Benefits of Outsourced Bookkeeping Services
Most small and medium sized business owners struggle with trying to be all things to all people. As a result, there is no time or energy left over to spend on their key strengths and growing the business.
Perhaps it is time to conduct a cost-benefit analysis and see what the adage “it’s cheaper to do it all myself” is really costing you. We are not disputing the fact that you can’t do it, but are asking the question should you be doing it?
Cost-Benefit Analysis of Outsourcing
- Compile a list of the tasks that you don’t do well – remember, be honest, as this exercise is for you.
- Estimate the number of hours that you spend on each of these tasks on a weekly basis.
- Calculate how much this is costing your business (# of hours x hourly rate)*
- Does this represent value to your business?
- Make a list of the things you would like to do in your business “if only I had more time”
* Remember when calculating your hourly rate to not use the rate at which you pay yourself, but the rate at which you bill yourself out. If you are a consultant who bills yourself out at $1000/day your hourly rate is $125/hr. This is the real cost to your business.
The Real Cost of an Employee
Now that you’ve determined from above that you shouldn’t be performing these tasks, let’s look at the costs of hiring a full-time employee to perform your bookkeeping services or web design requirements.
Below is a sample case study to outline the areas of expenses which must be considered:
- Base Salary. This is normally quoted as the amount of gross pay being paid to an employee. For our example we will use a base of $40,000 per annum.
- Annual Leave is normally a minimum of 2 weeks per year or 4% of the base salary. In our example this is $1,600.
- Statutory Holidays. There are usually 10 stat holidays in Canada each year (this varies slightly from one province to another). This is another 2.78% added to the total cost or $1,112 for our case study.
- Sick Leave. The sick leave policy usually varies a great deal in Canada as it isn’t legislated unless you are unionized or a federal/provincial employee. To be conservative, we will estimate 5 sick days throughout a single calendar year. For our example, this represents $556 in additional cost.
- Workers Compensation Insurance. Again, this can vary broadly depending on the risk of the industry. The rate is fixed each year by statute and cannot be negotiated. We have clients that pay up to 12% of the total of their annual wages. For our example, let’s use 3%, so that’s another $1,200 to our employment costs.
- Payroll Tax. These are federal government taxes that are levied on a business who have employees. In 2010 the employer portions of CPP was 4.95% and EI was 2.42%. In our example this amounts to $2,948.
- Recruitment. The average cost recruiting a base-grade employee is around $5,000. This includes recruitment costs, down-time and training. We’ll assume your employee stays for 2 years so the average cost is $2,500/annum.
- Now add up all of the numbers we’ve calculated above – the cost of employing someone on a base of $40,000/annum is actually $49,916. This is an extra 25% to their base salary and doesn’t take into account any other employee benefit programs.
Advantages of Outsourcing
There are many advantages of outsourcing the non-core functions of your business. These advantages can be grouped in the following categories:
- The Cost Benefit Analysis above has shown you what you can save just from your time
- Rather than paying for full time staff, you only pay for the hours that you need and with little or no overhead and no infrastructure expenses
- No pension plan contributions, employer expenses like EI, CPP or WSIB, employee medical benefit costs are ever needed
- If an activity that you don’t excel at takes you 10 hours, someone who does excel at the task can likely perform it in half the time
Stay Focused on your core Business
By not spending time on the details, you can focus on the reasons you went into business for yourself, and the key strengths you and your staff can be put to best use.
As your business grows, or your needs change, an outsourced partner can adapt the services being provided with no infrastructure costs incurred by you.
* While this example applies to all aspects of employment within your company, it demonstrates why it is worth looking at areas within your company which may be suited to outsourcing to a specialist provider.
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