I was asked recently to estimate the number of hours to help catch-up a business owner’s bookkeeping. He said he needed about 8 months of catch-up, averaging about 30 transactions per month. My first ‘guesstimate’ was 16 hours, while he guessed about 4 hours. Why so far apart?

Doing some quick arithmetic, his estimate was based on an average of about 1 minute per transaction. When I put this to my bookkeeper wife she reminded me of the folly of using such a benchmark.

I know this is a long post, but I urge you to persevere and read it. Bookkeeping and accounting is a detail-oriented business, and so it would behoove yourself to understand some of those details.

The purpose of this email is to alert you to some issues in bookkeeping that are perhaps unknown to you. The last thing we want is to have you promise one thing and expect us to deliver it when it’s impossible. I want this will be helpful as you talk to prospective clients.

First, how long does it take to do each transaction? Well, it could range from a few seconds to several minutes. Truth is, we could do his books in a half hour. Here’s how: Lump all the bank deposits together and enter one number. Do the same for withdrawals. Reconcile over the full 8 months. Done!

But what’s he or she got? Nothing really useful, I’d say.

Doing the books properly means organizing information that can be used by the owner to make business decisions. We say that it’s telling their Financial Story.

In the example above, the business owner would have absolutely no helpful information about his business. And he can count on his accountant spending a lot of time (and his money) fixing things up. We have no interest in this type of client.

The business owner’s use of an average one per minute per transaction assumes the most simple process of data entry. What he was likely thinking of was this: take the number on the receipt and type it into QuickBooks or Sage. Simple!

Oh, if it were always that easy! Here’s a short list of complications that commonly arise:

• It has to be categorized before data entry. E.g. advertising or office supplies? Have he categorized it for us, or do we have to figure it out? Many are obvious, but others take time to understand, and some take a call to the client.
• What if a purchase has items that need to be categorized separately? A single trip to Staples could put onto a single receipt a computer, paper and pens, and table-top brochure displays. Some clients will call them all Office Supplies. Others will break it down as Computer Equipment, Office Supplies and Advertising and Marketing. So you see, it depends upon the degree of detail the client wants. One entry or three?
• Some entries don’t come from paper. For example, payroll withdrawals processed by a payroll processing company. This has at least three categories: Salary & Wages, Vacation Pay, and Payroll Taxes. Have a contractor? Another category. Want it detailed by employee? More time. For eight months there will be probably 16 payroll reports needed to enter. Plus, we have to break out their fees, month by month. Will the owner go into the processor’s website, find the correct reports, print them and hand them over? If we have to do it, it takes more time.
• Transactions in different currencies need extra time. Let’s say the client goes on a business trip and returns with two dozen credit card receipts in that county’s currency. On the statement it will appear in our dollars. Each receipt has to be matched up using different amounts to make sure it’s correctly recorded. Will they be organized neatly on an Expense Claim or handed to us bunched up and held together by a paper clip? If we’ve got to sort things out, it takes time.
• Missing receipts and information can cause extra time to be taken. Seeing it on the bank or credit card statement but having no backup slows us down. All clients misplace receipts at one time or another. How do we find out what it’s about? The tax man demands backup. On paper. This means getting back to the owner to sort things out, maybe search for a receipt, all of which takes time.
• Returned and exchanged purchased items can get complicated. Suppose the client buys something, and then the next day returns it for another item that costs a few dollars more. Sometimes it’s as easy as putting in one entry for the difference. But sometimes entries have to be done separately, especially if the transaction extends from one month into another. This takes time to be sorted out and entered correctly.
• Reconciling a bank or credit card statement takes time. Do they have one or several credit cards? Do two or more people share the same credit card? As I’ve mentioned above, not all transactions are done with a paper back up provided. Some are done purely online. Receipts need to be printed (remember, the tax man requires this). Will the client do it, or have us do it?
• Some transactions appear once in the vendor’s record but several times on the bank statement. For example, a credit card payment processor makes two deposits of credit card purchases on one day, but their report only shows one. Happens all the time. We have to make sure things add up and match. It takes a little time.
• Getting ready for year-end takes time. The owner’s accountant wants ‘clean’ books. If he or she has to make a whole bunch of adjusting journal entries then you can bet the owner will pay at least twice as much for the accountant’s time as compared to the bookkeeper’s time to do the same thing.

I could go on. Their are many, many more complications we see all the time. Every client is different in their need for detail, the quality of the information they provide and their desire to reduce accounting costs and regulatory hassles.

Bookkeeping is far more than transcribing numbers from paper into software. Each and every transaction has to be scrutinized, categorized, sorted-out, double-checked and then entered. Together all the entries are checked month-by-month to make sure they’re right. That’s a bookkeeper’s job.

So, please be cautious about making assumptions about the number of hours the bookkeeping job will take. Every owner’s wants and needs are different.

Sometimes their wants and needs don’t correlate to their desired budget. This type of client isn’t worth taking on because he or she will be a complainer. We have ‘fired’ a few of these.

We have to meet the prospective client to understand his or her needs. What are they are willing to do in the process of providing us their financial information? What reporting do they need, and how often? Then we’ll be able to reasonably estimate what the number of hours of work it’ll take to service their bookkeeping needs.

I hope you now understand more that bookkeeping is far more than transcribing. It’s about inspection, detective-work, carefulness, and accuracy.