Do You Know What You Don’t Know?

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I remember the first year I filed taxes as a private practice owner. My CPA looked at me and asked,

“What’s this?”

I thought it was obvious. It was a stack of very important looking paperwork I had printed from my Quickbooks. He handed it back to me and said,

“Go home and try again.”

I spent about five more hours of my $35/hour time printing and guessing, uploading my logo (I was pretty good at that) and pretending I knew what I was doing. I was up to ten hours of my time ($350 of lost income) and I was no closer to filing my taxes.

I tried again.

“Kate,” he said handing me a business card, “Go see this person. Learn how to work Quickbooks, or I’m going to charge you by the hour if I have to try to figure out this mess.”

My CPA charges $150/hour. The Quickbooks guy on the card charged $50/hour. I took the card.

This amazing person with the heart of a teacher taught me Quickbooks so I knew enough to get my taxes in shape for my CPA. The next year, I was able to hire someone to come in every two months to reconcile my books. My CPA has not complained since (about my taxes anyway).

Ever since then I have always made it a point to look at the time I spend on a task, versus what I would need to pay an expert. If it looks like I will save money hiring the expert then that’s what I do. It’s easy to do the math.

First, figure out your take home pay. This is what you tell the IRS at the end of the year NOT what you charge your clients per hour. Even if you charge $200 per hour, after you subtract expenses, you are probably making closer to $50 per hour based on a 40 hour week (minus a few days for national holidays). I’m basing this on a 40 hour work week because even if you feel you only work ‘part time,’ unless you are eating bon-bons and binge watching Gossip Girl during all of your non-client time, you are probably working (think paperwork, cleaning your house, raising your kids). Now, take off the last three zeros and divide by two.

Example: You reported your income last year at 72,000. Take off the last three zeros and divide by two. You make about $36/hour.

If you do a task like balancing your business checkbook at the end of the year and it takes you ten hours, then you have just spent $360. A local quickbooks expert who charges $50/hour could come in and spend three hours doing the same task for $150. You just SAVED money by hiring the expert.

My rule of thumb is; if a task takes me more than one hour to accomplish and/or the liability is high if I mess it up, I usually hire it out. Right now I have a bookkeeper, an accountant, an attorney, and a housekeeper. Not all at the same time mind you, but let’s just say I know what I’m not good at.

Do you?

 

 

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