True Cost of an Employee

Are your employees costing you more than you think?

Do you ever feel like you are working for your employees, instead of them working for you?

That’s because in most small businesses, the owner has no idea of the true cost of employees and it is one of the biggest reasons we suffer poor cash flow.

For example...

If you pay your bookkeeper $15 an hour, he/she can be costing your company $75,000 a year. When I bring this up I get a shocked response from business owners, they say “NO WAY, I only pay her 15.00 an hour plus 7% in employee taxes - no way bookkeeping costs me $75,000 a year."

We underestimate our true cost or burden rate and the locked in expense kills our cash flow if our business ever takes a down turn. Costs like medical insurance, phones, rent, computers, software, training, hiring, sick days and the 100 other little costs that add up. But those costs are chump change for a small business compared to the real expense.

The big cost is the owners’ time. Your time MUST be spent looking for new and better customers. Any time you are dealing with a bookkeeper, you are losing sales to your competitor. The cost of finding a new employee and getting them trained on how you want things done can take up $5,000 to $15,000 of your time. That number never shows up on your Profit and Loss, it’s hidden. But that is lost time - losing customers that won't buy today, and they won't be buying from you in a year. You have lost opportunities forever when you’re dealing with back office tasks that don't need to be done.

Or what about the time you have to spend every day managing or 'interacting', as they say now a day at MBA school? How much does that wasted time cost?

Here is how to determine the 'burden rate' of an employee. Go to your Profit and Loss statement and look under payroll. Move the owner’s payroll to overhead, because you are management, and that is where it belongs (in overhead). Now divide the total gross payroll into your total overhead and here is what you are going to find. That for every 1.00 you pay your employees, your cost is actually $2.40 to $2.60.

So that $15.00 an hour bookkeeper is actually costing you 36.00 an hour at the low end and and up to 39.00 if your office is a little nicer or your benefits are above average. That’s 39.00 an hour if you have work to do or not. That is $39.00 you are paying out every day and that is plum nuts for a small business owner.

If you want to improve your cash flow, look for jobs that do not affect the customer experience. Bookkeeping is one of the first to go. MasterType Accounting & Business Services, P.C. can take that $75,000 burden rate, and cut it down to $15,000 to $25,000 a year. Plus - give you better numbers every morning and advice on how to run a better business.

Outsource your bookkeeping today, and start rounding up more cash cows.