Guide to Accounting and Management Outsourcing

The role of accounting in business is shifting before our eyes. Today, companies need more than just accurate numbers to be successful. They need advisors who can look at the data, understand the marketplace, and offer recommendations on maximizing opportunities and minimizing risk. Today’s business leaders who value this level of support have a distinct advantage.

Since hiring full-time employees is harder than ever (and involves a significant amount of risk in and of itself), many businesses are bringing in fractional, or outsourced, outside support for accounting services ranging from bookkeeping to CFO-level strategic advice. There are several benefits to this strategy. This guide covers:

Determining what your business needs

Preparing for outside help

How an engagement works

Common scenarios for outsourcing

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Determining What Your Business Needs

(A CFO Could Also Perform These Tasks)

Two of the most common scenarios where fractional, or outsourced, support makes a lot of sense are for startups and for small to midsize companies experiencing growing pains. As a startup, you may not have enough work to keep a CFO or controller busy full-time, but you need that level of expertise help in one way or another. You may also need help establishing strong processes and best practices so you are in a position to grow in the future. Fractional support is an affordable option for young companies because it provides excellent flexibility. 

For midsize companies, experts with fresh eyes can bring new strategic insights and industry-specific knowledge so you can better understand how you fit within the marketplace. They can free up leaders who may have taken on too much of the accounting responsibilities so those leaders can focus on more strategic activities again. Also, adding services on a temporary basis or bringing in people to help with a specific project, without having to hire new people permanently, makes it much easier to scale.

Leaders who see accounting red flags (like lots of reconciling, inaccuracies, or delays closing the books each month) should consider whether outside help may be the best way to make quick improvements.

Here are some of the specific areas where the different levels of support can bring value to companies:

Fractional CFO Support

Fractional Controller Support

  • Best practices implementation

  • Month-end close process

  • Budgeting process

  • Metrics and KPIs

  • Internal control improvements

  • Revenue and cash flow forecasting

  • Financial statement improvements

  • Debt activity and compliance assistance

  • Accounting systems review and enhancement

  • Employee benefit plan review

  • Finance staff mentoring

Accounting Support

  • Monthly or quarterly accounting

  • Month-end close

  • Financial statement preparation and compilations

  • AR and AP processing

  • State and federal reporting requirement compliance

  • Sales and use tax filings

  • Fixed asset schedule preparation and upkeep

  • Other accounting records management

Payroll Services Support

Each company is unique, but in general, businesses that reach $5 million in annual revenue typically need some sort of controller—either full-time or fractional.

Generally, a company has reached the point where it needs a full-time CFO if it has tens of millions of dollars in annual revenue. The need could arise much sooner, however, depending on a company’s age, goals, and structure. If you are not at the point where you have 40 hours of work a week for a CFO to handle, a fractional CFO is a great, economical alternative.

One effective way to leverage a fractional CFO is to bring them in before you hire your first full-time controller. The CFO can help you implement processes and systems that will set the controller up for success.

Preparing for Outside Help

In order to be the best leader for your business, you need to have accurate and relevant financial data available to you at all times. Bringing in experts in this area, who have experience and have succeeded supporting other companies in the past, can be a game changer for you. They can be trusted sounding boards, working with you to identify what changes can have the biggest impact. They can coach your current staff so those people become even more valuable once the engagement ends. They can create clear to-dos and implement best practices—freeing you up to lead.

Comparing Engagement Options

Two things to consider that will help ensure you get the most out of the support you bring in are: 

  1. Decide if you need someone physically in your office on a regular basis. If your fractional CFO/controller/accountant works on-site at your facility, make sure they are integrated into your team and are someone who employees know they can trust. That way, they will get to see things firsthand, attend meetings, and speak directly with people. It will also allow them to mentor existing staff so you will be in the best position possible with your team once the fractional engagement ends. It is possible to rely on support that is remote, but know what the trade-offs are in terms of personal interactions.

  2. Choose someone from a firm where they have access to other resources. A sole practitioner may cost less and still be qualified, but you will miss out on the wider expertise that people from an established firm can provide in areas like M&A, corporate development, tax planning, and payroll.

Questions To Ask Yourself

The best business leaders are constantly asking good questions—especially in regards to their company’s financial matters. This starts with asking yourself on a regular basis: Do I feel in control? A good benchmark is if you can answer these questions about your financial situation:

  • How much money is in the bank?

  • What is the sales forecast for next quarter? And how was it derived?

  • What is your company’s budget, and how close are your actuals to it over the past year?

  • What is the cash flow situation?

If you know the answers to these questions, be ready to discuss them with the outsiders you bring in. And, if you do not have the answers, ask the people you bring in to help you get this information. 

Having these answers readily available will improve your ability to lead. Without it, you cannot make the strategic decisions that people are counting on you to make.

Before you bring in outside help, spend some time assessing your current team’s structure and the processes you have in place. This will help create a baseline to identify changes you would like to see made.

How an Engagement Works

Things in your business likely move fast, and you should expect the same when you bring in outside professional help. As you speak with potential candidates for your fractional support roles, ask them about their timelines for how they like to work. For instance, someone who is a veteran CFO should be able to help your company realize most of the changes you need within 6–12 months.

The key is starting strong. Be transparent and specific with what you want to achieve. If you need help with payroll or month-end book closing, have documentation related to those processes available to discuss in the first meeting. Involve any staff who work closely in those areas as well. 

If you are looking for strategic insights, you can set yourself up for success by having the previous three years’ worth of financial records (financial statements, budgets vs. actuals, etc.) ready for your advisor to review immediately. The first meeting should be with your top leadership and should cover goal setting for the engagement. Very shortly after that, the following things should be done as well:

  • Priorities, to-do list, and communication cadence should be established.

  • Current accounting processes should be assessed.

  • Internal controls should be assessed.

  • Areas for risk assessments should be identified.

The next stage of this outsourced accounting engagement is where the strategic actions take place. There is much more detail on this work below, but at a high level, your advisor should help you with all of these areas: 

  • Identifying and implementing improvements, optimizations, and best practices

  • Evaluating business relationship opportunities (banking, insurance, legal, IT, key vendors, etc.) in partnership with ownership

  • Establishing a positive and valuable financial culture

The time when you have an outsourced CFO or controller in your office will likely fly by. However, the changes they help implement should be long-lasting. When the engagement ends, your company should have best practices in place, the ability to create budgets and forecasts on a regular basis, and established processes that return accurate financial information on time.

An outsourced CFO who helps evaluate your business partnerships can leave you with a much stronger support network in terms of your relationships with your bank, insurers, vendors, and other professional service partners.

Another residual benefit of your engagement should be a stronger internal staff in your accounting department—no matter what level of support you bring in. Your team should have better tools and processes in place and a greater understanding of how their work fits into the larger picture.

Common Scenarios for Outsourcing

Creating Budgets

Do you have a budget? If your company is small enough, you may not go through the process of creating and updating a budget regularly. This is not a strategy for long-term success or growth, however. Someone with CFO or controller experience can help you create an effective budgeting process for your company. They can conduct an analysis of your previous financial statements and make recommendations based on their findings.

Having a budget helps when you need to compare one quarter (or year) to another. It makes it easier to spot variances that may require leadership attention. It is the first step to improving forecasting and models for growth for your company as well. Another way to improve your forecasting and modeling abilities is to transition your company from cash basis to accrual accounting

Budgeting discussions can be challenging because they may feel personal if there has not been a formalized budget in the past. It is often helpful to have an outside voice to moderate this process.

Integrating Strategies

An outsourced CFO can integrate your financial and operational strategies to make sure they are aligned. A CFO can help you create dashboards that track your most important KPIs. From a business modeling standpoint, they can help you create one-, three-, and five-year operating plans with P&Ls, balance sheets, and cash flows. They will be able to create sensitivity analyses as well to show you how your plans could be impacted by internal or external factors.

Identifying and Mitigating Risk

Do you know what the biggest risks are to your company? This information falls under the purview of a full-time CFO. However, a fractional CFO can give you a strong analysis of the potential risks you face in many areas—from general business risks around markets, the economy, your capital, and your ownership to risks specific to your company, like your credit, liquidity, operations, security, and fraud. For instance, are your gross profit margins too low relative to the standards of your industry? This is something an experienced CFO could help identify. Lower-level supporters can also help you identify risks related to inadequate processes that may be holding your company back.

Improving Internal Controls

Having good processes is one key to reducing risk for a company. If your internal controls are not codified and universally followed, there is room for improvement—and it does not take a good professional long to help implement these. Outside experts can help analyze your separation of duties and approval processes, determine who should have what level of access to information, and standardize your documentation. These easy wins can go a long way in strengthening your accounting department.

Empower Your People

Your people are likely one of your most precious assets. Turnover is expensive, and hiring can be hard. Outside help is a good way to support your staff in a thoughtful way. A fractional CFO working as an extension of your accounting team can mentor your controller so they can grow and be more valuable to you. On the other side, a professional fractional controller can help a small accounting department develop best practices and work most efficiently.

Oftentimes, a big win can come in the form of software solutions that automate processes and free up people to think and act more strategically.

Evaluating Partnerships

Are the business relationships you have with your vendors, bank, insurers, legal counsel, and other professional service partners working as well as they can for your company? Evaluating these relationships—especially if they are long-standing—is difficult if you do not have much basis for comparison. 

As a knowledgeable and independent third party, an outsourced CFO is well-positioned to analyze relationships and make recommendations

They can give a professional nudge to partners who may need one, without offending them, by explaining that the partner will also benefit by upgrading their service to you. If it is necessary to find new partners, someone who has experience as a CFO will have connections that you can tap into.

Leveraging a Staff Transition

When turnover happens, it can be a golden opportunity to look at your business from a wider lens. Companies may have changed significantly since the person leaving was hired. Bringing in a fractional CFO on a limited engagement during the transition phase can give leaders the chance to assess what their needs are today.

Being Ready for a Downturn

Economic uncertainty seems to be an ever-present fact of modern life. Is your company ready to ride out (or even take advantage of) such a situation? Here, outside experts can help you identify risk-reduction tactics, cost-saving measures, and opportunistic strategy shifts. One thing they will do is help you fortify your balance sheet, with a focus on maintaining adequate liquidity. Leveraging expertise in this way now is a good insurance policy against economic unknowns.

Preparing for a Transaction

Acquiring another company or putting yours up for sale is a significant undertaking and requires a level of M&A expertise that most businesses don’t have in-house. Bringing in an M&A advisor well ahead of a potential transaction can pay dividends in terms of collecting and organizing the right information and forming a good strategy. Keep in mind, early conversations are often provided free of charge for companies considering a sale.

Finding the Right Help

A fractional, or outsourced, CFO or controller should lighten your workload, improve your processes, and give you valuable insights along the way. In considering your options, make sure you work with someone who has had previous experience and success in the role you need. Look for someone who is proactive and ready to dive right into addressing your biggest challenges. If you have questions or want to speak with people who have this experience, reach out to us at Redpath and Company.

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