Don’t forget these bookkeeping expenses!
Price is defined as the “amount of money charged for a product or service, or the sum of values that consumers exchange for the benefits of having or using the product or service”. Being your own boss has a lot of benefits, but it also means you’re responsible for setting your own prices.
You could easily earn $25-35 an hour working for someone else as a bookkeeper. That sounds like a fair rate to charge to customers – after all it’s what you would be paid to work a job. If you try that though, you’ll quickly discover that there are a lot of business expenses you may not have even considered. You’ll probably end up worse off financially than if you were working for someone else!
It’s tempting to pull a figure out of your head that sounds good, but is your price viable long term?
- Will you cover the costs of delivering the service?
- Are your competitors charging more or less?
- Do I offer value beyond the basic cost of delivering the service?
- Will people be able to afford my prices?
How do you decide what to charge for bookkeeping services?
The single most important factor is making sure you cover the cost of delivering the service. Competition and affordability can be considered later, but failing to make ends meet means you’re paying to work – not an ideal situation! Your business is unlikely to survive in the long term as well.
Making an accurate cost calculation requires you to know all your expenses – so check this list to make sure you haven’t forgotten one!
Bookkeeping expenses you must remember
1. Base Income
This one is hard to forget! There are few circumstances where you don’t need to earn an income from your business activities. You need to work out how much you want to take home at the end of the week and work around this figure.
The number of hours you work vs the number you can bill out also becomes a consideration. Set yourself a realistic income that you’d like to achieve (anywhere from $25-$40 an hour is common).
2. Superannuation, Annual Leave & Personal Leave
As your own boss, you’re responsible for paying your own superannuation, annual leave and personal leave. If you fail to take these into account, you might end up better off financially if you’d just taken a job with an employer!
You can potentially budget as many weeks off as you’d like – at least if you can earn enough during the periods you do work. Employees in Australia normally have 4 weeks annual leave and 10 personal days, so that’s probably a good benchmark to work with.
A change to superannuation policy has increased the rate at which superannuation needs to be paid, from 9% in 2012/2013 up to 12% by the 2019/2020 financial year. It might be tempting to skip paying yourself superannuation, or use that money for other purposes now.
Failing to pay yourself superannuation means you’re robbing from yourself in retirement. Those are finances you can fall back on in your old age and there tax benefits for superannuation too.
3. Professional Indemnity Insurance & Other Insurance
Professional Indemnity insurance is possibly the most overlooked business expense. We all like to think we’re perfect, and you might be fortunate throughout your entire career – but the reality is mistakes do happen.
If you make an omission or error which damages your client, that client might then sue you to recover their losses. As a result, the Tax Practitioners Board requires registered BAS Agents to have professional indemnity insurance.
PI insurance is often expensive but it is there to protect you, as a professional in an advice and service-providing position. Without it you could be wearing the full cost of defending against a negligence claim made by a client, and damages awarded in such a civil lawsuit.
Shop around to find a good deal, but make sure you read all the terms and conditions. Policies have maximum limits on how much they pay out or will only cover the cost of paying damages, not the cost of defending the lawsuit.
Don’t forget insurance on your equipment – computers, cars, office, etc – and you might want to consider income protection in case you can’t work. Illnesses and accidents can come on suddenly, without warning, and keep you away from work for extended periods.
4. Training & Professional Development
Laws governing the practice of bookkeeping change considerably over time. The requirement to register with the Tax Practitioners Board to provide BAS services for a fee is quite recent, and may be reason many of you are now studying a Certificate IV in Bookkeeping or Accounting course.
You can expect that there will be ongoing training and professional development requirements throughout your career. Not all of them will be mandatory. You might want to attend conferences to keep up to date and network.
Further voluntary training might allow you to offer new business services and increase your income or competitiveness in the bookkeeping industry. Budget for these expenses and don’t forget to keep track of them – you can claim some self-education expenses back as tax deductions.
5. Equipment
Bookkeepers don’t require much equipment, but some is essential. Computers and software cost money to purchase but usually last several years, so the expenses can be spread over quite a long period. Other office equipment – phones, scanners, fax machines, desks and chairs – also needs to be factored into your expenses.
6. Travel, Meals and Mileage
You may be required to travel locally, interstate or internationally as part of your work. In some cases it’s easy enough to account for these expenses – the client will buy the tickets for you, or you add the cost of the tickets onto the client’s invoice. If you’re away from home overnight, meals can be legitimate business expenses too.
Most of the time, you’ll probably just be travelling around your local area. If your vehicle is used for multiple purposes (ie work and personal trips) then keep a log of your usage so you can calculate the cost, and you’ll have evidence to back up any tax deductions you can claim.
7. Utilities
Electricity, gas and water bills might only turn up quarterly, so it might be easy to overlook the cost of these bills when calculating your charge rates. If you’ve been in business for a while you’ll have a good idea how much each will cost and can budget accordingly.
If you’ve starting a new bookkeeping business, then you’ll have to make an educated guess and review it when actual bills start arriving. Check out tax rules to see what you can and can’t claim as a deduction if you’re working out of your own home.
8. Professional Associations
You are not required to join any professional bookkeeping associations but it might be worthwhile. They’re often only a few hundred dollars a year and offer networking, support services, professional development opportunities, and more.
9. Profit
Personal and work finances can get a bit mixed up when running a sole trader or even partnership business. It’s a good idea to make clear distinctions between your take home income and revenues of the business.
Set yourself a reasonable income every week and then add a profit margin into your prices. That profit can then be kept aside for the future.
You’ll have a buffer in case your bookkeeping business has a rough patch or unexpected expense, you can pay yourself an EOFY bonus if the year has gone well, or it can be reinvested in the business to grow it faster.
10. Marketing
As a small business owner, you’re also responsible for your own marketing. When you’re good at your work, word of mouth eventually spreads. This might take a long time and you need to start getting work as soon as possible.
You’ll probably have to devote time to marketing activities each week – advertising, blogging, website planning and development, even cold calling – which is time you can’t bill out. You might be planning your pricing based on a 38 hour work week, but realistically you might only be billing 25 or 30. Keep that in mind!
Promotional materials and advertising will likely cost you money too. Add a marketing budget into your annual bookkeeping business expenses and work out how to get the best bang-for-your-buck with that money.
11. GST
You don’t bear the economic cost of GST yourself, but you may need to collect it. That means you need to add 10% to the final price of most goods and services.
You don’t actually have to register for GST if you’re turning over less than $75,000 a year (there are some exceptions – if you provide taxi travel, want to claim fuel tax credits, or want to claim wine producer rebates). In that case, you don’t need to collect GST or include it in your price, but you also can’t claim credits for any GST included in the price of your purchases.
12. Unexpected expenses
There will always be unexpected costs arising during the course of business. Fixtures wear out and break, charities ask for contributions and hold events, new software is released – who knows what will come up!
You can pay for these out of your profit margin, or use your own income if you’d like, but it could be worth factoring in a little extra for an ’emergency’ fund for when things do go wrong.
How to Set Your Bookkeeping Rate
Knowing about these expenses can help you work out the cost of delivering your bookkeeping services. Once you have a cost price, you can go about setting the actual prices you charge for your services. Check out our article, How to Set Your Bookkeeping Prices and Rates for more ideas on pricing your services.
Many of these bookkeeping business expenses are equally applicable to many service-based small businesses. They could also be considered when setting the rates for computer repair services, web designers or freelance bloggers!
