A decision many companies have been making more frequently is whether or not to outsource their accounting. There are lots of factors when comparing the cost of outsourcing a position to hiring in-house. We’ll go over the quantitative and qualitative factors to consider.
When you outsource your accounting, different firms have different fee structures. Some firms charge by the hour, but at Fortiviti, we use a fixed monthly fee. This allows for the company to easily budget for the year. Something else unique about Fortiviti is that we include the Rippling (payroll) software costs and QBO accounting software costs in our fee. This reduces the number of vendor bills that the company needs to pay. An added cost benefit of outsourcing your accounting to the professionals is that your tax CPA will spend less time cleaning up the books at the end of the year, therefore your tax bill is decreased.
Something to consider when outsourcing, though, is that you don’t have unlimited access to your accountant’s time. Therefore, if a project comes up that isn’t in the normal course of business, let’s say you want to implement a new accounting software, you may be charged a project fee.
To hire decent talent, you have to pay for it. The current market for accounting professionals is anywhere from $67,000 – $130,000 annually. Not only that, but you do not actually know someone’s abilities until they are in that new role; sometimes what someone’s resume says they can do doesn’t match their actual abilities.
On top of the base salary, the company must pay employee benefits, such as the employer portion of their health, dental, and vision insurance, employer payroll taxes, and unemployment insurance. If your company pays a 401k match and offers paid vacation time off, the accounting position also gets to participate. Additionally, to keep an accountant current on either their professional accounting certificates (CPA), or just to stay current in the profession, there are continuing education costs that could cost the employer thousands of dollars to stay competitive with other companies.
Experience and Resources
Outsourcing your accounting gives you a multitude of resources accessible at your fingertips. You may be assigned one Controller as your point of contact, but with a firm full of knowledgeable accountants, there is always someone who has been exposed to a unique complexity that arises and can assist if someone else has not had that experience. Fortiviti provides an entire accounting team that your company, alone, would not be able to hire (such as the CFO-level and a payroll team). It’s costly to hire several people, and it’s hard to keep them all productive. By outsourcing, you’ve got the benefits of a whole team, which include the management and review of your Controller’s work. It does not have to be management that performs all of those functions – they are handled behind the scenes.
When considering time as a resource, something to consider when you outsource is that you’ve got limited capacity out of your accountant. At Fortiviti, one of our core values is Doing the Extras – we want to be sure we help our clients in any way possible. However, sometimes there are projects that come up that require more resources than our team has normal capacity for. As mentioned in the cost section above, certain projects may take planning to execute – you don’t have your controller’s unlimited time to use for projects as they come up.
A benefit of hiring in-house is that you can control the experience your employee has and can provide them with the training needed for your industry. On the other hand, when you have a single in-house accountant, they only know what they know. Maybe they have been at the company for 20 years, so they’re really good at that one company’s day-to-day, but there are not resources within the company that have different experiences they can feed off of when something new comes up.
For many small companies one employee can wear a lot of hats. So, if there’s downtime, you can use that person’s capacity to assist in other areas of the business. It’s also easy to have them redirect their time when priorities shift, either on the financial side of things, or just within the business.
Backup and Consistency
As mentioned already, a large positive of outsourcing the accounting is the relief management sees from not having to hire, train, or replace staff at crunch time. An outsourced firm with over twenty-five team members can more easily absorb any additional work should growth or turnover occur. Management can now focus on what they are really good at, and that can translate into real dollars.
By having this whole team behind your accounting function, combined with the proven processes that Fortiviti puts in place, you have now got a backup for your accountant should anything unexpected happen. There is much less disruption if you have a whole firm of people that can follow the well-documented processes and can step in for a Controller’s absence.
Another factor to consider when hiring a person in-house would be what you do when that person is absent. If they are taking their regular vacation time, then do you have someone else in-house that knows how to run payroll? What about if someone is out of the office due to an unexpected illness? Do you have anyone in the office that knows the process of paying bills so that your vendors are not knocking at your door for a missed payment? Many small businesses do not have the bandwidth to cross-train multiple members of the team to be prepared for the accountant to get sick, be out on vacation, or worse, if they leave the company entirely.
If an accountant leaves, who will be the one to train the new hire? Sometimes the timing does not work out that you can have overlap of the legacy accountant to train the new hire. This could be due to the current employment market, where it has been exceedingly difficult to find accounting talent to hire, or it could be due to the normal time it takes to find the right fit for the company culture. Hard costs to hire could range anywhere from 40% of someone’s salary (if you are using a headhunter) to the cost of potentially losing another valued team member that is working double-time to cover the duties of the unfilled position.
Other Pros and Cons
Here are some other arguments for the pros and cons of outsourcing versus in-house accounting.
- Growth – As your company grows, your accounting function can also grow proportionally. When you have an in-house accountant, the natural reaction is to use that single person’s time until it makes sense to hire a whole other person. This can turn problematic because a lot of times, companies wait until it is too late, and the accountant is burned out before you have time to hire a new full-time staff. When you outsource your accounting and your company grows, it is much easier for Fortiviti to pull resources onto the team to keep up with the volume of work, without increasing the cost by a full-time staff.
- Control – Some business owners feel a loss of control when they outsource. Fortiviti tries to involve management as much, or as little as they want. Those that report feeling a loss of control are not actively engaged with the process. We ask business owners to get on the phone with us once a week, so that we can fill them in on the happenings of the week and so they do not have to read another email to do so. Sometimes we do so much for our clients that they do not feel the need to approve every single payment that goes out the door, which is also why we send weekly updates, so that they have the information whether they want to review it or not.
- Communication – Sometimes the transition to outsourced can be bumpy when you do not have a person right outside of your office. Fortiviti asks for timely communication with your accounting team, so that when you need timely information, we can be ready to get you what you need. While we love to be self-sufficient, we are not right down the hall to ask for that invoice or the support we need to move forward. This is why we implement schedules into our procedures, so that you, as management, know when you can expect bills to be entered into the accounting system, or when you know banks will be reconciled. We ask for timely answers to questions so that when you need the financial statements, we have the information and time to make the necessary updates.
- Process Development – Setting up streamlined processes is a requirement at Fortiviti. We have a great deal of experience in many industries, so we know a thing or two about what the best practices would be. When a process is broken, we fix it. We continually want to make improvements to both our internal process, and the process that your company follows. By outsourcing the accounting, you have the tried-and-true processes that make things as efficient as possible. We have also tried many different types of software and tools that make life easier for both your team and ours.
- Hiring and Training Costs – Each time you need a new accountant (whether it’s due to turnover or due to growth) you’ve got to pull resources from within the company to manage the training. Having an in-house team also means managing another employee. There could be lost productive management time if the accountant needs more supervision. Plus, the overhead management of ensuring they are following company policies and any HR issues. You can calculate the increased productivity of your management team if they have those weekly hours back to do more business development, or to strategize about the future.
Contact us today to discuss what your accounting needs would be and see if outsourcing is right for you!
Written by: Mandy Smith