Bookkeeping for sole proprietors can cost between $150 and $200 per hour, equating to 4 hours of work per month for $600 to $800. This consumes the majority of the bookkeeper’s time, and while he or she charges for it, they are merely performing standard bookkeeping tasks for the founder.
A bookkeeper’s primary responsibility at a startup is to organize and classify transactions and invoices for reporting. Most entrepreneurs don’t require a bookkeeper’s financial advice; they simply need someone or something to categorize their transactions for reporting.
What a Bookkeeper Actually Does for a Solo Founder
Most of a bookkeeper’s work consists of sorting out and matching transactions and invoices. Some founders even get the bookkeeper to prepare summary accounts. These are monthly tasks that are easily handled by free software programs that offer a wide range of tools and features to manage finances.
Bookkeeping work is largely repetitive, and therefore largely rules-based. The same decision is made the same way every time a similar transaction occurs. Most of the work of a bookkeeper is to organize data in a meaningful way. The kind of judgment involved in bookkeeping is not typically of the high-end variety.
This is important to note, because the work of a bookkeeper is largely rules-based. And once a system has been set up to operate within a set of rules, it can keep on operating long after the person who set up the system has gone.
Where the Automation Actually Happens
That automation shows up in a few specific places, each replacing a task that used to require a bookkeeper’s time. Bank feeds, recurring invoices, and real-time reporting cover most of what used to be billed by the hour.
Bank Feeds Replace Manual Entry
Free tools that connect to a founder’s bank and accounting software also automatically apply the best account or categorization based on the transaction, based on pre-set rules. In Wave Financial, automatic categorizations can be checked by a founder in a matter of minutes each month to make sure everything was correctly applied. That same categorized information can then be reviewed for accuracy within a matter of minutes for the entire month, rather than reconstructed from scratch.
Invoicing Runs on Autopilot
As with payment receipts, invoices can be set up to recur. So instead of a founder having to create and send invoices each month, Wave, QuickBooks, and Xero can automatically do it for them. This is known as automated billing or invoicing. Once an invoice is set up to recur, it will automatically send to the customer at the same time each month. It can also keep track of their payments on time.
Reporting Happens in Real Time
However, the P&L report, for instance, can now be generated instantly at any time by the founder as opposed to waiting for the bookkeeper to pull together the figures for the last month. There’s no lag between when the numbers happen and when the founder actually sees them.
What Automation Still Can’t Do
In all cases, the remaining 20% of bookkeeping that cannot be automated in any way (such as very complex tax planning, unusual transactions that don’t fit within software-defined categories, multiple entities (or sub-entities within a single entity), complex payroll, and actual IRS audits) gets to be charged to the client at the bookkeeper’s normal hourly rate.
This means that while 80% of a bookkeeper’s time is being replaced by inexpensive software, the remaining 20% of time that a bookkeeper is able to bill at their normal rate will increase significantly.
The Real Math: Hours Saved vs. Hours Billed
In other words, routine bookkeeping such as categorizing transactions, reconciling accounts and summarizing data (for example, creating a Profit & Loss report) for a single entity with simple revenues can cost anywhere from $25 to $90 an hour.
A few companies were found offering bookkeeping for startups at premium rates (up to $150 an hour or even more), and some highly experienced bookkeepers charge as much as $200 an hour.
Comparing this to the 20-30 minutes of work a founder puts into reviewing the auto-categorized transactions for the past month in a free tool like Wave is very telling. Most of that time is spent ensuring that the categorization of the transactions by the software is correct and that none of the transactions have fallen through the cracks.
Who This Actually Works For
Works best for solo founders, running single-entity businesses with simple revenue streams. Often freelancers too.
The more complex the business (e.g., multiple owners, inventory, etc.), the more the accounting will earn for a bookkeeper. In such cases, of course, the founder will want to engage the services of a bookkeeper. For now, though, the founder of the single-entity business with straightforward revenue will find that the automation works in his or her favor, and it’s a particularly good fit for freelancers and solo founders with no payroll to manage.
The Bookkeeper Isn’t Gone, Just Underused
For the solo founder, the high-end bookkeeper (charging up to $200/hour) is still going to be needed to handle tasks related to tax work and other ‘higher-end’ aspects of bookkeeping, where there is a lot of required judgment and the work in question doesn’t automate well.
The saved funds are used to pay for tasks that still require a human touch to complete them in the best possible manner and according to the highest standards.
