Let’s morph the question into ‘What is the difference between the owner of a bookkeeping business and a independent bookkeeper?’ You go into business in order to build a business bigger than yourself. A business owner must obsess about three questions – all day and every day:
- How am I spending my time?
- What’s the cost of my labour?
- How much value am I adding to my business?
Most bookkeeping business owners start out the same way as most entrepreneurs: DIYing.; wasting daytime hours to struggle through building a website or doing far too much work that can’t be billed. It seems the efficient thing to do. But there is a difference between cheap and efficient. It is cheap to do everything yourself, but it is efficient to pay someone else to turn out better, quicker results on things you are not good at so you could redirect efforts toward your expertise.
Putting a dollar value to your time is essential to unlocking this knowledge.
Reassess billing structure
Cloud accounting software have automation built into the ecosystem. With the length of time it takes to complete many tasks reduced, it may no longer be profitable to bill based on time charges. The value you provide your client is not based on the time you spend, especially on non value-added tasks.
Your value is based on the information you provide clients – the quicker the better. Becoming more efficient does not reduce the expertise you bring to your client. By moving to value pricing, you’re giving the client a more preferential method of billing as they have an amount they can budget for each month.
How much value am I adding to my business?
A small-business (and that includes the bookkeeping business) owner’s compensation is generally driven by the value she has created in her business.
Revenue minus expenses equals profit. Profit is an expression of the value the small-business owner has brought into the world through her business. It’s the proof she’s creating something people value more than it costs her to make it. This net value is what she puts in her pocket.
Profits live in the gap between costs (the second bullet point) and value (third bullet point). This is the key to increasing your effective hourly rate to levels you might not have believed possible.
About 40 percent of a bookkeeper’s time is spent doing non-billable work so she can only bill for 1,200 hours a year. If she wants to see her hourly rate go even higher, she’ll have to start building processes that allow her to do more CEO-level work, and eventually hire another bookkeeper to take on the lion’s share of lower-value work.
The path toward an ever-higher hourly rate will require more investment in her bookkeeping firm, and may take some time, but it’s a relatively clear one — and the rewards will be great.