Virtual Bookkeeping Services: What They Do, What They Cost, and How to Get What You Need from Them
For most small business owners, managing the books is occasionally a cause for celebration, sometimes a reason to worry, but always a necessary grind. Little wonder that bookkeeping is one of the first areas in which small business owners seek established professional help.
Once you’ve decided to let someone else have all the fun with your books, you’ll need to answer a few questions before securing the right bookkeeping service for your business. What is included in bookkeeping services? What does a bookkeeping service do, exactly (and what should you not ask a bookkeeper to do)? Above all, how much does it cost to hire a bookkeeper or to arrange virtual bookkeeping services?
This little guide will help you frame those questions and arrive at the answers that best suit your business’s present outlook and future prospects. Along the way, you’ll pick up a few tricks of the trade and learn some of the most common mistakes made by other business owners. Experience is a wonderful teacher, but when it comes to your books, it’s even better to let others learn the hard way so you don’t have to.
We’ll start by asking the most fundamental question of all: what can a virtual bookkeeping service do for you and your company?
These days, virtual bookkeepers can perform the entire range of core functions once delivered only by in-house accountants. These services include data entry and recordkeeping, tasks related to accounts payable and -receivable, expense management, receipt management, and payroll duties. They can also perform monthly and annual reconciliation of financial accounts and can easily deal with heavy paper environments (That are committed to jumping to a paperless office).
Because they work with bookkeeping software and other tools expressly designed for a collaborative online environment, virtual bookkeepers can often deliver reports and projections more quickly than their on-site counterparts, and on friendlier terms to business owners. For example, a virtual bookkeepers’ work can directly feed dashboards that allow business owners to view timely information, including forecasts and projections, whenever they choose, rather than generating static reports in response to their questions.
Virtual bookkeeping does have its limits.
It is better suited for companies whose financial records are entirely digital, meaning that if you are still working from a shoebox or delivering handwritten invoices, you will need to make a conscious decision to give your books the attention they need and modernize in order to gain the accuracy and efficiency benefits of a cloud based accounting system. An experienced professional that has heavily worked these standardized workflows carries particular experience, so Accountants that offer bookkeeping services can generally provide a much higher experience level that translates into accuracy and efficiency. Timely data is actionable data.
And virtual bookkeepers won’t make you coffee. Permanent employees at small companies tend to wear several hats, but virtual bookkeepers are specialists who should only be asked to perform their contractual duties. If you need help with paperwork, or even just answering the phones while you’re away, a virtual bookkeeper may be able and willing to do those things…but at the same rates they charge for their core professional services. A virtual bookkeeper may be the first contractor with whom you work on a regular basis, but you stand to lose money in the long run if you don’t keep your expectations in line with the terms of your agreement. Give someone else a chance to answer the phones, and you’ll be supporting two people at once while saving money.
The Big Question: Hire In-House or Contact with a Virtual Bookkeeper?
Businesses of all types and sizes are answerable to the bottom line. At the same time, successful business owners know the dangers of being pennywise and pound-foolish. Before we look at the cost of virtual and in-house bookkeeping, then, we will examine the two approaches at length. When you know what you need out of any professional service, you’re ready to assess its true value to your business.
Even before the Covid-19 pandemic introduced millions to remote work, virtual bookkeeping had established itself as a compelling alternative to traditional in-house accountancy. The shift has become so profound that many businesses—and not just small ones—find themselves considering virtual bookkeeping as their primary option, and asking whether in-house accounting can deliver a competitive range of benefits.
The virtual/in-house question will affect everything else about your new bookkeeping regimen, from costs to HR-related issues to the range of services you can expect from your new accountant. It’s a decision that will affect your relationship with your new bookkeeper, the amount you pay each month for bookkeeping services, and possibly even your ability to expand into new markets. For now, we’ll focus squarely on what you can expect from each kind of service, and how to choose the right approach for your business.
“Bookkeeping” has lost much of its literal meaning. Where accountants once worked with paper invoices, receipts, statements, and ledgers, those documents have long since moved to the digital realm at most businesses. Even paper invoices are convenient physical manifestations of digital accounting entries.
The accounting profession itself has followed suit, and virtual bookkeepers now offer the full range of traditional accounting services while saving business owners the overhead associated with in-house employees.
This is not to say that virtual bookkeeping services are the right fit for every business. Some small businesses, especially those transitioning from informal accounting practices to more professional methods, may find in-house bookkeeping especially helpful. And without fully understanding the conditions and limits on services provided by virtual bookkeeping services, business owners can find themselves paying too much.
To help frame the discussion, we’ll consider the pros and cons of each approach.
In-House Bookkeeping: Pros and Cons
Traditional bookkeepers still have their place in some businesses. Consider employing an accountant directly if a significant number of these benefits seem to speak to your company.
Expert Help When Your Books are a Mess.
Many small businesses start out as shots in the dark. In those early months, and even years, it can be difficult to project exactly what you’ll have coming in and what you’ll need to invest to keep your business moving forward. When you’re not sure where your next remittance will come from, a shoebox might look just as useful as a fancy suite of accounting software.
Transitioning to a more formal approach isn’t like flipping a switch. For tax and legal purposes, and to give you a true historical record of your company’s performance, you’ll need to go back and bring all past transactions in line with your new accounting system. That much alone may be worth having someone present in the office.
Complete Offloading of Accounting Duties.
Even though most accounting documentation is digitized these days, there are exceptions to the rule. Hiring an in-house bookkeeper means never having to read through documents sent by mail or to spend time on the phone discussing accounting issues: all of those communications can be handled directly by someone working alongside you. Virtual bookkeeping means forwarding such documents to your accountant – albeit as easy as throwing papers in any state ( Crumbled or not) into a self addressed envelope.
Extra Responsiveness When You Plan to Expand Quickly.
Expanding a business may involve rapid changes to your internal accounts. Moving from a home office to a leased space, establishing contracted relationships with large numbers of new suppliers, and establishing B2B partnerships can all have consequences for your books, and an in-house bookkeeper may typically be able to anticipate those changes a bit more quickly than someone working remotely.
Hiring any new employee, though, can be an involved process. When a compelling off-site alternative exists, you should carefully consider the pitfalls of bringing a new face into your office. Here are some potential drawbacks to hiring an in-house bookkeeper.
Employees = Overhead.
There’s no way around it: if you hire a bookkeeper directly, you will incur a wide range of responsibilities common to any employer. This means everything from filing W-4s and other forms (which, to be fair, your new bookkeeper can help you with) to establishing, maintaining, and enforcing standards of performance for your new employee. For many small businesses, the managerial considerations alone are enough to consider an alternative to in-house bookkeeping.
Your Company’s Status May Change.
If you have operated your business as a single-owner LLC, or if your state allows you and your spouse to do so together, hiring a new employee might change everything. You may be unable to count your business’s proceeds as pass-through income, for example, and you may find yourself open to legal vulnerabilities that affect your personal finances. Contracting for professional services may allow you to retain the benefits of your company’s current status.
It Can be Difficult to Find the Right Fit.
When you invest in an in-house bookkeeper, you pay for their entire range of experience, whether or not some elements of that experience are relevant to your business at this time.
People Procrastinate .
A lot, and they end up with a 2 or 3 year bookkeeping mess for which a careful bookkeeping cleanup checklist is needed.
You may also find yourself struggling to identify exactly how much bookkeeping you need. You may not be able to throw 40 hours a week of bookkeeping responsibilities at a full-time accountant. On the other hand, a part-time accountant may not be able to respond to periods of peak demand, and in any case you’ll find yourself hiring from a much smaller pool of candidates. Some small businesses make do by training existing employees in basic bookkeeping, but that’s a short-term solution at best, and one that leaves many benefits of professional experience on the table.
Virtual Bookkeeping Services: Pros and Cons
The benefits and risks involved with virtual bookkeeping are something of a mirror image of those presented by in-house accounting. That’s no coincidence: virtual bookkeeping services have grown and matured in direct response to the old status quo. Let’s look at those pros and cons in detail, starting with the pros.
Tailored Services Now, Flexibility Down the Line.
When you outsource your bookkeeping functions, you have an opportunity to discuss exactly what you need from each contractor, and to find one that delivers precisely those services. You might even learn a few things you hadn’t considered before having those conversations. When your business grows and your accounting needs change, you’ll be able to revisit the terms of your contract with your remote bookkeeper and adjust them as necessary. If you contract with a bookkeeping firm, chances are that they’ll be able to provide you with specialist services to meet your needs as they emerge. The same may well be true for independent bookkeepers: your business may not take full advantage of a seasoned accountant’s experience at first, but you may find yourself making fuller use of their talents as time goes on.
This brings up a crucial point, one that can qualify as either a pro or a con.
When you contract for virtual bookkeeping services, you get what you pay for: nothing less and nothing more. With the same kind of self-discipline that got your business this far, remote bookkeeping can be extraordinarily cost-effective.
All the Benefits, Far Fewer Hassles.
Your business’s relationship with contractors is fundamentally different from your relationship with employees. Hiring a contractor for virtual bookkeeping services allows you to focus strictly on deliverables—monthly reports, actionable projections, and the timely and accurate preparation of tax documents—without having to worry about how the sausage is made.
You’ll still pay for your share of each remote bookkeeper’s overhead, of course. Whether they work at the desk next to yours or on the other side of the world, bookkeepers need health insurance and retirement plans, too. But you’ll share the burden of funding these benefits with other clients, and the overhead involved in administering them falls squarely on the bookkeeper or firm with whom you contract.
Outsourcing your bookkeeping isn’t just more convenient than hiring an in-house accountant. It also helps you distinguish your core business operations from supporting functions like accounting and legal services. This distinction can save you from having to change your business’s status for tax and registration purposes, and can shield you from legal action.
Virtual bookkeeping even helps preserve continuity when you need to move on from your current accountant. Firing an employee can be messy, expensive, and disruptive to your business. Moving on from a virtual bookkeeper is as simple as following the terms of your contract.
For all the upside to contracting with a virtual bookkeeper, you should be aware of some potential drawbacks.
Virtual Bookkeeping Requires a Virtual Workflow.
If your current bookkeeping system looks an awful lot like a jumble of papers, you may be late in hiring a virtual bookkeeper. As your business grows, you’ll almost certainly move to digital invoicing and payment processing. While you may still occasionally find yourself receiving, forwarding, or even responding to documents that an in-house bookkeeper would simply handle without your involvement – the virtual bookkeeping workflow will eliminate repetitive tasks and clear several times that effort.
Focused Services = Less Flexibility.
Your bookkeeper might be the first professional you hire to help operate your business. For most small companies, bookkeeping is the first supporting function to require an ongoing relationship, whether with a regular employee or with a contractor. Too often, business owners who hire a bookkeeper jump at the opportunity to get a little help here and a little there.
That’s an urge worth resisting. Not for the first time, we highly recommend that you let your bookkeeper focus on a stable range of professional services and leave other support functions to others. You’ll save money this way, and just as importantly you’ll gain a better understanding of your current staffing needs and those you should be planning for.
What does a bookkeeping service do? What is included in bookkeeping services?
Your base deliverables will stem from:
- Reconciling all balance sheet accounts monthly.
- For Accounts Payable and accounts receivable, maintain the accounting software
- For Other Asset or liability accounts, maintain workpapers and supporting documentation, attaching to each applicable transaction in Quickbooks.
- Providing timely data that allows key directives for Daily Income and Expenses review that prevents issues early. This means reconciling the operating bank account daily, or in accordance with your SLA
- Issuing Financial Reports Within 5 business days of the following month.
- Income Statement
- Balance Sheet
- Cash Flow Statement
- Paperless Accounting Office
- Attach Supporting documentation to each material transaction in the accounting software
- Digitize Documents as needed
- Maintain a shared filing system in the cloud for all administrative and bookkeeping matters.
- Audit Readiness. Increased income is always tied to increased attention. IRS audit rates significantly increase as income rises
How Much Does Virtual Bookkeeping Cost?
Now that we’ve considered what virtual bookkeeping services entail and how they fit in with your company’s business model, we can consider the expenses associated with each approach without confusing cost with value.
How much does it cost to hire a bookkeeper? At $19 an hour, just below the 2021 median hourly rate for bookkeepers reported by the Bureau of Labor Statistics, a part-time bookkeeper working 20 hours per week would make $19,760 in base salary. This baseline rate may change from region to region: bookkeeping services in Miami, where I live, and in other major metropolitan areas, may command higher wages. Payroll taxes of 13.6% add another $2,736.76 to the total, and equipment and supplies might conservatively add $2,500.
Before we consider the administrative costs associated with employing a part-time bookkeeper, the cost of offering health care or retirement plans, or even the cost of renting the space in which they work, the total cost of such an employee comes to roughly $25,000, or more than $2,000 per month. That base number doubles to nearly $4,200 per month for full-time in-house bookkeepers, who may reasonably expect a fuller benefits package than part-timers.
How Much Does Virtual Bookkeeping Cost?
Virtual bookkeeping can be found for as little as $200 per month, though you’ll want to be sure to understand the deliverables committed for that rate. Most small businesses should budget between $750 and $2,000 per month for a volume of work roughly equivalent to that performed by a part-time on site bookkeeper. Greater volume might drive the price up to $2,500-$3,000 or even hourly for especially busy companies with more complex bookkeeping needs.
Those numbers can be read backward, as well. If it costs roughly the same to retain a steadily busy virtual bookkeeper and a part-time in-house counterpart, consider the cost of coloring outside the lines. The Bureau of Labor Statistics reports that receptionists make roughly $14 an hour on average, meaning that every time you have your accountant handle the phone lines, you’re paying a large premium for the privilege.
For small businesses that are just starting to generate steady business, and for those that realistically need each employee to handle multiple roles, virtual bookkeeping may not be a compelling option. For everyone else, it represents an opportunity—often the first one in a fledgling company’s life—to increase operational efficiency through a clear delineation of responsibilities, and to put business owners squarely in the driver’s seat.
If you feel your business would be a good candidate for virtual bookkeeping services, or if your business needs help getting there, book a meeting with me and let’s discuss it in detail!