Outsourcing Finance & Accounting Levels the Playing Field for Small Business

July 12, 2022 ROARK

It's difficult when you're a small business, starting out, large businesses have several advantages, whether it be resources, people, or technology. Today we'd like to talk about how outsourcing accounting and finance can help level the playing field between large and small businesses.

COVID-19 Changed everything - including remote work in accounting and finance.

First of all, COVID changed everything. The way we work, the way we consume products. And one of the things that people used to do is they would always believe that people needed to work on-site. And that was a very traditional way of us performing work and doing work.

Well, I have to tell you today, after the shutdowns, the myth has been busted. We've actually shown that accounting and finance can work well in a remote environment.

Large companies have a people advantage

 If you look at large companies, as we talked about, large companies have a distinct advantage in people.

They definitely have a people advantage, especially in today's world. The war for talent is real. We're at record low unemployment. We have things like the great resignation and a lot of things going on and larger companies simply right now are outbidding smaller companies for the talent. There's just a lack of supply in the market.

So the fact is everybody needs the resource and large companies have the resources to outbid the smaller companies. The other thing is larger companies have an advantage because they can afford a big department of CFOs and controllers and MBAs and CPAs and financial analysts. That is just too much for companies to hire on internally.

Those people tend to have a very deep understanding of the industry and industry experience and things that work and large companies can invest in finance teams to be able to help them look forward as opposed to just having accounting teams that are accounting for the past.

What's going on in the hiring and recruiting market?

So as we alluded to earlier, what's going on in the recruiting world today.

And we can speak to this through our executive search practice. We're guiding clients through a lot of changes that are happening very quickly, coming to companies.

The Great Resignation

The Great Resignation refers to the phenomenon where people are now quitting and leaving their jobs, seeing that they're burnt out. So that is being accelerated by a low unemployment rate and a hot job market.

Inflation on Salaries and Wages

We're also seeing inflation, so salaries and wages, just like gas and groceries are increasing at record high rates, things we haven't seen in a very long time. So it becomes very difficult.

Lack of Talent Supply

And then as we talked about a lack of supply in the market and a lot of these things are forcing changes like the future of the office.

You know, the number of people that are full-time in the office, full-time working remote and hybrid. The dynamics are changing and leaders of Fortune 500 companies right now view the talent shortage as the number one threat to business. And the great resignation is really hitting the accounting industry hard.

How do businesses get the expertise or people, and resources they need at a price they can afford?

And I'm glad you guys asked.

Access the expertise of a fully staffed finance and accounting team

So, we did a comparison here in ROARK, if you hired a full accounting team that larger companies tend to have. This would include a CFO, Controller, Senior Accountant, Senior Financial Analyst, and Clerical roles in Accounts Receivable, Accounts Payable, and Payroll. If we look at that and you put that together, that's going to equal about $1.1 million between salaries, bonuses, taxes, turnover, other indirect costs, like, facilities and computers and programs and those types of things, which is almost $92,000 a month.

No small business can afford that.

Cost-effective solution compared to hiring full-time

But if you look at the outsourcing solution, what the outsourcing solution does is it moves from full-time where you have to hire each one of these people full time to an on-demand model where I might need my CFO 5% of the time, this month, 10% next. I might need my Controller-level person, five or 10% of the time.

And most of the time it should be done at the lower levels and pushed down as much as possible. So if you move to the on-demand model, we start seeing outsourcing costs somewhere between $5,000 a month and $20,000 a month.

$5,000 is kind of an interesting number because that's about the cost of a full-time bookkeeper and you don't necessarily have all the expertise, the disciplines, and the industry knowledge that you get by hiring the group.

So, expertise in those professionals is really important. And then we're also looking at the cost.

Eliminating turnover in finance and accounting.

The other thing that's absolutely magnificent, especially during this time of great resignation is now, if you hire an outsource group, you've turned the turnover problem to them. That is no longer your issue because they have to deliver the service that they have agreed upon.

And during this time that is extremely attractive. The one thing that's wonderful again, by looking at outsourcing, they have the depth of finance and financial analysis a lot of the teams don't have, when you look at smaller companies and when we say smaller we're talking about pre-revenue VC-backed companies all the way up to $20-$50 million in revenue.

Look Forward. Not Just Backwards.

A lot of times they're hiring accounting teams. The accounting teams are very focused on looking at the past. Here's what happened. Here's the last financial statement. Here are the results of what happened in the past. Finance teams or Finance, Planning, and Analysis (FP&A) is more the term in the industry.

They're looking at the information, digging in, and looking at what happens in the future. So a couple of examples: are we tracking the budget? You know, will we have enough cash next month, next year, for our plans and what we're looking to achieve. Very importantly, especially for all the bankers out there, are you going to be compliant with our banking covenants?

Because if not, that becomes a big problem. And then how much faster can we grow? If you're really doing the analysis and understanding what works, what doesn't work, and forecasting out. You're going to be able to move faster, quicker, better, and very importantly, more profitably as you go.

Reasons for Outsourcing by Deloitte

Deloitte actually did an outsourcing survey that captured the outsourcing objectives.

And what's very interesting is what we've seen before COVID-19, you know, some of the big reasons why people were moving to this model is it was enabling speed to market. So you could go quickly to market and you could scale faster. And that was the flexibility that we talked about. And the same flexibility allowed you to scale down.

And then it was a better user experience that kind of goes back to the expertise. So scaling up, down faster, and getting the expertise, were really an advantage for companies pre COVID 19 that we're doing this.

Now push forward into after COVID-19, especially with the increase of salaries and wages, benefits, and all those things.

Deloitte's survey in 2020 actually published that cost was the number one reason of what they found for why companies are outsourcing, flexibility, then speed to market. So we start seeing some things changing a lot, but cost is one of the major factors.

Large companies have a technology and systems advantage

The next advantage large companies have over small companies is technology and systems.

They're able to make these large investments, especially when we had the client-server model, which we still do have a lot in the software, infrastructure and systems. And that's really difficult for small companies to do. They were able to develop complex integrations by either going out to third parties or because they had so much buying power.

They could go back to the provider of the software and say, Hey, these are things that we're looking for. And at these enterprise-level applications, it becomes a lot more cost-effective to do it because if you get users on, it becomes cheaper. And then very importantly, they have the cash and the human capital to build out the automation.

So not only are you paying more for the people and trying to get the expertise, but larger companies are able to really automate processes. So there's actually less cost of people doing manual tasks.

So, if we look at how do we equivocate that and how does outsourcing help small businesses to level that playing field.

Moving to Cloud Software Becomes a MUST.

First and foremost is actually moving to the cloud.

It really is a must nowadays, right? So cloud software allows us to be able to work outside of the work environment, really work from anywhere. And that enables this outsourcing model to really be successful. And you see someone on the small business side. Applications like QuickBooks, Sage, Netsuite, and Acumatica is popular.

There are several different applications that have been born in the cloud and some have moved to the cloud, but they're really empowering business owners and leadership teams to be able to see more real-time information faster and wherever they're at.

And what's interesting is we look at the cloud movement as real and is really a must. But in small businesses, we're still seeing a lot of server-based systems.

And I get that there's an argument out there and it's a good argument that, Hey, these cloud-based systems aren't as robust yet. That is correct, but they are getting there very quickly. They're most of the way there. And so you need to see if that difference is worth staying with the same old, same old. In a lot of cases, it will not be because there are so much more benefits.

Cloud-Based Software Makes Integrations and Access Easy and Affordable

So when we look at cloud-based applications because information's in the cloud, it also is guarded by cyber security which is a hot topic today, but it makes these integrations and transfer of information, more accessible, easier to do, and more affordable as well. So we look at automation software, I know robotic process automation is new and upcoming, AR and AP automation.

And moving around money is very important. And then even as you're moving things, especially software like cap tables or leasing software for the new 842 pronouncements and then FPA software as well. The cloud really allows these automation to be easily affordable and with many integrations.

Automate to build efficiency.

And look, as we talked about earlier, it's critical right now in accounting and finance that you automate actually in every area of business, but automation to build in the efficiencies, because number one, we're seeing the human resource capital just isn't there.

And two, we really want people focused on doing higher-level tasks, more critical thinking and analysis type of tasks, as opposed to routine data processes. So we've seen this in accounting and finance, where we went from, you know, it was back in the day using green ledger sheets. And I actually remember using those, then we went to

 excel spreadsheets, which were fantastic. Now we've been utilizing ERP systems. There is reporting software, which are data visualization tools, as well as FP&A software. Again, we're going to continue this progress to AI, robotic process automation, and machine learning. It's all very exciting, but you got to keep up with that.

Otherwise, you're going to be behind and it's going to be very expensive in order to maintain those manual processes. And if we look at accounting, so Intuit did a study on what key areas of a company (functions) where automation and technology are being implemented and accounting was actually number one, closely followed by marketing, sales, and customer service.

So when we look at this trend, this is definitely not a one-off, this is what all the companies are doing out there right now to get quicker, better, and faster, so you can make better decisions. And look by outsourcing your accounting and finance, small, and medium-sized businesses really can level the playing field when it comes to people and technology and systems, which is really important.

Those same people in technology and systems are going to help you with processes as well. So I know a lot of you heard the old adage people, process, and systems, so you'll be able to cover all three.

Outsourcing finance and accounting can level the playing field between these small businesses and large business. It's something we're very excited about and hope to see more smaller businesses take advantage of this new trend in the marketplace.

Finance and Accounting as a Service

If you're interested in learning more about how ROARK can help your business level the playing field with outsourced finance and accounting, we'd be happy to have a conversation with you to see if Finance and Accounting as a Service is a good fit for your company. 

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