I am curious to get your feedback. When is the right time to start hiring out the bookkeeping? Of course I realize that this answer is different for everyone depending on your goals and what you hope to achieve so I'll give just a little bit of background as to where I'm at and where I'm hoping to go. Maybe someone out there can relate and share your thoughts.
I am a working professional in Fort Wayne, Indiana who loves his day job. I invest on the side to generate additional passive income, but I do not want it to become or replace my full time job. Over the past 6 months I have grown from only two single family residences that I rent out, up to 11 SFR's currently. The growth has been great, but it's starting to wear on me a bit. I already have property managers, bankers, lawyers, laborers and mentors in place, and being a broker I can search for and purchase my own properties easily enough. That said the bookkeeping is getting old.
I'm curious to know from those who have hired a bookkeeper when they implemented the switch was it terribly costly and would you advise it for other Investor as we grow and scale up our business? Would you advise using someone locally that I can meet with and work with or is it reasonable to use someone out of town or even overseas to help with this task?
I read a book about business cashflow and one nugget in particular stuck with me: if you don't like or want to do it, hire someone who will.
For just bookkeeping I would guess you might spend about $100/month.
It is very important to keep your books in order. It lets you know if you're making a profit, if you are csshflowing, and tax time is a little easier to deal with.
@Drew Wiard congratulations on the growth!
We started using Quick Books online 2 years ago so our out of State CPA could have easier access to our books. We have a part time [12 hours per week] assistant that comes in to help with bookkeeping. Plus, our accountant has offered to do all of the books for $50 per hour.
It sounds like you are at the point where it would make sense to hire it out.
If you already don't have a personal hourly value - you should. Say you put a value of $100 per hour on your personal time. Now you hire out your books at $50 per hour. It doesn't cost you $50 per hour but saves you $50 per hour! [$100 - $50 = $50].
It took me a while to get my head around this but now, I have no issues with paying others to do work for me.
Don't forget you can get a college grad VA for around $3 per hour to do date entry and other tedious tasks.
I hope that helps.
I agree with all of the above. I tell my clients that they should be grossing around $4k-5k per month before hiring out the accounting makes financial sense. This is due to the fact that I don't want to see a big accounting expense on the P&L in terms of percentages.
That said, I've supported clients who haven't hit that gross amount as they simply don't enjoy bookkeeping, are bad at it, or have too many properties to handle (sometime "too many" can be 1 or two properties).
Like Shawn said, it really depends on how you value your time and how large you want that accounting expense (in terms of percentages) to be on your P&L.
Shop around for bookkeepers. Some will charge hourly, some (like myself) will charge a fixed monthly rate. Consider outsourcing to a CPA as it will make tax preparation quite easy for the CPA. Additionally, the CPA will act as your business advisor and will help you make financial decisions, reposition your capital, and challenge questionable costs from PM companies or contractors. You need to find one that meshes well with your business.
You should outsource your accounting when you find yourself in any of the following positions:
1. You hate it so much that you put it off constantly and fall further and further behind
2. It's not something you're good at and your accountant spends more time fixing your mistakes than it would take him or her to just do the first time.
3. You have other things you'd rather do.
4. You can use bookkeeping time to work on other deals and make more money than what a bookkeeper costs.
One of the things that I would always advise is that if you hire out the bookkeeping, you should still take the time to go through the reports that the bookkeeper gives you. Ask questions. Understand the story behind the numbers.
These are OUTSTANDING answers....thank you!
Drew, curious how you are financing, JV? If so, 50/50? Looking @ similar.
My financing has all been standard 25% down commercial loans to my LLC
Okay, I'll jump in and offer a bit of a contrarian view on this thread. I think that if it doesn't bother you that much, you should continue to do your own books for as long as possible, at least in the beginning. I agree normally with assessing the time value of money and putting a dollar amount on your time, but as long as it's not sucking up too much of your time (and it shouldn't for quite a while for most SFR investors if you have good systems), there is something about doing your own books that really lets you keep your finger on the pulse of the business much better than just reading reports at the end of the month or whenever. I think you're more focused and can react quicker to changes. At the beginning, this strikes me as pretty useful. To me, that familiarity and control kind of takes it out of a straight time/dollar analysis.
So tell me what is your time worth?
When is it time to outsource anything ....
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