Accounting Costs for Small Businesses: Let’s break it down
Accounting costs for small business can vary considerably. There are a lot of factors that determine the price you’ll pay for services. Some pricing factors are based on your business – the complexity of your accounts, the services you need, etc. Other pricing factors include how the accounting firm operates. Hint: the more individualized attention and expertise you get, the more you’re going to pay. First, let’s get into what we mean when we say “accounting costs for small businesses”. What services does ‘accounting’ encompass?
Accounting Costs For Small Businesses Varies Based on Type and Number of Services
- Monthly Bookkeeping: Maintaining accurate, up-to-date records of all your business’s financial transactions, from income and expenses to assets and liabilities. This includes reconciling bank and credit card statements, categorizing transactions, managing accounts payable and receivable, and producing financial statements like profit and loss, balance sheets, and cash flow.
- Tax Planning & Strategy: Proactive planning throughout the year to minimize your tax burden, rather than just filing returns. This can include estimating quarterly tax payments, identifying tax deductions and credits, and structuring your business in the most tax-efficient way.
- Tax Return Filing: Preparing and submitting required federal, state, and local tax returns, including income taxes, payroll taxes, sales taxes, etc.
- Ancillary Services: Some accounting firms also offer additional services like payroll processing, 1099 preparation and filing, sales tax filings, and more. These integrated services can provide significant value and convenience.
So when you’re evaluating the cost of accounting for your business, it’s important to consider the full scope of services you’ll need, not just your annual tax return preparation.
Factors That Affect Accounting Costs for Small Businesses
There are many variables that go into determining the cost of accounting services for a business. Some of the key factors include:
Size and Complexity of the Business: The more complex your business operations, the more time and effort your accountant will need to devote. Factors like the number of bank/credit card accounts, monthly transactions, payroll frequency, and tax filings all add to the complexity.
Structure and Staffing of the Accounting Firm: Accounting firms can take on many different structures, from a single CPA working independently to large national firms with hundreds of employees. The more hands involved in your account, the higher the costs – but you may get more personalized attention and expertise.
Firms that outsource some work overseas to reduce labor costs will generally charge less than those that keep all work in-house. Similarly, firms with a higher ratio of partners/senior staff to junior staff tend to have higher billing rates.
Services Included: The range of services can vary widely. A firm that only handles your annual tax return will be less expensive than one that provides full-service accounting, payroll, and advisory support.
Billing Model: Accountants may bill by the hour, by the project, or on a fixed monthly/annual retainer. Hourly billing gives you the most flexibility but can result in unexpectedly high bills. Fixed-fee arrangements provide more cost predictability.
Location: Accounting fees can vary significantly by geographic region. Rates in major metro areas like New York or San Francisco will be higher than in smaller cities or rural areas.
Breaking Down the Costs
So how much should you pay for accounting for your small business? It’s impossible to give a one-size-fits-all number, but here’s a rough breakdown:
Monthly Bookkeeping: $500 – $5,000+ per month, depending on the complexity of your finances. This includes tasks like:
- Reconciling bank/credit card accounts
- Categorizing income and expenses
- Generating monthly financial statements
- Monthly meetings to advise you on your financials
Tax Planning & Strategy: $1,000 – $10,000+ per year. This covers:
- Estimating and paying quarterly taxes
- Identifying deductions and credits
- Analyzing your business structure for tax efficiency
- Identifying other strategies in the US Tax Code that may benefit you and lower your taxes
Tax Return Preparation & Filing: $500 – $5,000+ per year, depending on the types of returns. This includes:
- Preparing and submitting business income tax returns
- Preparing and submitting personal tax returns for business owners
- Filing payroll tax returns, sales tax returns, etc.
Related Services: Costs vary widely, but examples include:
- Payroll processing: $50 – $150 per month per employee
- 1099 preparation and filing: $25 – $100 per 1099
- Sales tax filing: $50 – $500+ per state, per filing
Some businesses need all of these services, some business may only need 1-2 of these services. It’s important that the accounting firm you choose understands your business model (and industry) so they can advise you on which services you need and would be most beneficial to your savings and growth. The accounting costs for your small business could be completely different than your friend with a similar, but different business…it all depends on what you need!
Choosing the Right Accounting Partner
When selecting an accounting firm, look for a full-service provider that can handle all your accounting needs in one place. This allows for seamless integration of bookkeeping, tax planning, and tax filing, ensuring maximum efficiency and typically, maximum tax savings.
A problem that most businesses owners face, is that they have one company handling their tax filings, another managing their payroll, and yet another handling their bookkeeping.
This is a problem for a couple of reasons.
- You should have a tax accountant reviewing your books on a monthly basis to look for tax planning opportunities. If you only talk to your tax person to file your return – you’ve missed an entire year to save as much as possible in taxes.
- The communication can get messy between the different providers. When it’s all done in one place, the communication issues are nearly nonexistent.
The right accounting partner will act as a true strategic advisor, not just a numbers robot. They should take the time to understand your unique business, provide proactive guidance on tax planning and growth strategies, and find ways to optimize your financial situation.
The Costs for Accounting for Small Businesses Will Vary – Compare Apples to Apples
While you meet with different accounting firms and get proposals, remember to compare the services and service you will get at each firm. While one firm may charge you $500/month, they could not be including certain services that the $1,000/month firm is including in their proposal. With the right firm in your corner, you can get the expertise and support you need to run a successful business.
Did this blog help you? Check out our other blogs below:
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Disclaimer: This article provides general information and should not be construed as tax, legal, or accounting advice. Always consult qualified professionals for guidance specific to your situation.
