How much does it cost to hire an accountant? There is no single answer. It depends on the amount of work you give him, and on how good he is.
Asking “How much does it cost to hire an accountant?” is like asking “How much does it cost to hire a lawyer?” If you hire a lawyer to do your will or draw up a lease, you will pay $200 to $500. If you hire a lawyer to defend you in court against charges of murder, you will pay as much as he charges per hour, but his bill will probably run to six figures. It’s the same with accountants.
One accounting firm charges $150 an hour for routine work and $250 an hour for more complicated stuff. Another charges $125 an hour for routine work and $175 an hour for more complicated stuff. The first firm has more than twice as many people in its office as the second one. It’s true that the partners in the first firm make several times as much money as the partners in the second one; they have twice as many people working for them, so they can afford to pay themselves more.
Most small businesses don’t use accountants. And most of those that do use them only periodically. So if you are one of the many people who run a small business, it is likely that you do not have an accountant.
But there are costs besides money. There’s time, for one thing. There’s also the risk that your accountant will give you bad advice–and even if they don’t give you bad advice, they will almost certainly give you advice that conflicts with what some other advisor told you earlier, and then you have to decide who to listen to. Accountants are very good at math, but math isn’t all there is to business.
You can pay an accountant $600 for doing your taxes, or you can spend countless hours studying tax rules yourself and agonizing over whether to make certain maneuvers–or not make them–and then maybe pay more in the long run because you didn’t ask the right questions of your accountant or because he made some mistake that will end up costing you more than his fee.
Unless you are a really big company, an outside accountant will charge you by the hour. How much will that cost?
The way to think about this is not just “how long will it take,” but also “how long would it take me?” A talkative, non-linear person like me might spend an hour just tracking down and organizing the information needed to answer some simple accounting question.
An accountant probably has better tools for finding and organizing information — maybe a database or something — so if they can do it in less than an hour, they’ve already made you more than $50/hour worth of progress.
So what does an accountant get paid? At my last accounting job, I typically billed out at $75-$125/hour. Some of that was for expertise — using the same reasoning above, we’d expect them to be more efficient than I am (though probably less efficient than a database). Most of it was overhead: since they had to get paid whether they worked or not, and had to hire someone to cover for them when they went on vacation, and had to pay for office space and equipment and insurance no matter how many hours they worked. (And let’s not forget all those regulations requiring everyone who works with money to get certified.)
When I hire an accountant, my implicit goal is for there to be more money in the bank at the end of the year than there was at the beginning of the year.
Where does it all go?
The bulk of my yearly expenses go to pay salaries. If I have a lot of income, I pay myself a salary too. If my company makes a profit, I can take money out of the company in the form of dividends or capital gains. If my company makes a loss, I can offset it with credits from earlier years when my company made profits.
The biggest expense for most companies is salaries, but if yours isn’t then your percentages will be different.
When you hire an accountant, does she charge you by the hour, or as a percentage of your income? The first option seems greedy and unfair. The second seems fair and generous. But in either case it’s the same basic story: your accountant is betting on how much money you make.
She can’t really tell ahead of time what you will earn, but she has good data about what other people like you have earned in the past. If she makes a mistake and charges too much, she just lost her job; if she underestimates and gives you too good a deal, she will be out of a job next year when you makes lots more money than expected. So her incentive is to estimate as accurately as possible.