Cost of an Accountant for a Small Business

If you are an entrepreneur, managing your financial records might not be one of your favorite tasks. Draining your bank account to delegate your accounting service is not something you want either. Yes, it can be more complicated than you thought to ensure that your accounting and bookkeeping expenses are on track.

What should be the cost of an accountant for a small business? The explanation is not as easy as it might seem.

Accounting costs mainly vary upon the operations of a business. Even companies with the same industry and size have very different accounting expenses. So, let’s discuss the costs you need to consider in your small business’s accounting.

What are accounting overhead costs?

Accounting expenses are a vital part of a company’s overhead. The overhead cost of an accountant for a small business does not directly turn into a profit. Though an overhead cost doesn’t convert into cash, it is essential for your business growth.

Your accountant will directly not earn profit for your company. But, they will maintain the records of all the transactions. It will help you keep a clear track of your profit and reduce your overhead costs.

As much you can keep your overhead cost low, that much profit you can save. An accounting expert will give you cost-effective solutions that fit all the demands of your business.

What is the cost of an accountant for a small business?

What services do you expect from the accountant you will hire? This question helps you to understand how much you need to pay them. Accounting experts cover a broad spectrum of services such as bank reconciliations, vendor invoices, customer invoices, credit card transactions, collections, financial projections, financial statement preparation, and cash flow forecasting.

The cost of an accountant for a small business varies on your location as well. But, we can expect a range between $40 and $100 per hour. Nowadays, many accountants charge based on their working hours.

However, outsourcing accounting and bookkeeping services are becoming increasingly popular nowadays. The outsourcing firms offer the startup owners a fixed price based on the amount and complexity of the work.

You can avail of essential bookkeeping services at a few hundred dollars a month approx. It will increase along with the volume of the work.

The expense can be up to several thousand dollars per month if you delegate this vast workload. I will suggest you not go for the lowest-cost provider. The basic rule of business is- you will get what you are paying for. When you pay peanuts, you can’t expect efficient work. You will see yourself disappointed, and your books will be in a mess.

A controller or CFO offers small business owners a higher-level accounting service. They generally charge between $100 and $400 per hour. The cost of an accountant for a small business may differ upon the accountant’s experience level and the type of work.

How much should you pay your accountant for your small business?

Well, here comes the controversial context. Let me clarify that there is no particular standard to fix how much you should pay your accountant. It depends upon the industry you are operating your business.

According to SCORE, the yearly cost of an accountant for a small business in 2021 was between $1000 and $20000. On average, the companies spend up to $5000 annually for accounting and bookkeeping services.

$1000 or less: 23% of small business owners
$1000 to $5000: 31% of entrepreneurs
$5000 to $10000: 18%
$10000 to $20000: 12%
$20000 or more: 16%

The fun fact is 40% of the small business owners have confessed that they think accounting and bookkeeping are the worst part of operating a startup.

What should be the cost of a CPA for your small business?

Many business owners want to know this. The answer depends upon the services that the business owner needs. So, the more relevant question should be: how much should you pay a CPA for the tax preparation services.

As per the National Society of Accountants, the small business owners have spent $570 on average for tax preparation services in 2020. Average charges also included:

$282 for a Form 3115 (application for change in accounting)
$482 for a Form 1041 (fiduciary)
$809 for a Form 1120S (s corporation)
$826 for a Form 1120 (corporation)
$656 for a Form 1065 (partnership)
$124 for schedule D (gains and losses)
$184 for a Form 1040 Schedule C (business)
$273 for a Form 1040 with a Schedule A and state return

It’s also essential to know that all accountants and accounting firms don’t prepare or submit taxes.

What are the other accounting costs you should consider for your small business?

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We have already discussed the cost of an accountant for a small business, administrative fees, and tax preparation charges. But, these aren’t the only accounting expenses for a startup owner.

The followings are the complimentary costs that you have to include in your accounting expenses:

Financial price (47%)
Administrative headaches and time (13%)
The complexity of compliance (13%)
Paperwork (8%)
Changing regulations and confusion (10%)
The inequity of the tax code (8%)

Generally, the small business owners think that their attitude towards accounting is trivial compared to cold hard cash. It might affect their business. But, the fact is, if accounting makes you miserable, it will affect the other areas of your business. It can harm your ability to serve customers, lead employees, and make decisions.

Moreover, the time you spend looking at accounting costs does not profit you. According to SCORE, small business owners spend approx 41 hours on tax preparation each year on average. Outsourcing your accounting services can help you save time.

What is more beneficial for accounting: in-house vs. outsourcing?

You got two options here. Either you can hire an in-house accountant, or you can outsource your bookkeeping and accounting services. Now, which one can reduce the monthly accounting fees for small businesses?

An in-house accounting expert can work for you part-time or full-time. It depends upon the needs of the startup. But, it is the most expensive option. Here you have to pay the in-house employee a salary and add them to your business’s payroll.

But when you outsource your accounting services, you have to pay for the area you need to get done. The accountants of the outsourcing firm will work for you remotely.

You don’t have to carry the maintenance and insurance expenses. It would help if you bore no commitments and liabilities for the accountants. Outsourcing is always the best option when looking for cost-cutting and quality work.

When does your small business require an accountant?

An accountant provides a broad spectrum of services, such as:

Tax planning advice
Maintaining financial records
Setting up accounting and bookkeeping systems
Preparing and filing your business taxes
Creating a personal financial plan
Providing business advice to help the business owner operate cost-effectively
Auditing your business’s books
Generating audited financial statements

Small business owners can perform some of those tasks themselves. There is some accounting and tax software available in the market that helps you complete those tasks. Still, there are some valid reasons to hire an accountant.

The most notable reasons are audits and business taxes. These are two complicated and time-consuming processes. You certainly don’t want any error here.

A certified and experienced accountant can be a life-saver for your audit and taxes. They can also offer you financial advice for your business.

The bottom line:

Recruiting an accountant is always a big decision for every startup owner. But, this decision doesn’t depend upon the cost of an accountant for a small business. Entrepreneur needs to think about their opinions carefully and weigh the cost-benefits.

Assessing the accounting requirement of your business and how often you need those services will help you understand whether the expense will benefit your business or not.

If you finally decide to hire an accountant, choose the right one for your business- considering certain services, fees, and experience. It might be tough to make a final decision. Still, it will help you to save valuable time and hassle. Moreover, the direct benefits that an experienced accountant offers can outweigh the costs for sure!