The Real Cost of Hiring an In-House Bookkeeper or Accountant
The other day, I had an a-ha moment—one of those easily forgotten things that seem so obvious in hindsight. The moment arose because an employee at Stride hadn’t worked out, and I was trying to assess my role in that outcome. What I realized was: the role hadn’t been set up for success.
After some introspection and self-assessment, I came to the following conclusion:
If a function in the organization is not a core aspect of delivering your unique value proposition, outsource it.
Take, for example, outsourcing your accounting function. Many companies believe they need to have this function “in-house.” But accounting isn’t a strategic function. It’s not going to build equity value for your company. Accounting is certainly super important (it’s essential!) and it needs to work well. However, “working well” isn’t the same thing as “owning the function.” In fact, it might be the exact opposite.
When you hire someone for a non-strategic in-house function like accounting, that role often becomes the low point on the totem pole, the one that gets attention for process excellence. Why? Because you’re focusing, rightly, on the things that move the needle: usually growth. Therefore, accounting survives, and the singular experiences of the one person you hired lead to building a whole bunch of processes, and before you know it, you’re doing things because, “Well, that’s the way we’ve always done them.”
Consider the following when thinking about keeping a non-strategic function like accounting in-house versus outsourcing:
- How much does it cost you to recruit, train, and retain?
Recruiting costs around $5,000 in time and effort. In a tight labor market, that cost goes up considerably. Onboarding a new employee can cost another $5,000, since once you find a person, you need to train them, introduce them into your culture, and put the right management and oversight processes in place to retain them.
Companies with $2-$8 million in revenue usually only have one person in an accounting role. So, who are they going to report to? How much attention, coaching, and stewardship will the company commit to this person? Consider: if that manager has a higher and better use focusing on driving growth, you could lose many more thousands of dollars in missed opportunities every year thanks to the cognitive cost of onboarding, training, and mentoring.
- What if that person doesn’t work out?
Recently, an outsourced IT services provider told me their bookkeeper leaving set them back by 9 months. I was shocked—9 months? Just because your bookkeeper didn’t work out? Wow! That’s hundreds of thousands of dollars lost, simply because there was no redundancy or backup.
On top of that, they had to kick off the whole cycle of recruiting, training, and retaining once again. The data isn’t all out yet, but I wonder: are the people leaving their companies en masse in roles that aren’t core to their organizations? If so, the likelihood that a bookkeeper or an accountant leaves a firm that doesn’t sell bookkeeping or accounting services is high. Plan for them not to work out.
- What about your documented best practices?
The back office of a company shouldn’t be stressful and hectic. In fact, it should run very smoothly thanks to a preexisting set of well-defined processes for invoicing, accounts payable, payroll, month end close, etc. But often times, in-house functions are stressful. Why? Well, a couple of reasons.
First, companies aren’t experts in building back-office processes and rigorously documenting them. It’s understandable there will be some chaos. Second, the individual overseeing that role may be unconsciously inclined to create a bit of drama in search of significance—and that doesn’t allow the back office to just be “boring.” I mean, who want to be in a boring role, right? So how much cost do is a result of inefficiency, gossip, drama, and more full-time bodies than you need?
But it can’t always make sense to outsource, can it?
There are times when it makes sense to bring your accounting function in-house. You’ll want someone in-house if…
- Your business is simply so complicated that it requires a person know the intimate details of your complex invoices
- There is a high velocity of daily transaction activity that must be updated if you’re going to make sound business decisions
- You like having someone on-call who’s always thinking about your business—and they offer a bunch of other benefits
- You just simply don’t want to take the time to put standardized processes in place
But even as I write this escape valve list, I’m wondering what strong CEO or business leader would accept these circumstances for their business. Not many. While some functions might work best in-house, you can outsource other core accounting functions (think: everything except invoicing!). The most important things for a CEO to realize is that like all things in life, there are tradeoffs. In order to have someone at 33% of the cost of a full time employee who is offsite and outsourced, there needs to be pretty cleared shared agreements on who is doing what and how it gets done.
Your business is measured based on the equity value it creates. The functions that you hire full-time, invest in, cultivate, retain, and promote should be those functions that directly add to your unique, equity value building activities.
Everything else you should consider outsourcing to an organization that understands your industry, knows best practices, and can bring with them a depth of team so that you can have what matters most as you forge ahead in growth: CONFIDENCE!
