The Magic 3.5%

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If only charging the right price for was as simple as playing a video game, right?

So when it comes to pricing accurate and fair accountancy fees for clients it sure as hell ain’t simple for us either.

But the good news for you is that our prices have been so methodically formulated after months of blood, sweat and pixels that we believe they are the most accurate and fair prices in the UK.

We have used a number of markers to ensure that our pricing database is pure.

And one of these markers is the magic 3.5%.

The magic 3.5% is based on a standardised industry benchmark that suggests any business owner should be aiming to invest between 2% and 5% of their turnover on their accounting and finance function at a bare minimum.

Anything less is cutting corners.

We’ve pitched right in the middle of this at 3.5% to get the best of both worlds.

That does not mean we think 2% is too low or that 5% is too high but simply that we believe in averages and that no two businesses are the same.

Although quite an old-fashioned rule of thumb if a given business was to follow the 33% profit-staff-overheads mantra then (of the 33% of turnover being used for overheads) for your accounting and finance function to only be circa 10% of total overheads is an absolute no brainer.

Don’t worry about the maths - we’ve done it for you.

We bet you spend more money on marketing right?

But how can you truly know what to accurately spend on marketing if you do not have a live accounting and finance function in place?

And by live accounting and finance function we are talking the full works - not just someone who does your annual accounts once per year or the bookkeeping now and then.

No.

We are talking about your outsourced financial workforce; the lifeblood of your business that goes Up, Down, Left, Right, A, B, Start whenever you need them too or without being asked.

This is what the 3.5% covers.

Except we’ve taking this marker even further - perhaps further than any other accounting practice ever before.

It is fair to assume that a blanket percentage cannot be applied to every business of different sizes.

For instance, businesses that fall into the £30K turnover band cannot expect to obtain a full accounting and finance function for a mere 3.5%.

Furthermore, businesses that are approaching the audit threshold of £10M should not have to pay a whopping 3.5% on their accountancy fees.

Thus, our prices have been tuned to reflect each turnover banding whilst maintaining an average of 3.5% from top to bottom.

The main reason behind this is because of the opportunity for economies of scale and the fact that volumes of bookkeeping transactions are top heavy for smaller businesses

In other words, some jobs have a base level of effort and as a direct consequence this must be reflected across the turnover bands.

It is for this reason that we charge for bookkeeping based on the number of transactions - not time.

Additionally, we expect payroll costs to increase as turnover increases but payroll costs are based on the number of employees.

Thus, we took the average UK salary (£30K) and (using the 33% profit-staff-overheads rule) we applied this to our turnover bandings so that we could work out the average number of full-time employees as a guide and maintain an average investment of 3.5% across the board.

That one was a particular gamechanger.

The most important thing to understand here is that we are striving for the most transparent prices you can possibly pay at our practice for all bookkeeping, accounting and tax services.

So much so that if you really wanted to know the mechanics behind a price we can explain it in clear terms without confusion.

We don’t care what other accountants charge.

Some will be cheaper but that means they are probably cutting corners somewhere.

And if you cut corners to go with the cheapest accountants then that’s a double whammy, right?

But because we have tracked all of our services across a range of turnover bands using advanced mathematics (e.g, linear progression) to ensure that the percentage of turnover always maintains at an average of 3.5% as per the standard industry benchmark - within 0.001% error!!! - for all of our clients it means that by investing in Sky Life Accountancy you will always win and never lose.

Never scrimp on your shoes or your bed.

Because when you’re not in one you’re in the other.

Never scrimp on fast-track tickets at theme parks or airports

Because you might miss out on fun or your flight.

And never scrimp on your accountant.

We will help you to make more money, keep track of it and keep more of it.

And whilst money won’t make you happy, the certainty it can give you by making the right level of investment will.

Insert 3.5%.

The 1-3-12 Formula

As any business owner would know, anything and everything can change.

And usually without much notice.

So when it comes to how we charge for the MVP Accounting and Finance Function, we have a specific programme in place that ensures you never get any surprise bills or unexpected fees.

We call this the 1-3-12 formula.

And it’s really simple to understand and follow in practice.

Historically, accountants would charge clients a fee based on the work performed so long after the accounting period has ended that it would always be nigh on impossible to accurately price the fee correctly.

Usually, it would be a stab in the dark or worse - a continuation of what has always been charged.

This system was never fair for both the client and the accountant.

It created misconceptions, misunderstandings and missed opportunities.

It was lazy.

But there is a new approach that eventually most accountants will look toward.

And it works like this.

Every month (aka the 1 in the 1-3-12 formula) we review payroll changes (i.e. starters and leavers) so that in the following month we can accurately charge you for the current payroll scope.

Every quarter (aka the 3 in the 1-3-12 formula) we review bookkeeping changes (i.e. bank transactions etc) so that in the following month after the quarter has ended we can accurately charge you for the current bookkeeping service levels.

Every year (aka the 12 in the 1-3-12 formula) we review sales turnover changes so that in your service renewal we can accurately charge you for the current annual accounts, CT600 and VAT

All of these prices amendments will be insignificant because you’ll already be paying the bulk of the fee.

Example 1

It is coming towards the end of Month 7 in the accounting period.

A payroll review report from the same month has indicated that there was one starter and one leaver.

The invoice for Month 8 will reflect no change as the staffing levels have returned to the status quo.

Had the new starter been delayed to Month 8, the following would have happened:

Month 8 Invoice = decreased by x amount

Month 9 Invoice = increased by equivalent x amount

Thus, there would have been a saving in one month before reverting back to the previous total.

Example 2

It is coming towards the end of Month 9 in the accounting period - or the end of Quarter 3.

A Dext Precision report has highlighted that the average number of monthly bookkeeping transactions has increased by 20% from 125 transactions per month to 150 (roughly an extra 75 items per quarter).

The invoice for Month 10 will be adjusted to reflect the increased scope in bookkeeping work by 20% as per the average monthly increase (25 items) not the quarterly total increase (75 items).

In other words, the new monthly fee ignores the total increase and instead settles on an average.

It would possibly be too much work to review bookkeeping every month even though there may be times when there are crazy spikes in transaction levels - especially for seasonal transactions - that would normally see a price change arrive earlier than a quarterly amendment.

Thus, the quarterly review gives you the benefit of the doubt whereby spikes in activity are not indicative of an actual increase in the monthly average due to timing.

Example 3

It is coming towards the end Month 12 in the accounting period - or Year End.

The latest set of management accounts predict that the turnover for the financial year will be £90K lower than the previous period of £450K.

This means that the business will move down a turnover band (from under £710K to under £420K).

This also means the service renewal will be adjusted to reflect a lower fee for the annual accounts and Corporation Tax service fee, and additionally the quarterly VAT service fee.

Because turnover is so interchangeable, it is only right that it is reviewed on an annual basis.

But because the information is driven by actual live data taken from a full 12 month period, it also means that the future charges for the annual accounts etc are fairly locked in for both parties.

And that is the 1-3-12 formula!

Data Driven Pricing

What is the GLOSS System?

GLOSS stands for:

Goals

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And during your Live Proposal we will go through each of these areas to ensure that we obtain the right information and data to be able to charge you the correct fees as part of your investment in the MVP Accounting and Finance Function.

The GLOSS System is what we use at Sky Life Accountancy to start building a relationship with you.

But essentially it is a tool we use throughout our time working together to obtain the price that needs to be charged in light of being able to help you achieve your goals by choosing the services that you need and the not the services you think you want.

You can see the common theme here.

As brought to your attention in our other blogs The Magic 3.5% and The 1-3-12 Formula, we want you to be rest assured that we have a slick process in our pricing method.

The GLOSS System leaves nothing to chance.

The Magic 3.5% aims to put you in a position of power in terms of the services being performed for you and what that level of investment can do for your business.

And the 1-3-12 Formula aims to apply a structured approached to always keeping your fees aligned to the financial year whilst using specific data sources to guarantee the data being used to generate updated prices is 100% accurate.

But the GLOSS System is your friend guiding you through the proposal

So if the 3.5% represents money and the 1-3-12 Formula represents time then it is clear that the GLOSS System represents mind.