The economics of doing your own bookkeeping
We had a very interesting meeting with a new client a few days ago. The client had been running the business as a sole trader for about a year and approached us to incorporate the business and provide accountancy services. Turnover was low but solid plans for growth were in place.
We ran through the quote face to face and the client took the sensible approach and added all the services that they thought they currently needed: annual accounts, CT, monthly payroll (director), weekly payroll (2 staff), weekly bookkeeping and bank reconciliation on Xero with Receipt Bank. So far, so good. When the monthly cost was calculated, the colour drained from the client's face - "I can't afford that. It's completely out of proportion with the current sales."
Of course, that was ostensibly true - it was about 12% of current monthly sales. We explained that weekly bookkeeping with a weekly payroll together with lots of small sales transactions was time-consuming and expensive to administer. We started knocking things out the quote and, ultimately, settled on compliance only with a half day Xero/Receipt Bank training so the client could "do the books and run the payrolls." We met the client where they were at.
We pointed out that the process had thrown up two interesting points:
- the way the business was run was making it more time-consuming and therefore expensive to administer; and
- we had placed a clearly-defined value on the bookkeeping.
The client understood (1) based on the illustrations we provided but was disinclined to change processes just yet, preferring to spend the time on the day job and growth. Fair enough and an argument for another day.
Coffee table bookkeeping - the hidden cost
Point (2) is very interesting. We explained that, as soon as funds allowed, the client should come back to us and take the full bookkeeping package that we had costed. Yes, the client does not have, say, £350 per month to spend on bookkeeping now (she believes) but the moment she feels that the time spent at the coffee table doing the books herself could be better spent generating income and profits (of at least £350), make the change and invest the time on growth. Too often clients soldier on complaining that all their "spare" time is spent on bookkeeping and administration and this gets in the way of business and life. Most likely, this is actually costing you money because you are not driving your business forward. How many new sales and more profit could you be making in the few hours per week (or more) that you are spending on bookkeeping? This is the hidden cost.
We suggest asking your accountant (or bookkeeper) for regular quotes so you don't delay the switch. Moreover, they should be able to suggest efficiencies through better use of software and improved workflows. After all, unless you are a bookkeeper, you didn't start your business to spend time on bookkeeping and administration.
Book a call us with and we can start the discovery process with you.