I understand. You are running a business and it’s hard to make money. Then your accountant comes along and presents you with a high fee, anything from € 600 to possibly €1,500 or more per day for his or her work. You struggle to understand why accountants are so expensive.
I have been running an accounting practice for almost 20 years now. I know what I have to charge to recover my costs and make a reasonable living.
Let me explain why a good accountant is expensive.
A good accountant adds value
Avoiding Compliance Offences
There are lots of regulations around tax and accounts. If you get them wrong, you could be hit with substantial penalties and interest Your accountant will know what needs to be done and will help you with your compliance issues.
Avoiding costly mistakes, making better decisions
As a business owner, you have to make lots of decisions. These decisions can include setting prices, setting payment terms, investing, hiring, expanding, or contracting. If you get these wrong, the consequences can be costly.
Your accountant will help you identify the key factors that must be addressed when making your decisions. He/she can help you prepare financial projections and he/she can help you evaluate the opportunities that present themselves.
Understanding the factors driving your profits
To run a business well, you need access to good information. You need information about product or service costs, about cashflow, about efficiencies and yields among other things.
A good accountant will help you identify what information your business needs and will help you to put in place systems to capture and report on that information.
Identifying and implement improvements
No business is perfect. There is always room for improvement. When you have plans and targets it’s easier to identify where your business is under-performing.
A good accountant will prepare projections and compare those to actual results to give you the information you need to identify improvement opportunities. They will have the skills and experience to help you implement the identified improvements.
The market sets the price for accountants
Business Owners understand the value that accountants can bring. They are willing to pay accountants highly because they understand the benefits of having a good accountant.
They can calculate how much the accountant is worth and they will pay that.
Good accountants have the option of getting a job and a salary or setting up in practice.
If an accountant is in employment, they can typically earn between about €40K and maybe €120K pa.
Morgan McKinley, the recruitment company, publish an annual salary survey. The 2017 survey for Irish accountants can be found here…
This survey shows that recently qualified accountants outside Dublin can typically earn from € 40-48K. With 3-5 years of experience, their expected earnings increases to € 55K. A good Financial Controller can expect to earn from € 55K-75K and an experienced Financial Director can earn between € 75-110K.
A self-employed accountant in practice would expect to be earning similar amounts. But the accountant in practice will have the costs of running the practice. This means that they will need to generate sufficient fee income to provide their wage and their practice expenses.
Practice expenses include costs of marketing and business development, costs of having an office, costs of running that office, costs of ongoing training, costs of motor and travel, and costs of professional subscriptions. Every office costs are different but are typically about € 15K for a sole practitioner.
That means that someone who is could hold down a financial controller position would need a fee income of 70K -80K to match the salary plus office expenses.
How does an accountant calculate his or her charge-out rates?
Your accountant will not usually be able to bill clients for the full 40 hours of every week. They are also managing their own business and they need to allocate time for that. And for attending business development meetings and preparing proposals. They will also have to attend continuing professional development events.
There’s a rule of thumb that says a typical accountant should be billing 1000 hours per annum. If we divide our € 70-90K target fee income for our financial controller type person by 1000 hours we can see that our sample accountant needs to charge €70-90 per hour or € 560 to 720 per day.
A more senior, more experienced financial director type accountant could earn between €75K and €110K. With expenses of €15K that make €90-125K needed in fee income. Dividing that by the 1000 billable hours, we see that this accountant should be trying to earn €90-125 per hour or €720-1000 per day.
If they can’t earn the target amounts in practice, the better accountants will migrate into employment and the standard of the accountants in practice will fall. However, that doesn’t happen because owner-managed businesses value good financial advice and support just as much as the large corporates.
What sort of Accountant do you want?
How important is your business to you? How important is it to the best professional advice available to you?
If you want to have the best accounting and management support you will have to pay rates that match what your accountant could earn elsewhere.
Do you want to be working with someone with minimal experience or would you prefer someone with much more experience? Most business owners that I know want the best advice that they can afford because the consequences of poor advice are costly. The best business owners hire the best advisors and those people cost more because they add more value.
You understand that because you are running your own business and you know how the market works.
If you don’t believe that your accountant is worth the fee they are charging, then maybe you should be looking at changing your accountant.
I hope that after reading this post you’ll be able to understand why a good accountant is expensive but also why a good accountant is a good value.
The other thing to look at is whether you are making the best use of your accountant. You may be interested in another blog post that I wrote called “Reducing the costs of preparing your accounts”
As always, I would love to get your feedback on this article. You can leave a comment in the comment section or you can email me at jim (at) accountsplus (dot) ie.