What outsourced monthly accounting actually covers: four tiers, and the real reason for "we only do bookkeeping"

Hook

A boss brought me two quotes. The same "monthly accounts" — one just over a thousand, the other just over four thousand. He asked: why three times the difference? What I usually ask him first is: are you sure these two quotes are selling the same thing? Because in this trade, the two words "the accounts" actually hold four completely different things inside them. And most bosses do not even know which of them they are buying.

The four tiers

I divide the monthly accounting services on the market into four tiers. Tier one: bookkeeping. Classify and post the documents, reconcile the bank, produce the statements and the ledger detail at the month end. This is the most basic tier, and it is all that most low-priced packages contain. Tier two: bookkeeping plus statutory. On top of tier one, add payroll and the statutory filings, tax estimates and filings, audit preparation and liaison, the fixed asset register, and tracking the director's account. The keyword at this tier is deadlines: somebody is watching what has to be filed and when. Tier three: finance operations. Add issuing your invoices, chasing your customers' money, scheduling payments, preparing payment vouchers, checking staff claims, reconciling supplier statements, and stock costing and detailed stock records. Tier four: management accounting. Budgets, cash flow forecasts, KPIs, management reports, and somebody sitting down with you once a month to talk through the numbers. Four tiers, four prices.

Where the real line is

So which tier does the price start jumping at? Not tier two. Tier three. Because the first two tiers have something in common: recording what has already happened can wait. Give me the documents next week and I will do them all at the month end. Taking part in what is happening now cannot wait. The customer needs an invoice today; that cannot wait until the month end. This money has to be chased today; that cannot wait until the month end. That line is where the price really jumps — not how much work there is, but whether they are inside your process.

So why most only do bookkeeping

Now the question most people ask: why do most outsourced accountants say they only do bookkeeping? Why do they insist the client hands over a whole month's records in one batch before they can work on it? It is not that they are lazy. There are five structural reasons. One, batching is what makes it scale. A month's documents handed over once and done in one sitting — one person can serve a great many companies that way. Change it to handling things as they arrive and you have to staff by the number of clients. That is a different price. Two, being in the process needs access. To issue your invoices they have to be in your system. To make your payments they have to touch your bank. To chase your debts they have to contact your customers in your name. That is not a fee question, it is an authorisation question. A lot of bosses are in fact unwilling to give it — and without it, you can only stop at tier one. Three, being in the process means promising a response time. Monthly accounts can say "ten working days after the month end". But issuing invoices cannot wait ten days, and chasing debts cannot wait ten days either. Once a response time is promised, the whole cost structure changes. Four, the client side needs discipline too. Tier three demands that information keeps flowing in — documents uploaded the same day, claims submitted on time, delivery information given promptly. Most companies cannot do it, so the provider dare not promise it either. Five, touching money carries a different responsibility. Paying on a client's behalf means somebody is moving your money. So there is an iron rule on this: the provider is the preparer, the client is the approver, and the same person must never both prepare and approve. Not willing to separate them? Then this is not the thing to outsource — better for both sides.

The "I thought you were doing that"

That was the supply side; now the demand side. The four "I thought"s we meet most often. "I thought you would be watching the cash for me." Cash flow forecasting is tier four. "I thought you would remind me what has to be filed." A deadline calendar is tier two — a low-priced package may not have one. "I thought you would chase my customers' money." Chasing debts is tier three. "I thought that once the statements came out I would understand them." Understanding them needs somebody to talk you through — that is the tier four management meeting. None of those four is anybody's fault. It is that nobody ever made plain which tier that quote was buying.

Get a quote, ask three questions

So next time you get any monthly accounting quote, three questions are enough. First: is payroll in this, is tax in this, is audit preparation in this? If yes — it is at least tier two. Second: do you touch my invoices, my receipts and my payments? If yes — that is tier three. Third: does somebody sit down with me once a month and talk me through the statements? If yes — that is tier four. Three questions, and you know which tier the price is buying. Only then do you have something to compare. It is the same principle as the episode on quotes from the big firms — find out first what is inside, then compare the price.

Why the range is so wide

Finally, the price. I am not going to give you any figures — the circumstances differ far too much from one business to the next, and a figure would mislead rather than help. But I can tell you what stretches the range. Four groups. Group one, volume. How many transactions a month, how many bank and e-wallet accounts, whether there is stock, whether there is foreign currency, how many entities and how many outlets. Group two, condition. Are the records you hand over clean, or do they have to be rebuilt? This group is the one most often underestimated — rebuilding a year of old accounts and doing a year of new ones are two different things. Group three, tier. The four tiers just described. This group has the biggest effect. Group four, rhythm. Monthly, half-yearly or once a year; and whether a response time is promised.

To close

To close in a sentence: you are not buying "the accounts". You are buying which tier of the accounts. Get that straight and the quotes are no longer hard to compare — and you will find that the cheap one is not necessarily a cheap version of the same thing. We have put the four-tier comparison table on the episode page, and you can take it to anybody and ask. Want to know which tier your business should be buying right now? Grab a coffee first and talk about your business. For the accounting, come to LTT. I am LTT, helping SME bosses get their accounts straight. Follow us, and see you next time.