Keeping overhead expenses low is important for every business, but especially for SMEs where the budget is that bit more restricted. Having an in-house company accountant or accountancy team can be a very costly overhead for a small business. Of course, many companies would say the expense is worth it considering an accountant is not only employed for basic bookkeeping services, but for their financial knowledge with regards to tax deductions, credit control, and budgeting.
With a financial advisor on your side, you can make more informed decision-making, save time and tackle those long-term goals head-on. But is there a more cost-effective way of fulfilling your accountancy function? Ultimately, are you getting a good deal?
Are you paying too much for your accountant?
The question you’re probably asking is what’s a reasonable benchmark for employing an accountant? It would be easy for us to say, ‘‘Well, that depends on your business’’, and this answer wouldn’t be wrong. However, we have managed to come up with an applicable benchmark that you can use for your own company, whatever type of business is it. That number is 4%.
Where has this benchmark come from?
Beyond has been a relied-upon accountancy practice for hundreds of different types of SMEs and Rory Finnegan, our company founder, has been responsible for accounts departments and acted as the financial controller and the financial director for companies before Beyond. In short, we have a very broad perspective of how the accountancy function works in many different types of companies, both internally and externally.
With this wealth of experience at hand, we have concluded that 4% is the magic number for every type and size of company. You should not be paying more than 4% for your accountancy function; that is, 4% of your total turnover if you’re a service company, or 4% of your total profit if you’re a product company. This 4% that you are spending on accounting encompasses all the costs necessary for the function. Therefore, it is not only the bookkeeper’s salary but also the accounting systems, the hardware, the external accountant, the office space, etc.
Let’s look at an example…
Consider, for a moment, a graphic design company in its second year of business. It has reached a turnover of €100,000 in fee income per year. If we calculate 4% of their turnover, we find that their total accounting cost should be a budget of €4,000 a year.
In this case, they could not be employing an accountant, either part-time or full-time. They need to outsource their accounting. As they grow to, say, €500,000, their accounting budget is now €20,000. Still, they don’t have the budget for an accountancy team. €1,000,000 would get them only one member of staff, therefore €5,000,000 is the ideal turnover for an accountancy team.
Take a second now to calculate your 4% (4% of your turnover if you’re a service company or 4% of your profit if you’re a product company). Now compare that number with how much you are currently paying for your accounting. How does it fare?
Is accounting costing you more than 4% of your turnover?
If your calculations came under 4%, then happy days! However, if you’ve found you are paying too much for your accounting you’re going to need to come up with a more cost-effective solution. At Beyond, we can have a chat with you and offer practical solutions to bring your accounting costs under 4%. Your main options, if a full-time company accountant isn’t viable, will include:
- Outsourcing your accounting
- Outsourcing your bookkeeping
- Hiring part-time financial and accountancy staff
- Using a cloud accounting system, which is cheaper than desktop solutions