Surprisingly, I hear many bookkeepers aren't sure what rate they should be charging, and many still under charge.

Rates do vary for many reasons but sometimes I struggle to see how a bookkeeper can receive a proper income after taking into account all costs. Are these bookkeepers simply using rates that sound appealing to others? And thinking 40 hours a week at this rate sounds good?

If you charge at the lower end of the scale, say £12 per hour...

Are you thinking this can equate to £480 a week income?

Or possibly on a 48 week year, an annual income of around £23,000?

It doesn't sound too bad like that, does it?

But what are you really earning?

Unlike earnings when employed we do have not only other costs when in business, but other duties that result in lower earnings for time. These are very real and have to be considered, else you are doing yourself a serious injustice.

Firstly you probably can't bill a full 40 hour week. You will have travel time, internal-administration, meetings with potential clients, phone calls and possibly a lot more that cuts into your day.  If you are a employee, these are things you or someone else in the business would be paid for sorting but when in business for yourself no-one will pay for this so you must allow for it in your billable rate.

For arguments sake, let's say you lose half a day a week on all of that - although I expect it's a lot more. Now you only have 35 billable hours in a 40-hour work week.

And what about the overhead costs?

Well, many cases you work from home or use a small office somewhere. Location, size, services included all make a difference but I'd expect almost anyone would need to allow at least £200 or so per month for this.

Plus phone calls, electricity and others?  Phone calls, a split mobile and land-line could be at least £50 each month. Utilities and other basics maybe £30 a month? And maybe another £250 a year for insurance. And other incidentals of £500 would be a fair inclusion.

If your clients were employing someone, this is a cost they would have to cover so why shouldn't it be covered in the rates you charge?

A computer, software, furnishings are all things you need too. Computer maybe around £500, and much the same for software.  Furniture - desk, chair, filing cabinet etc might come to £250. A website and other basic marketing material and corporate stationery could easily be £750, something you need to cover.  This £2000 might be something you spend every couple of years, just to stay up on the very basics without going overboard or getting anything "high-end" at all!

There is a lot more you may need to consider but this starts to give you an idea.

Lastly to get an idea of our actual income, we need to consider employment costs - NI contributions, sick leave, bank holidays and so on.  We know we want 4 weeks a year recreation leave - we all need a break, and need to afford one!

So we need to add a week a year sick leave (being self employed we are less likely to take a sicky!), and 2 weeks for those bank holidays which we'd probably get if we were employed in this profession.

To get an idea now, and keeping this very simple (at least for illustrative purposes), you're charging just £12 an hour means...

35 billable hours a week but only working 45 weeks a year, so this is £18,900 per annum - already quite a difference.

And from this we have to take £2,400 for the office/room usage, £600 for phones, £360 for utilities, £250 for insurance, £500 for incidentals.  And a minimum allowance for the tools needed to provide the service £1000.

So now we're looking at £13,790 less that NIC still to consider... so now our rate equates to an actual earnings of around only £12,000 per year, bearing in mind most probably achieve fewer billable hours in a 40 hour week and have even more costs!

So from that basic calculation we get an idea that £12 per hour really means about £12,000 a year. It's not a salary I would expect a professional bookkeeper to be content with, would you?

Harry Nicholson
H Nicholsons Accountants

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Harry Nicholson, H Nicholson Accountants - A fictitious sample member of The Accountants Circle.