Why Now Is the Time to Outsource Your Accounting Function

April 28, 2020

By John Pennett

Actionable real-time accounting data is more important than ever. In our current liquidity-focused environment, the accounting function of your company needs to support the business – monitoring collections, controlling cash burn, supporting critical decisions about investments, proposals and the profitability of activities.

Traditional month-end closing of the books is too little, too late. A traditional month-end balance sheet and income statement is useful and checks the compliance boxes, but it can’t be used to inform actions on a real-time basis. For many companies, having a solid controller or bookkeeper has been more than adequate to meet management needs, and the requirements of lenders, vendors and other stakeholders in a steady-state environment. However, social isolation, legacy desktop accounting solutions and bookkeepers with limited skill sets have highlighted the inadequacies faced by many small/mid-sized business owners/operators.  The risk of waiting three-five weeks to get actionable data -- assuming the finance team could even capture all the data correctly given the remote work requirement -- and analyze it properly, is unacceptable with the financial monitoring requirements of moment.

The old saying goes “The best time to borrow money, is when you have money in the bank.” Bankers are overwhelmed managing the credit risk in their existing portfolio and dealing with CARES Act relief applications. It is generally expected that available credit will be in short supply over the next few quarters, so obtaining/extending a credit facility is not very likely. The bankers will be pouring over the financial data presented, but really looking for insights as to the future prospects for the company: What the owner/operator has done to adjust to the current economic conditions. We have seen some lenders suggesting daily monitoring of KPIs for the lending facilities, whether in work-out or pre-work-out status. Providing your bank real time information about the health and prospects for your company over the next few quarters is critical.

Fortunately, cloud accounting technology has advanced to the point where it is very easy and cost-effective to outsource your accounting functions. Costs are kept down because the technology makes data capture and reconciliation much easier to do by eliminating the need for manual data entry – the use of a full-time employee for data entry should be substantially eliminated. Ease of use has been advanced to point where payroll ledgers and most bank and credit card accounts can be linked to tools which feed and reconcile to the general ledger. Platforms are available to capture customer invoices and send reminders about collection deadlines, and facilitate bank deposits remotely. And the frequency of this posting and reconciliation can be monthly, weekly or daily as the business needs require. A quality outsourced accounting system should provide a real-time dashboard, with most important metrics to your business updated daily. The efficiencies gained and the real-time “dashboard results” cannot be duplicated by antiquated “after the fact” accounting processes and “running financial reports.” 

The decision support presented by real-time data can then drive critical actions by the owners/operators – how far to push credit with customers, cash flows expected, managing vendor payment cycles and purchase commitments and the very difficult decisions around headcount and salaries. The investment in setting up the systems and linkage to automate the recording and reconciliations of transactions pales in comparison to the improvement in decision support capability. 

We are seeing that more and more companies are becoming comfortable with technology and outsourcing the basic accounting functions. The best use of the company’s financial team is not posting transactions and preparing reconciliations, but rather supporting the owners/operators by evaluating the real-time results, sharing real-time insight, understanding the business and being able to “look ahead” to re-forecast results and acting on alerts from the dashboards derived from the cloud-based outsourced accounting solutions. 

As companies start to envision life after the COVID-19 isolation is lifted, many functions which were previously stationed in the office are now going to be done remotely or outsourced. The advice given by many VC investors is “focus on your core competencies, and outsource the rest.”  Companies outsource critical software or product development functions – why not accounting? Payroll has been outsourced for decades; and tools like Bill.com and the multitudes of HR and expense reporting have been use to outsource those functions for the last few years.  Now is the time to take the final leap and push the accounting to an outsourced solutions provider. Most of the outsourced solutions providers can post and reconcile the transactions efficiently and inexpensively.

The best of the outsourced providers should also truly be a business partner to the owner/operator; ensuring the dashboard is providing real-time critical data accurately and effectively, and then being part of the decision-making process. The outsourced providers should also be able to bring a wealth of real-world experiences to table to support the owner/operators in thinking about long-term business strategy, financing the business needs, evaluating business opportunities and tax strategies and supporting the external accounting firm needs.   

About John Pennett

John Pennett has public accounting experience with a strong emphasis on life sciences companies. Member New Jersey Society of Certified Public Accountants and New Jersey Technology Council and advisory board of eLabs.