• Employer-Provided Benefits Shouldn’t Keep You From Being a Freelance CPA

    By | May 30, 2017

    Please enjoy this sponsored content from Beech Valley Solutions. You can read more their partnership with Accountingfly here.

    There’s a lot of legitimate reasons why freelancing may not make sense for you right now.

    Maybe one of your superiors at your firm is a fantastic mentor who has taken you under their wing.

    Maybe you’re in a specialty group, getting valuable experience you could never replicate elsewhere or on your own.

    Or maybe you were on the losing side of a bet with a friend on the 2002 Western Conference Finals, and the loser had to work his or her entire career in public accounting. Even though the series was clearly fixed, here you are…

    But of all the potential reasons that being an independent consultant might not be for you, the most commonly cited reason is nonsensical: that you need your employer-provided benefits.

    The general perception is that individual insurance plans:

    • Are difficult to obtain.
    • Are prohibitively expensive. Like, sail-a-yacht-around-the-world-with-One-Direction expensive.

    So we’re going to address both of these sentiments here.

    Insurance is difficult to obtain on my own.

    Bookmark this post, because this will prove to be an indispensable resource on your quest to obtain insurance.

    A step-by-step guide to obtaining insurance:

    1) Go to ehealthinsurance.com.
    2) Put in your information.
    3) Get quotes.
    4) Pick your favorite plan.
    5) Sign up.

    Estimated time to complete: 5-7 minutes, depending on internet speed.

    Insurance is expensive. I will never be able to recoup the value of my employer-provided benefits working for myself.

    Total insurance cost will vary depending on your situation. Does your spouse’s employer provide benefits? If so, just get on his or her plan.

    If not, no need to speculate. Follow steps 1-3 above to receive quotes.

    In addition to health and dental benefits, you’re also going to want to check out disability and possibly life insurance. To determine what coverage you need, take this 5-minute assessment from Policy Genius.

    Generally speaking, disability and life are significantly cheaper than health insurance.

    My total insurance cost is about $4,000/year. Your costs may be cheaper or more expensive than that, but either way, it really won’t matter.

    Which takes us to…

    …the big picture

    So yes, you do have to pay for your own benefits when you work for yourself.

    But when you can make substantially more money by freelancing, does it matter if a small portion of those incremental earnings goes towards paying for your own insurance?

    Let me ask you this: If you won the Mega Millions, would you not claim your winnings because you’re concerned about the gas money required to do so? No. No, you wouldn’t.

    What about PTO?  My company pays me three weeks of the year to not work.

    With PTO the implication is that you get “paid” to not report to work for a few weeks out of the year.

    But here’s the kicker – what about all those hours you’re working in excess of 2,080. (i.e. – 40 hours/week for 52 weeks)?

    If at the end of the year, you’ve recorded 2,200 billable hours, are those three weeks of vacation really paid time off?

    In my mind, you’re not getting a single minute of paid time off in any logical sense of the term. What you’re getting…err giving I mean… is unpaid time on for all the hours worked in excess of 2,080.

    As a freelancer, if you bill 2,200 hours, you get compensated for all 2,200 hours. Imagine that.

    What about employment taxes? Won’t I have to pay the employer portion of payroll taxes, an extra 7.65%?

    We’ve addressed this before. The short answer is that with basic tax planning, your taxes will be similar or less than that of an employee who earns comparable compensation through salary.

    And lastly, how does my income as a consultant compare to that of a salaried employee?

    See for yourself using our freelancer compensation calculator. The results just might astound you.

    Or check out this analysis here, which includes the hidden costs of running your own business. As an independent consultant, you should be able to pick up tens of thousands of dollars in incremental earnings, while your expenses will increase by only a few thousand dollars.

    Brad Hughes is a co-founder of Beech Valley Solutions, the premiere network that connects CPAs with freelance opportunities in advisory, assurance and tax.  Beech Valley consultants enjoy higher pay for every hour worked, the flexibility to accept or reject projects, and the ability to diversify their skill sets.

    • LeftShark Consultant

      But who can resist that 25% of 6% match that doesn’t vest until you essentially hit manager?

    • Jamie Smith (Accounting & Exce

      Brad, this is a great topic to bring up! I switched to being a self-employed accountant late last year, and although my cost of insurance increased, my earnings far make up for it! I would encourage others considering making the switch to not sweat about it either.

      • Brad Hughes

        Appreciate the positive feedback and glad to hear you’re having success as a self-employed accountant! Would love to hear your story – please feel free to reach out if you’d like to connect.

    • Missing Donut

      Just out of curiosity, if someone does work for you for which they are paid $65/hr, what rate are you billing out to the client? (I do expect there to be a premium, as of course you have to make money too).

      • Brad Hughes

        Thanks for the question!

        We independently negotiate all billing rates with our clients. That margin is generally in the ballpark of 25%. Traditional firms often aim for close to a 100% margin, so our much lower margin allows us to compensate professionals significantly more than what they could get elsewhere, while also allowing us to provide beneficial rates to our clients.

        As an example, a CPA earning $65/hour through us would likely be compensated $40-$45/hour elsewhere.

        As we grow, we plan to charge a consistent 15%. At that point, the actual placement will take place through an online marketplace, which we’re currently in the process of building now.

        • Adam Hill

          What is your average weighted average billing rate/hour at your place?

          What is the average hours worked/year?

          • Brad Hughes

            Hey Adam – Thanks for the questions! Hope this addresses them sufficiently.

            1.) Currently we’re compensating CPAs between $50/hour and $135/hour. Most of our consultants are at the Senior Associate level and come in around $65/hr.. give or take depending on experience/degree of specialization/etc.

            2.) This question is complicated because if we took the average of anyone who has worked on gigs through us, it would be a poor representation. Here’s why:

            Most of the CPAs we work with fall into 3 buckets:

            i.) CPAs working with us on a fulltime basis.

            They averaged ~1,700 hours per year last year. This varies based on how much vacation or time off they desire, but typically 1,600 – 1,800 has been the sweet spot. I imagine that this would be the group we’d want to isolate for your answer.

            ii.) CPAs who are in between fulltime jobs and want to pick up some interesting gigs while waiting for the right opportunity.

            One such example was a former controller whose company got acquired. He picked up an interim controller position for us for 3 months, allowing him time to find the right fulltime opportunity. It paid off, as he was able to land a CFO role at a high-growth startup.

            iii.) CPAs who choose to work with us on a recurring basis, but only for part of the year.

            These CPAs either have their own practice but use Beech Valley to supplement their income during slow periods, or choose to spend a substantial amount of time with family, traveling the world, crossing off bucket list items, etc. Similar to ii above, this varies wildly depending on situation.

            • Adam Hill

              Thanks, that was informative. How many bodies in group 1? How many in Group 3?

              Good idea on a business model. Does the profit margin of 25% stay (or has it stayed) consistent since you started?

            • Brad Hughes

              7 and 8 through Q1, respectively. We’re growing fast and recently picked up several new accounts, but we really only had a handful going in total a year ago this time (most of which turned out to be “full timers”).

              And yes – the profit margin has been consistent.

    • BooBooBaby

      I could sure use a good account.
      Sorry….off subject.
      Looks like I am late on this article too….oops….sorry. 🙂