I have never had a full-time accounting or HR staff in any of my companies. While I find these functions important, they are not the investments where I am going to create multiples of equity value. So I have always outsourced. For me it is about wanting to run lean and fast. But we do get asked about the ROI on outsourcing, so I put together a few considerations for you here to think about.
#1: Hiring a team in house will cost you about $500,000 per year.
If you want to bring in a full stack team to your organization (CFO, Controller, Accountant), you are looking at about $500K/year. $500K you say? Absurd. Well, not really. Consider a Staff Accountant at $75K. When you layer on that base salary, bonus, benefits, overhead and taxes, you are looking at about $110K. A Controller will clock in around $120K base and full time CFO will be over $200K before including the benefits and associated overhead. It is also worth considering here the cost of recruiting the “right” people for your organization. Sure, you’ll have your own team but you are also going to have a lot of idle time until you cross the $15 to $20 million in revenue barrier.
#2. More non-producing full-time employees is a CEO energy drain.
Every incremental employee is a small tax on the agility of a team. You may think it will provide more speed but until you are firmly in a scaling mode, it will net slow you down. Why? Well, more fixed overhead requires more structure (training, policies, regulations, cross functional communication dynamics) which slows down the organization. Not to mention the broader cultural challenge of integrating a conservative accounting team into your high growth organization. The cost is simply hard to justify for anything other than highly specialized businesses that require a level of expertise that must be in-house for a competitive advantage.
#3. Incrementing to an in-house strategy is risky.
Some companies may say, “Hey, let’s hire a Staff Accountant or a Controller to start.” That is what I call the murky middle. Doing that provides no redundancy or back-up so there is high reliance on a single individual to work well for you and in your culture. Also, we find that individual in-house accounting personnel get saddled with a lot of low-level work (you know the old adage of what flows downhill) so their value gets minimized. The only incrementing we suggest is if you bring in a VP Finance or CFO at a certain point who can manage top to bottom.
What the data tells us.
We built a model to look at the correlation of Stride’s fees relative to the annual revenue of the companies that we serve. Obviously, it is not a linear function but our estimate suggests that companies under $15 million in annual revenue would save substantially with a fully managed partner like Stride. Savings could range from 33% to 65% depending on size and scale. Above this approximate revenue target, we see companies bring in a VP Finance or CFO level leader that we can support as companies grow to $50MM+.
Focused factories like Stride also bring expertise in systems process and purpose-built technology that is not the genius zone of most organizations or certainly not where they want to spend cycles as a team.
We spend a lot of time looking at data, producer efficiency of our teams, client satisfaction, and the milestones that our clients are hitting and believe strongly that until a company is firmly in scaling mode, bringing accounting in-house is not going to move an organization forward faster. We would be happy to spend time understanding your circumstance and making a recommendation. To schedule a time, contact us.