HIRING A BOOKKEEPER: IN-HOUSE VS. OUTSIDE FIRM
Now that you’ve decided it’s time to get your financial records out of Excel and into something more accurate, it’s time to enlist some professional help from a bookkeeper.
There are essentially two paths you can take when hiring a bookkeeper; in-house or an outside firm.
An in-house bookkeeper would mean bringing on a W-2 employee that would likely be working full time. There are several options for hiring someone outside your company:
- Large national bookkeeping firms
- Large national virtual bookkeeping companies
- Local bookkeeping firms
- Local freelance bookkeepers
PROS & CONS OF AN IN-HOUSE BOOKKEEPER
Let’s assume that if you’re bringing someone in house, it’s because you feel you need a full-time bookkeeper. This means you have someone in your office for 40 hours a week able to help with all things financial related.
The advantage of this is that this person can help with things that aren’t necessarily bookkeeping related as well. Often you’ll find companies who use this employee to do things like customer service or office manager tasks. Things like making sure the kitchen is stocked, office supplies are re-ordered, etc.
The disadvantage here is that you’re paying this person a salary as a full-time bookkeeper. If they’re spending several hours each week doing other tasks that are frankly below their pay grade, you’re not putting your money to good use. And let’s face it, nobody actually works for 8 full hours a day. So you’re paying someone to check Facebook, Gmail, and restaurant menus for dinner after work.
Another disadvantage is the myriad of extra costs that come with each new employee:
- Training costs
- Federal employer taxes (FICA & Medicare)
- Unemployment insurance (both state and federal)
- Workers’ compensation insurance
- PTO/Sick/Vacation pay
- Health benefits (optional)
In an article published by MIT, researchers put extra costs of an employee (beyond their gross wages) at 25% to 40% more than their base salary! That means a bookkeeper making $36,000/year would actually cost your company $40,000 – $50,000/year depending on how many benefits you offer. We’ll go deeper into these numbers towards the end of this article.
PROS & CONS OF AN OUTSIDE BOOKKEEPER
Hiring out a bookkeeper is usually much more economical for small to medium sized businesses than a full or even part time employee.
The main disadvantage here is a higher hourly rate. An in-house bookkeeper might make something like $17/hour. An outside bookkeeper will probably bill you around twice that. However, this is offset by the advantages.
Remember, that employee has added costs, so $17/hr turns into $21 or $22/hr. The big advantage is in the time savings an outside bookkeeper can offer.
As we talked about above, with a full time employee, at say $17/hr, you’re on the hook for $680 each week in just base wage cost. Not only that, but you have to find work for this person to do for 40 hours per week. Every minute they spend without something to do is money lost for your business.
With an outside bookkeeper like Digidern, you’re only billed for time actually spent on your company. And we can typically work a lot more efficiently. This is due to a number of factors, but mainly that we have more experience than the average person hired for in-house bookkeeping. This is the one and only thing we do!
What an average in-house bookkeeper can accomplish in 30-40 hours per week, we can usually do in 10-15. We have developed specialized workflows for each part of the bookkeeping process. We then customize them to each client to maximize the value in your dollars spent.
LET’S LOOK AT THE NUMBERS
It’s easiest to illustrate my point with a hypothetical hiring situation.
We work a lot with restaurants. One particular restaurant has three locations and does close to $4m in annual sales. Here’s what their cost would be for a full-time in-house bookkeeper:
- Salary: $36,000/year
- Federal Employer Taxes: $2,754/year
- State Unemployment: $90/year
- Federal Unemployment: $42/year
- Workers Comp Insurance: $650/year
- PTO/Vacation: $1,000/year
- Medical Insurance: $2,000/year
- GRAND TOTAL COST: $42,536
As you can see, the total cost of just one employee in their case would be nearly 20% higher than the base salary.
Instead, they choose to hire out their bookkeeping at a cost of less than $1500/month ($18,000 annually). That’s less than HALF the cost of having someone do it in house.
So if you’ve outgrown the spreadsheets (and if you’re thinking about hiring, you definitely have), carefully consider the alternatives. Many people go straight to an in-house employee bookkeeper. But the economics typically don’t make sense there until you’re running a relatively large business.
If you do decide to hire someone in-house, head over to our new business payroll basics post. You’ll find a ton of helpful information on how to stay in compliance with payroll tax regulations.