Industry Guide on How Much Should You Spend On Accounting

It can be tough to understand how much you should pay your accounting department because there are so many job titles people use.

“A Thousand Different Titles”

These accounting titles might include:

CFO
Comptroller
Controller
Director of Finance
VP of Finance
Accounting Manager
Payroll Clerk
AR Clerk
Specialist Clerk
And so on

How do we understand what we should be paying these people and what we should be getting out of them?

The challenge is that a lot of times, they speak a language that you don’t speak.

You can’t even tell if they’re any good until 6-12 months down the line when, as Matt Garrett, founder and CEO of TGG Accounting, says, “You’re getting crappy financials, they’ve missed payroll, somebody’s not gotten paid correctly… what’s going on?”

So, how do we figure out how we can demand accuracy, and then also what should we pay for this accounting department?

How Much Should Your Accounting Department Cost?

Garrett continues: “The easiest way I can explain it is to use percentages.”

You need to be paying somewhere between one and three percent of your total revenue towards your accounting expenses, he says.

One to three percent should cover:

All of your day-to-day accounting.
Audit fees (if you have them).
Any kind of tax consulting or tax CPA fees.

Those three combined should be somewhere between one and three percent.

How much does the average company spend on accounting? Garrett says: “Unfortunately, what I find is that most of us business owners are either spending way too little—we’re a $10 million business with a $1500 a month bookkeeper, our books are a mess, we never get financials, and we don’t even look at them—or we’re a $10 million business and we’ve got a $400,000 CFO who’s reconciling the bank account. Neither of those is perfect.”

1-3% Is a Big Disparity

So, how do you determine whether you should be spending closer to one percent or closer to three percent? That can be a big disparity.

If you’re a service business where it’s almost all payroll, invoicing, and things like that, you’re down in the 1% range.

If you’re a manufacturing business, you have a thousand different parts and raw materials that come in, and you have to put it all together and keep track of the inventory. Then, you have a bunch of fixed finished goods inventory—that’s very complex accounting. So, that would be more in the 3% range, Garrett says.

All of the businesses that TGG Accounting serves should fall somewhere between that 1-3% range.

“But remember,” Garrett warns, “use percentages, not dollars. That way you continue to ensure profitability at the end of the day. And make sure you get accurate and timely information.”

If you’re interested in finding out, “How much should I be spending on accounting?” feel free to reach out to us—we’ll be happy to give you an idea.

FAQs About How Much to Spend on Accounting

How much should a small business spend on accounting?

Small businesses typically spend between 1-3% of their revenue on accounting. However, very small businesses often use outsourced accounting services, which may cost between $500 and $2,500 per month, depending on their needs.

What is included in the 1-3% accounting cost range?

The 1-3% range should cover all day-to-day accounting, audit fees (if applicable), and any tax consulting or CPA fees. This percentage guide can help you answer the question, “How much should a company spend on accounting?” It’s meant to encompass the full cost of maintaining accurate and timely financials for your business.

How much should a CPA cost?

CPAs generally charge $150-$450 per hour. For small businesses, ongoing tax preparation and consulting fees might range from $1,000 to $5,000 annually.

Is it worth it to pay an accountant?

Yes, hiring an accountant is often worth it. You might be worried about how much to spend on accounting, but accountants ensure accurate financial reporting and compliance, and they provide insights that save money and time. That investment is worth it, especially considering how costly poor financial management can be in the long run.

How much is bookkeeping per month?

Bookkeeping costs depend on the size and complexity of your business. Outsourced bookkeeping services typically range from $500 to $2,500 per month. In-house bookkeepers may earn salaries between $40,000 and $60,000 annually.

How do I determine if I’m spending too much or too little on accounting?

If you’re wondering how much to spend on accounting, compare your accounting expenses to your revenue. Spending outside the 1-3% range may indicate you are either underinvesting or overspending. For example, a $10 million business should allocate $100,000 to $300,000 annually.

How much should a startup spend on accounting?

Just like any other business, a startup should typically allocate 1-3% of its revenue for accounting, depending on the complexity of its finances. Basic bookkeeping may cost a few hundred dollars per month, while full-service accounting, including tax planning and financial analysis, can range from $1,000 to $5,000 monthly. Outsourced accounting services, like those from TGG, offer a cost-effective way to get expert financial support without the expense of hiring a full-time accountant.

What are the risks of underpaying for accounting services?

Underpaying can lead to:

Poorly maintained books.
Payroll and tax errors.
Delayed or inaccurate financial reporting.
These issues can hurt your profitability and even result in compliance penalties.

Should I hire in-house accounting staff or outsource?

The choice depends on your business’s size and needs. Outsourced accounting is cost-effective for small businesses with simpler requirements, while in-house accounting is ideal for larger businesses that need more control and immediate responsiveness.