Should You Outsource Your Accounting Functions?

Apr 13

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As your not-for-profit strives to use its resources as effectively as possible, you might at some point consider outsourcing the functions that fall under your accounting and financial umbrella. But wait: You'll first need to weigh the possible benefits and pitfalls.

To ensure your not-for-profit uses its resources efficiently, you may consider outsourcing accounting and financial functions. First, carefully evaluate the potential benefits and risks.

What Are the Potential Advantages?

Nonprofit organizations often outsource work in areas that require specialized knowledge or a significant number of hours, such as payroll processing and payroll tax preparation. Outsourcing some or all accounting functions can also provide benefits if it aligns with your organization's needs and budget.

One potential benefit is accessing a higher level of expertise and greater resources than you could if you hired your own accountant. Outsourcing allows you to work with financial professionals of varying levels of experience and expertise, tailored to the functions they'll perform. These responsibilities could include:

Processing payables, receivables, and cash transactions,
Reconciling accounts at month-end,
Preparing financial statements, budgets, and forecasts,
Assisting with tax and grant-reporting requirements, and
Adequately communicating financial matters to your board.

You don't have to outsource all of these functions. Depending on your needs and budget, you can outsource only the ones that make sense for your organization. You may also benefit from occasionally engaging other firm experts, investment advisers, HR and IT support, and valuation specialists as needed.

Some CPA firms offer outsourced CFO services. Others work closely with small firms that provide general accounting services. And there are also cloud-based services that can perform some of the more repetitive tasks, such as order entry, vendor invoice processing, and bill payment.

Many nonprofits turn to outsourcing accounting functions at times of significant personnel transition or workload increases. For example, what if your organization can't afford the day-to-day expertise of a director of finance or CFO? Outsourcing certain financial oversight functions, such as review of account reconciliations and reporting financial results to funders and the board, can enhance your system of internal controls.

When outsourcing any accounting function, try to work with a senior-level professional who'll become familiar with your operations. This will help provide continuity of service.

What About Cost?

Depending on your organization's size and complexity, the cost of outsourcing accounting functions might equal or even exceed what you'd pay an experienced accountant internally. Or it may cost less. With an outside firm, you pay only for the amount and level of services you require.

With an on-staff accountant, that professional may spend some time doing work that someone at a lower pay level could handle equally well. Outsourcing can also spare your nonprofit the expenses associated with a regular employee, such as payroll taxes and health insurance.

A benefit that many smaller nonprofits derive from working with an accounting services firm is reduced fees for audit and tax services. And most of the accounting questions that typically arise in an audit will already have been resolved.

What Are Other Considerations?

A common concern is that there won't be a CFO or business manager whose office you can walk into whenever a financial question arises. Meetings will need to be planned and scheduled, though it's possible to arrange for your outsourced accountant to be on-site on a regular basis. It's important for everyone at your not-for-profit and the CPA firm to understand availability expectations.

You also need to determine how financial data will flow. For example, will your nonprofit send information to the accounting firm, or will firm personnel appear on-site to perform bookkeeping? Will your accounting software be available on a remote basis? If the firm is unfamiliar with your accounting processes and procedures, it may need to perform some tasks on-site.

Finally, you must be prepared to spend some time on the transition. There will be a learning curve as the service provider familiarizes itself with your organization's policies, procedures, and systems.

The Last Word

Even with an outside firm handling your accounting functions, you'll still be responsible for making financial decisions. Remember, although an external firm can assist and advise you on financial matters, those charged with your nonprofit's governance (typically the board of directors) must have the last word. Explore how our Outsourced Accounting services can support your organization.

Disclaimer of Liability
Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.