By Joel S. Smith, CPA
Of all the painful lessons that business owners learned during the recession, the hardest one may have been that of laying off staff—many were longtime loyal employees who’d helped them build and grow their companies.
As the economy began to improve and it was time to rehire, many business owners were rethinking their staffing practices, turning to outsourcing as a way to meet personnel needs. Outsourcing doesn’t completely replace full-time employees (FTEs), but it’s become an efficient and cost-effective way to staff for temporary workers or for certain key roles.
Outsourcing makes sense for some very good reasons
1. A cyclical economy. Regardless of industry, ours is a cyclical economy; there are always going to be dips when staff layoffs may become necessary. Severing a relationship becomes much easier when there isn’t the long-term investment that accompanies full-time employment.
2. A cost effective solution. According to a survey conducted by Northwest Staffing Resources, an employee can cost approximately 57% more than the stated wage due to the cost of benefits and the amount of time they’re actually focused and on-task. A $50K employee could actually cost the company almost $78,500/year. An outsourced contractor, on the other hand, can often provide a higher level of expertise for a much lower cost—an estimated $36,000 per year, for example.
3. A higher level of expertise and efficiency. For the monthly fee, the client receives a higher level of expertise since the contractor brings experience from a variety of client situations. The work is done in much less time because there aren’t the normal distractions of an internal employee, such as routine staff meetings and vacations.
4. Objectivity. An outsourced contractor can coach a client on sensitive matters while an employee might feel the need to avoid certain topics. A contractor is privy to all the intimate financial details and develops a relationship as a trusted objective adviser with the client.
5. Infrastructure. Outsourcing eliminates the need for infrastructure investment. The outsourcing partner assumes responsibility for the business process and provides the equipment and resources, eliminating expensive acquisition and ongoing maintenance costs. Many small businesses these days are completely outsourcing their IT functions. Thanks to the ability to access workstations remotely to troubleshoot problems, response times are up and outsourcing has become a successful model.
6. Access to skilled resources. Recruiting and training are significant workforce investments. It can take months before an employee is really producing at a high level. But when your highly trained employees leave after intensive training, your ROI plummets. With contractors, you get those same skilled workers performing at a high level, but someone else has put in the time and expense to train them.
Financial systems are becoming ground zero for outsourcing
Small, growing businesses face a variety of accounting needs--transaction processing, managing cash flow and budgeting. Making sure they’re maximizing every deduction for which they’re eligible. Savvy tax planning so they’re not ending up either owing the IRS money or getting a big refund every April. Staying on top of these issues is increasingly complex, and many business owners are changing the model completely—reducing salary and benefit costs and outsourcing their entire accounting function.
Hiring a bookkeeper may be an outdated model that’s costing you money
The reality is that your bookkeeper may be doing a great job of balancing your books and handing them off to your CPA at the end of the year, but that may not be the best use of your staffing dollars. Indeed, hiring an in-house bookkeeper may be a short-sighted solution. A bookkeeper frequently lacks the depth of knowledge and experience in tax planning, accounting and budgeting to help you develop a long-range strategy that will save you money.
In a recent example, our firm took on the accounting function of a company with $25M in gross sales. Their previous full-time staff accountant made a base salary of $45K a year, plus benefits. The company saved nearly 50% by hiring us to perform these functions. In addition, because we also replaced the company’s outside CPA, we are able to prepare their tax returns at half the cost.
Contact Joel S. Smith, email@example.com, 925.289.1160 for a complimentary consultation about an outsourced accounting solution for your organization.
Joel S. Smith, CPA & Associates
Tax & Accounting compliance and consulting services