When Is It Time to Outsource Accounting for Small Businesses?

when-is-it-time-to-outsource-accounting-for-small-businesses?

Small business owners are no slouches when it comes to wearing many different hats in order to run a successful business. While they may dream of solving problems by delivering a much-needed product or service to their customers, they may also be required to be Customer Service, IT, HR, Accounting, Marketing and Sales as well as coffee maker and dish washer when they’re first getting started. They will probably do all these jobs until well past the point of exhaustion. Eventually, they will hit an important milestone and need to get some of these jobs off their plate so that they can focus on the more critical tasks at hand.  It will help the business owner assess their own strengths and weaknesses, and look to hire others to complement the areas where they lack knowledge or capacity. 

How much is time worth? 

This is an easy question if the business owner is a service provider because it will be their billable hourly rate.  If they are spending 20 hours a week or more on administrative tasks, it’s time for a shift. If the tasks can be performed by someone else at minimum wage, it’s costing you much more to do it yourself. Time to bring in new resources! But how does a business owner make this important decision?

Simple. Business owners should spend one week and write down everything they do for the business, including the time spent on each task. This should include everything, such as reconciling credit card charges, bank statements, researching current insurance needs, researching new computer needs, shopping for office supplies, cleaning out the office refrigerator. You name it, write it down.

But don’t get sad; our daily tasks at work consume us all, but we do get back to having a personal life again! Tally up how much time spent on each area of the company and see where it makes sense to hire an employee or outsourced resource to help you out. Hiring a part-time college student or mom to help with the office assistance can help alleviate the daily office tasks. But what about the more skilled services needed for accounting?

We recommend hiring a full-time employee only if there is a consistent 40 hour per week need.  Also, factor in the payroll taxes and benefits when considering the cost of a new employee.  Most likely, business owners will have more tasks that can be accomplished by a part-time employee, outside resource, or contractor.  If one is considering hiring a part-time employee, determine whether there are any urgencies that require a full business workday of coverage to address, otherwise these tasks would boomerang right back to the business owner’s plate. Once armed with information, the owner is ready to formulate a plan for outsourcing.  Here are some pros and cons associated with outsourcing that should be kept in mind:

conspros
Business knowledge – it takes ramp up time to fully understand how the business worksIncrease accuracy – hire an expert or professional in the field
Communication – there may be difficulties communicating with the teamCost effective – hire the exact amount of fractional time for each skillset required
Security – the contractor should be fully vetted to ensure that all rules adhered to locally are also implemented with the outsourced teamTurnaround time – having a team dedicated to a project that works around the clock gets results to the business owner quickly

Conclusion

It is painful to give up something we know so well, and feel is best left performed by ourselves.  However, this doesn’t provide any room for you or the company to grow.  You must constantly free up your schedule so you can focus on pain points and address those.  Once the pain points are gone, then you move on to efficiencies and upgrades. Being a business owner means we don’t always get to focus on what we love, but instead on what the business needs to be able to flourish.. What can you give up today to make room for a new area to focus on?

Case Studies

Below are a few real-life examples of how My Finance Resource provided outsourced bookkeeping services to clients.

#1 – Subscription Box Service

Problem: Client in the Subscription Box Service Industry hired a Controller who realized there was little budget for support staff in a rapidly growing company.

First Steps: We had a kick-off meeting with the newly hired Controller to see what the highest volume tasks were that our team could immediately take on and free up her time to tackle larger issues.  We identified high volume Accounts Payable and reconciliation of customer merchant Credit Card deposits.  We discussed setting up software tools that we use that enable us to protect data integrity, by uploading, rather than inputting data manually.  These tools also come with bank level encryption to protect the security of the data.

Work Performed:  The staff immediately got to work, setting up the tools as discussed and worked directly with the Controller to setup processes for these tasks.  Within a week, the Controller no longer had to perform these tasks.  She only had to review them going forward. 

Results: The Controller gained about 18 hours of work hours back per week.  Fortunately, it didn’t take the team anywhere near that amount of time to prepare as they utilized the latest technology to assist them.  For the cost of 25% of a Full-Time Equivalent staff person, the Controller was free to spend her time delving into much more involved areas of the business.

#2 – Fashion Apparel

Problem: Client in the Fashion Apparel Industry was in a dire financial situation and needed to quickly identify a way to stay afloat.

First Steps: We isolated the largest area of concern related to a new ERP system implemented prior to the hiring of any finance professionals.  The inventory and Cost of Goods Sold were incorrect and the client was relying on poor data to make huge operational decisions, which tied up cash that the business did not have available.

Work Performed: The team spent a few concentrated weeks examining every single inventory transaction in the system, and determined there were 2 reasons for the data failure.  First, the on-site staff received poor training during the ERP system implementation and were not booking the entries correctly for what they were trying to accomplish.  Second, the implementation team inaccurately plugged about $650,000 when inputting the starting inventory.  The staff corrected these transactions within the first month of hire and provided accurate reporting to the CEO.

Results: The CEO was able to make sound operational decisions based on accurate data and the company was back on track financially within the next 6 months.  The CEO learned to delegate problems and data that didn’t make sense to the team via Slack and email towards the end of his workday.  By morning, the staff had solutions and explanations readily available for the CEO to review and discuss.  This company rose to $150M in sales and now has full-time accounting staff.  However, the CEO values the outsourced team’s input, and they still perform some of the day-to-day tasks.  He has even routed all the accounting related sales returns and exchanges from customer service chats to the outsourced team to resolve.  He deemed it was easier to teach an accountant customer service than to teach accounting to customer service staff.

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Written by Jaime Davison
Jaime Davison, CPA, CGMA is a part-time CFO specializing in healthcare, biotech & start-ups. My Finance Resource provides an outsourced finance/accounting team solution with offices in Thousand Oaks, CA and near Manila in the Philippines. Jaime has 20 years of success and has worked with start-ups to fortune 500 companies (Gannett, Quest Diagnostics). <a href="http://www.myfinanceresource.com" rel="noopener noreferrer">My Finance Resource</a>.</strong>