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The Cost of a CEO Doing the Bookkeeping Themselves

Founder CEO’s are amazing at rolling up their sleeves and doing whatever takes to get the job done. It is that intense commitment that got them here. However, it’s not the model that will take them where they want to go?  At a certain point, founders become their obstacle to success. They are so committed to doing whatever takes in any area of the organization that they keep those areas from being executed with excellence. The boat stays afloat but the energy to scale the business is lacking. Such is the common case for CEO’s doing their own back office bookkeeping.I should know. I was that guy.

I have a corporate finance background.  I could do a lot of this work myself and I did, or rather, I was happy to jump in anytime. It was comfortable. But I wasn’t building equity value. Building equity value is about driving sales, talking to customers, sourcing capital, engaging in strategic partnerships, improving the product experience, building culture, and leading! There is no equity value created when the CEO is paying bills, making journal entries, processing payroll, or running variance analyses.

The common refrain from CEO’s is that they know intellectually this to be true but then a behavioral science axiom kicks into play. The fear of them spending $X on outsourcing their bookkeeping/accounting is greater than the perceived revenue upside of freeing up ten to twenty hours of their time monthly to drive new sales.

We get it and we face it all the time but it’s not rational. Highest and best use demands that a CEO play the role they are uniquely skilled to play in driving the organization forward.

So we decided to build an ROI model to make the point. Here is how it works:Step 1:  How many hours per month do you spend on bookkeeping / accounting related tasks that could be done by someone else?

Step 2:  How do you value your time as a CEO.  I love this post that supports a CEO time is worth $1,000 per hour, but let’s say that is aggressive.  Use the slider to choose.

With these two pieces of information, you will be able to calculate the implied cost of doing doing the bookkeeping yourself on an annual basis.

Step 3:  How much profit (gross profit or contribution) do you generate (on average) from an incremental sale that you drive?  Put that number here.

Step 4:  Now, assuming you were freeing up the time you specified in Step 1, how many additional sales do you estimate you could generate a year?

With steps #3 and #4, you will be able to calculate how much additional profit you could generate per year

Step 5:  Let’s estimate you monthly bookkeeping cost

Now we can get to the Return on Investment (ROI) detail:

ROI #1:  % cost saving of outsourcing vs. doing it yourself.  For example, if outsourcing is $2,500/month ($30K/year) and doing it yourself is $120,000/year (20 hours @$500 per hour x 12 months), then the savings would be 75%

ROI #2:  Profit you would generate in excess of the outsourcing cost.  For example, if outsourcing is $2,500/month ($30K/year) and you believe you could close 10 deals at 10,000 of profit over a year ($100,000 total), that multiple would be 3.33x.

Would you take a 75% savings rate and a return on investment of 3.33x in a year?  It is pretty compelling.  But I believe this really all comes down to courage and the the confidence in a CEO to believe in their own capability to drive equity value.  If the courage is there, freeing up your time from doing bookkeeping yourself can pay enormous returns.

 

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