more expensive it will be.

For small business, you do not need an elaborate program to manage accounting. Basic accounting software streamlines the process and lets you record transactions quickly. Periodically enlist the help of a financial expert for difficult accounting tasks as needed.

As your business grows, you will probably need an accountant more often. Andrew Blackman, copy editor and writer for Envato Tuts+, stressed this point:

It’s true that, for very small businesses with very simple financial affairs, hiring an accountant may be an unnecessary expense. But as your business starts to grow, the financial complexity and the number of tax rules you have to comply with can quickly become overwhelming. In this situation, hiring an accountant becomes less like an expense and more like an investment that will pay rapid dividends.”

How much should accounting cost a small business?

The cost of accounting depends on your business’s size, industry, and bookkeeping methods. Though every company is different, there are average small business accounting fees and costs. Are you paying above average for accounting?

In 2015, the small business nonprofit organization SCORE compiled statistics about small business accounting costs. According to SCORE, most small business owners spend at least $1,000 per year on accounting administrative costs, internal expenses, and legal fees. The data is broken down like this:

  • 23% spend $1,000 or less
  • 31% spend $1,000 to $5,000
  • 18% spend $5,000 to $10,000
  • 12% spend $10,000 to $20,000
  • 16% spend $20,000 or more

The typical accounting fees for small business fall between $1,000 to $5,000, according to the poll. If you’re a new business owner, don’t forget to factor accounting costs into your budget. If you’re a veteran owner, it might be time to re-evaluate accounting costs.

Other costs to consider

Administrative costs and accountant fees aren’t the only accounting expenses. You should also consider the effects accounting will have on you and your time.

The SCORE report revealed that 40% of small business owners feel that bookkeeping and taxes are the worst part of owning a business. That feeling doesn’t come without reason. The following are things that entrepreneurs don’t like about bookkeeping and taxes:

  • Financial cost (47%)
  • Administrative headaches and time (13%)
  • Complexity of compliance (13%)
  • Changing regulations and confusion (10%)
  • Paperwork (8%)
  • Inequity of the tax code (8%)

While you might think your attitude towards bookkeeping is trivial compared to cold hard cash, it affects your business. If accounting makes you miserable, the issue can spread to other parts of your operations. Your ability to lead employees, serve customers, and make decisions could suffer.

Your time is also valuable and should be considered when looking at accounting costs. The time spent on accounting tasks does not generate profit. The less time you spend on bookkeeping and taxes, the more time you have to grow your business.

Most small business owners spend 41 hours or more on tax preparation each year, according to SCORE. The study breaks down time spent on tax prep like this:

  • 40% spend over 80 hours
  • 18% spend 41 to 80 hours
  • 15% spend 21 to 40 hours
  • 28% spend less than 21 hours

You don’t want to spend the majority of your workday on accounting tasks. But, you should make the time you spend on accounting count. Use a simple software solution to record transactions quickly. For difficult tasks, hire an accountant to help you. Finding the balance between time and money spent on your books will help you keep accounting costs on track.

Need a simple solution for your small business bookkeeping needs? Patriot’s online accounting for small business is easy-to-use and made for the non-accountant. We offer free, U.S.-based support. Try it for free today.

This article is updated from its original publication date of May 18, 2017.

This is not intended as legal advice; for more information, please click here.

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