How to Choose Between Hiring a Full-Time Staff Accountant or Outsourcing Your Accounting

Published by LTBD, P.C. | October 26, 2017

Managing the accounting function in a growing business, association or nonprofit organization is a significant challenge for many executives. Accounting is a core function of the enterprise that has to be done correctly — not only for compliance purposes, but also to ensure that business decisions are clearly aligned with the financial health of the organization. Having accurate and timely financial reports is one of the essential priorities for every CEO, which is why getting the accounting function right is so critical.

With that in mind, how do you decide the best path for building your accounting function? What makes more sense — hiring a full-time staff accountant or outsourcing your accounting to a third-party partner? Here are some key considerations worth evaluating as you face this critical decision:

The Who and What of a Staff Accountant

Let’s first understand who a staff accountant is, and what they will do. Typically, the role of a staff accountant combines the functions of a bookkeeper (such as accounts payable, accounts receivable, billing and check runs) with the basic accounting requirements of the organization (such as running weekly, monthly and quarterly reports, ensuring that the chart of accounts and accounting system settings are correct, and performing monthly reconciliations).

If you were to examine the staff accountant role in the context of other accounting positions, you’d identify it as a step or two above a bookkeeper, but below the role of an accounting manager and well below those of a controller or Chief Financial Officer (CFO).

Typically, when a company is looking to hire a staff accountant, they’re probably looking for someone with 3-7 years of experience in small business bookkeeping and accounting, plus a degree in accounting (an associate’s degree or a bachelor’s degree). Sometimes businesses will find a candidate with more experience at a lower level (i.e. someone who has served as a career bookkeeper) but who comes with the life experience necessary to understand and execute reports and other management support functions.

When Hiring a Staff Accountant Makes Sense

With these parameters in mind, we start to clearly see when and under what conditions hiring a full-time staff accountant for your organization might make sense. These include:

1. Your business or nonprofit is small and is not pursuing growth.

The first factor to consider is scaling. When you hire a staff accountant to run your small business bookkeeping and accounting, your intention is for that one person to serve as a sort of ‘accounting department of one’, and that means that the size of the accounting function needs to be small and remain small. You should be able to reasonably predict that the organization’s strategic direction into the future is not too drastic from its present size and scope of activities.

2. Your accounting functions are clearly structured and well documented.

The second factor to consider is the nature of your accounting function and its organization. Is your accounting operation well-defined, clearly documented and structured properly? Is your accounting software database clean, up-to-date and well-maintained? If so, then pursuing a staff accounting hire could work, since you’re bringing this person into a stable and fully documented accounting environment.

3. Executive leaders understand the accounting function.

If your executive leadership includes one or more persons with a basic or intermediate accounting background, then you might do well when hiring a staff accountant. This is because you have expertise that can be effectively used to train, guide and supervise the staff accountant in their new role, both during on-boarding and in an ongoing manner.

4. There is enough work but not too much.

Along the lines of our earlier discussion about growth and stability, you need to make sure that there’s enough work to keep this person occupied legitimately every day, but not so much that they will run the risk of losing control or feeling overwhelmed. Both points are especially true in the scenario in which you’ll be hiring a staff accountant as the only accounting employee, since this person will already be at risk for feeling isolated in their position.

5. There are other in-house personnel on the operations side.

Although a single-person accounting department may be a challenge to run effectively or staff with someone who is able to stay engaged over the long term, it will be much easier if similar operational positions are also managed by 1-2 person teams. For example, if you already operate with a full-time human resource manager, a full-time purchasing manager and a full-time operations manager, than adding a full-time staff accountant (or accounting manager) should go smoothly. On the other hand, if those positions or functions are outsourced or don’t yet require an FTE, it may be more challenging to achieve success.

When Hiring an Outsourced Accounting Team Makes Sense

Now that we’ve discussed the key factors and scenarios that support hiring full-time, in-house staff accountant, let’s look at the opposite scenario: situations where outsourcing may indeed be a far superior solution:

1. Growth is in the plans and on the path.

If your organization is growing (whether in the private sector, nonprofit sector or the public sector), then it may be far more effective to use this opportunity to partner with an outsourced accounting provider. The last thing you can afford is to hire a staff accountant, get them started, and then scale rapidly beyond their capacity or skill set. In contrast, an outsourced provider is designed to scale up with you not only in terms of adding personnel, but also in terms of providing access to the full range of outsourced accounting team capabilities.

2. Your accounting functions need structure and discipline.

In many cases, an organization faces the question of whether to hire a staff accountant or partner with an outside firm at precisely the time that they realize they’re losing control of their accounting operations. Put another way, you’re probably hiring a cook at just about the point at which that the kitchen oven is catching fire and pots on the stove are boiling over. This is not the time to bring in a new hire and ‘hope’ that they will work it out. Instead, ask an outsourced accounting provider to perform a complete accounting assessment and prepare a roadmap for getting your accounting operations in order.

3. Executives need accounting but aren’t accountants.

One of the major drivers for why CEOs hire a staff accountant is because they, themselves, don’t understand accounting. The problem with that is that you’re placing yourself in the position of hiring a person whose work, by definition, you can’t effectively manage. A larger company solves this problem by hiring a CFO or controller whose job it is to manage the accounting function on the CEO’s behalf, but you can’t afford that. This is when outsourcing makes ideal sense — you gain the benefits of a full-range team (from accounting support all the way up to and including the CFO role), and you don’t have to try and manage accounting personnel on your own.

4. Accounting workloads change or shift in your business.

What do you do if your nonprofit administers a few large grants that would keep an in-house accountant working overtime for six months, and then that same person would likely be under-utilized during the other six months of the year? How about if you’re in the construction industry and your work is largely seasonal, creating a huge transaction volume during warmer months and slowing down dramatically in the winter? These fluctuations are nearly deadly to a small full-time team, whereas they can be easily accommodated when you outsource.

5. You had a staff accountant who just retired or moved on.

It may seem counter-intuitive, but one time when you definitely don’t want to hire a new staff accountant is…after your existing staff accountant just left. In many cases, small businesses or nonprofits become dependent upon a longtime employee who build up the accounting function and ran it as a ‘black box’ operation.

When this person retires, oftentimes what you discover is a Pandora’s Box worth of long-hidden problems. Poorly executed workarounds, dramatically outdated accounting records, indecipherable workflows and sometimes, flat-out dishonesty are not unusual to uncover. If you just experienced the departure of your longtime staff accountant or accounting manager, this is the time to hire an outside firm to perform a proper assessment, first and foremost. Make sure you truly know where you are at before you consider introducing a new employee to the organization.

These ten factors should help provide you with a clear picture of essential considerations in determining the best path forward for the accounting function in your business, association or nonprofit organization. Creating and executing a successful accounting operations strategy today will truly set you on the course to lasting growth and success.

LTBD Accounting Insights

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