Gross Sales and Accounting
Jeff Pardini, Hills Flat Lumber Company asks:
Based on a percentage of gross sales, what percentage should be allowed for accounting?
I’ve checked with various sources, and can’t any published statistics measuring accounting in that fashion as a metric.
For small businesses, such metrics can be misleading, because of our small size and because activities are often handled by the owner, at least in the early stages of a business. Plus, while most businesses measure a bucket of expenses, such as Sales, General and Administration (SG&A), not nearly as many break it down to come up with metrics for accounting expenses alone. So finding comparison points is not easy, especially among small businesses where most financial data is private.
Instead, I suggest thinking of it this way: What accounting-related activities do you need done? Example: payables, receivables, entry of information in your accounting software, payroll, and so on. How many hours does each take? What can be done in-house and what outsourced? And what can be handled by technology? If done in-house, who will do it and is it the most cost effective use of their time? If you had to hire someone to handle it in-house, what would it cost versus farming it out?
Small business owners start up by doing some of the accounting work themselves. At some point it becomes too much and interferes with other higher-value activity the owner could be doing. At that point, you need help.
According to the IMA, the average starting salary for an accounting graduate in 2013 is $53,000. Tack on 20% to 30% in benefits, and you could be looking at around $65K in compensation just for an entry-level person. Many small businesses can get their accounting handled for much less by hiring a part-time bookkeeper to handle payables and “keep the books,” with a CPA to do tax preparation, preparing of financial statements and similar higher level tasks. Add in some technology — for instance, in my business we use an online payroll service that streamlines the payroll process dramatically — and you have a cost effective and time efficient combination of outside services and technology.
Category: Ask an Expert