"Can I afford to hire someone?"
That’s one of the most common questions we hear from our customers. Almost all budgeting scenarios revolve around staffing. Most of these inquiries revolve around hiring people who are the core of what the business does:
- developers for a software company,
- analysts for a consulting agency,
- or designers for a marketing agency.
Our customers are small businesses that have already learned to be nimble and bring in experts for non-core areas, such as, HR, legal and, of course, accounting.
Prospective customers considering to outsource their accounting often have concerns about cost or how outsourcing works. The alternative to outsourcing is to hire and we’ve found many business owners significantly underestimate the actual cost of hiring an employee.
There are four major components to consider when determining hiring costs:
We’ve created a Google Sheet template for you to come up with your own total cost to hire.
Please make a copy of this sheet before editing.
Let’s dig a little deeper into each component.
Wages are the gross amount you pay your accountant. This is the most tangible factor to consider in your cost.
Wages vary significantly by the location of the employee and skills. We have used the U.S. Department of Labor average for a general bookkeeper for the purposes of our sample calculation.
Your estimate will vary significantly if you are in New York versus Wichita or if you need a controller-level accountant versus a bookkeeper.
Benefits & Taxes
Benefits and taxes are direct monetary items contributed on the employee’s behalf that are in addition to their wages and considered part of their compensation. Items include health insurance, vacation, payroll taxes and retirement.
These costs are significant and are commonly used to compare your company against another when a jobseeker is deciding to take a job. It is difficult for a small business to compete in this area. These costs also continue to rise, exhausting the resources of small businesses.
Many companies use a straight percent applied against an employee’s wages ranging from 20%-30%. Our template will show you how that estimate is derived.
Most business owners stop here when assessing the cost of an employee but there are other costs to consider.
Overhead is comprised of various fixed and variable costs are attributed to each employee.
These costs relate to:
- Office space,
- Other items needed for the employee to perform their job.
Some of these items are easy to estimate while others are an allocation of a total cost that is somewhat difficult to assess.
An example of this could be the cost of one employee to maintain their email and related application data on a server that the company backs up on a regular basis.
What amount of that expense relates to the accounting function?
We’ll help you estimate these costs.
Time & Effort
Time and effort is one of the hardest components to assess and relates to the costs involved in hiring, training and managing the accountant.
It is important to estimate this amount as you will be shocked by the result.
These costs include your opportunity cost of spending time supervising an accountant instead of focusing on your business. This time isn’t just related to helping them do the work but keeping the employee’s morale high. Business owners know management of direct employees is a time consuming affair. What is your business sacrificing when you spend time directly supervising too many employees versus working on strategy or driving new business?
Another, often overlooked, item to consider is the energy required to manage and remove a poor performer. Some states make it extremely difficult to fire an employee so you might be stuck with your accountant for a while. Knowing what an excellent accountant’s resume and interview responses should be and making sure they are able to do the job well is a risk. Alternatives, like outsourcing, allow you to pay month-to-month. This makes it much easier for you to decide to stay or go if you need to make a change.
We’ve left out hiring costs from our calculation. Many businesses spend at least a few hundred dollars for advertising a job on LinkedIn or up to 10-20% of the annual salary amount if using a recruiter. We have only factored in time spend to hire and manage.
This is the amount to plan for in your budget. Most business owners think of only the gross amount or apply a simple factor of 108% to roughly account for payroll taxes.
You’ve now seen there are more costs to consider. Here is a quick summary of what a $50,000 a year employee would actually cost based on the estimates we used in the Google Sheet template.
Feel free to change our estimates based on your location, benefits, and other factors you believe may be different.
The Basis 365 Difference
Basis 365 was created to serve a gap we discovered in the accounting services market.
Startup business with $1 million in revenue or less usually do the accounting themselves or hire a part-time bookkeeper. Business with $20 million in revenues usually start to build their own internal accounting department.
Businesses with revenue between $1 million and $20 million fall into an accounting services gap. Companies in this gap had few poor options:
- Part-time bookkeeper – unqualified, unreliable but cheap (see the post here)
- Hire an accountant – expensive and less scalable (this blog covers this option)
- Use a CPA firm – expensive, unresponsive as this is not their business model (see our My CPA is MIA! post)
Our services are designed to help businesses grow from $1 million to $20 million in revenues.
Here are the top reasons why our customers choose to us:
Cheaper Than Hiring
I’d be remiss to not start off with the purpose of this blog post: the total cost of hiring. You’ll find in our Google Sheet template to what extent this is true for you.
An Outsourced Team Versus One Employee
Our customers have the benefit of a team of 2-3 educated accountants with ranging levels of skill. An educated accountant is quite different than an “experienced” bookkeeper. You now have a team of accounting professionals performing your accounting in real-time each day. If someone on our team is out sick, another is still working away. We can ramp the team up or down as your business changes ensuring you have a scalable accounting solution. It is not easy to ramp up or down one accounting employee. If you ramp down their hours, they may quit. If you need to ramp up, you’re back to expensive hiring.
Larger Pool of Knowledge
Our employees have access to our entire team’s pool of knowledge. If they need to bounce an idea off another accountant or want to see what software add-on has worked best and why, they can do that at any time.
If a customer needs to add budgeting or encounters a complex transaction such as the issuance of stock options, we can bring on a team member with that skill set right away. You may have hired one accountant with solid accounting skills but that does not mean they will be capable of moving up the knowledge curve overnight.
We are always here for our customers. If you hired one accountant and they are on vacation or quit, you may have an issue. Who will get invoices out? Who will pick up payroll? Who’s going to close the financials? Can I hire a new accountant fast enough to be trained by my accountant that is leaving? These are all valid concerns.
If one of our team members goes on vacation, we have others still working on your account and are capable of performing all tasks while the other is out. If one of our employees quits, we slide in another accountant.
Our goal is that there is no downtime in doing the accounting for your business. We’re here, day-to-day, like clockwork.
Accounting procedures should be documented so that anyone could step in and pick up where the other accountant left off. Every number on the financials should be tied out and supported.
There are almost never documented procedures and almost always items on the financials that nobody can explain when we bring on a new customer. As you look to scale to that $20 million business, documented procedures are a must.
Unless you have the ability to perform a mind-meld, expect to lose and have to re-create a significant portion of the accounting knowledge when you employee departs.