Fractional accounting and finance models are game changers for organizations that want to leverage flexibility, efficiency and specialized expertise in their financial operations.
Success in today’s fast-paced business environment requires fast thinking, resourcefulness and adaptability. Finance departments play a key role in driving and supporting these strategic shifts as talent shortages, rising business costs, inflation and economic uncertainty continue to create headwinds for organizations.
Outsourcing provides a beacon of hope for those that want to enhance operational efficiency while reducing costs. By entrusting accounting functions to specialized external providers, for example, businesses gain benefits that they wouldn’t be able to achieve on their own. Sometimes used interchangeably, business process outsourcing (BPO) is the hiring of third-party providers to handle specific business functions, while finance and accounting outsourcing (FAO) gives companies access to specialized expertise and ensures that companies are up to speed on the latest tax laws, accounting standards and industry leading practices. This drives more accurate and compliant financial reporting, reduces costly errors and penalties, and supports better decision-making. It also saves money and lets companies reinvest those funds into other areas of the business.
Dani Sandler, VP of NetSuite Accounting and BPO Services at ScaleNorth, and Melissa Howatson, CFO at FP&A leader Vena Solutions, participated in a recent podcast for The CFO Show. Sandler is an experienced financial and accounting professional who has held positions of increasing responsibility for the last two decades. He’s a skilled financial manager who is adept at increasing work process efficiency, accounting compliance and profitability through functional and technical analysis and improvements.
Howatson possesses a wealth of experience in financial and consulting roles, including at SaaS, edtech, automotive and accounting firms. She was CFO and board member at global learning technology company D2L, where she led the company’s successful IPO. Before that she held finance leadership positions at Bend All Automotive, Qwalify and Primal.
On The CFO Show podcast entitled “The Evolution of Outsourced Accounting: Fractional Models and Finance,” Sandler and Howatson came together to discuss the key challenges that companies are dealing with right now that an outsourced accounting firm can help solve, including the talent shortage, the need to “professionalize” the financial department and the difficulties that smaller organizations face as they attempt to scale and manage company growth.
Drivers for Outsource Accounting | 2:27 mins
Sandler kicked off the podcast by talking about the immense pressure that business leaders are under to “do more with less” at a point in time when top accounting talent is becoming increasingly scarce. Citing a recent industry report, he says that 53% of all accounting employees had moved employers in the previous 18 months or were planning to do so within the next year.
Put simply, hiring and retaining top accounting talent is really tough right now, according to Sandler, who is also seeing many companies looking to scale, grow and acquire debt/equity with books that wouldn’t be able to successfully make it through the due diligence process. These companies are looking to “professionalize their accounting organizations,” says Sandler. “The right outsourced accounting provider can be the answer to those problems.”
Having managed many internal finance and accounting teams during her career, Howatson says being able to scale effectively is an ongoing concern for any CFO. It can be particularly concerning for the financial leader who needs ad-hoc support that may not necessarily warrant the hiring of a full-time equivalent (FTE).
Scalability and Fractional Models | 7:25 mins
“Sometimes you get really lucky and find somebody who can span a bit wider, especially for a midsized company where they could wear different hats,” says Howatson. Being able to “buy” a portion of an FTE and get only the experience you need—without putting somebody in a role that only represents a part of what they want to be doing—definitely makes sense in this and other situations. “
Once relegated to the back office, finance and accounting outsourcing have undergone significant transformation in recent years. Today’s finance teams are proactively driving business strategy, using data to provide real-time insights, informing critical decision-making and optimizing financial performance. From its “front and center” vantage point, the finance office will be more responsive to business changes and drive strategy.
Asked how ScaleNorth has responded to these changes and supports the ever-evolving finance and accounting functions, Sandler says the company has built out a methodology over time that factors in its experience working with many different types of clients. ScaleNorth kicks off new outsourced accounting/finance engagements with a detailed walk-through of the client’s inputs, throughputs and outputs. This helps ScaleNorth understand the company’s operations and how they align with its financial system.
Challenges and Best Practices | 3:17 mins
“We always keep the end in mind and consider the key metrics we need to look at in order to understand the business’ financial results,” Sandler explains. From there, ScaleNorth finds ways to optimize the accounting function through a blend of talent and technology and capture information for relevant reports and insights. And while the engagement may initially focus on getting the books closed faster or improving the accounts payable process, ScaleNorth also takes a deeper dive and starts identifying those operational processes, automations and controls that need improvement—with the ultimate goal of achieving the desired results and driving value.
Business growth can be a double-edge sword for finance and accounting departments. As a company expands, the complexity of its financial operations can increase dramatically. From larger transaction volumes to new regulations to budgeting challenges, these and other issues require a healthy balance between maintaining financial control and supporting business growth, in particular if the company is private equity backed.
In light of the current talent shortages and push to do more with less, accounting departments have to be able to affordably scale up, which isn’t easy to do when hiring full-time employees. The outsourced accounting model solves the problem by allowing organizations to pick and use only what they need on a fractional basis, all the while taking the pressure off their in-house accounting staff.
By outsourcing fractional accounting services, you can get exactly what you need and nothing more, nothing less. For example, the company that’s in growth mode and/or dealing with a seasonal spike in business may need accounting support on an intermittent basis. Depending on FTEs to fill the gap usually leads to one of two scenarios: existing employees that get overworked and burned out, or new associates that wind up underutilized. The outsourced accounting model solves that problem because you only get exactly what you need at any time point. “If you need 1.2 of an FTE. That's what you get,” says Sandler. “That's what you pay for.”
In Howatson’s experience, NetSuite serves as a core foundational system for organizations that will often experiment with using various other pieces of software to run their operations. Using NetSuite as a core building block, ScaleNorth automates, streamlines and drives friction out of the accounting and financial processes to reduce the level of effort required. This is a big win for companies that are running on myriad pieces of disconnected software.
NetSuite’s Role in Outsourced Accounting | 2:30 mins
ScaleNorth also uses NetSuite to share the “collective knowledge base” of its entire team with all of its customers, across all business cycles and through all stages of ERP usage. “When companies let the experts take care of the accounting and reporting compliance,” says Sandler, “they can grow and optimize their businesses and let the specialists handle the accounting aspects.”
Once the outsourced relationship is established, ScaleNorth uses a wide range of key performance indicators (KPIs) and metrics to measure the success of the engagement and make tweaks as needed. For example, Sandler says the time it takes to close the books is a core KPI, and one that’s usually reduced by 50% once the accounting function is outsourced. Other important KPIs include days sales outstanding (DSO), which is a clear indicator of collections efficiency.
“There are ways to optimize the collections process within the accounting department or even automate that function within your ERP,” says Sandler, who points to inventory turns as another indirect KPI that accounting teams focus on. If your accounting processes are timely and accurate, for example, you can easily tell if inventory levels are slipping and make the necessary adjustments before they become real problems (e.g., empty shelves and stockouts).
Howatson says companies should also look at the intangible KPIs related to their outsourced accounting providers, which should “always add value” along with always getting the core job completed. For instance, do you now have access to insights and expertise that you wouldn’t otherwise have? This is just one of the many undiscovered benefits of outsourcing accounting and finance functions to a qualified expert.
“That's the icing on the cake in terms of helping really cement that this is the right partner,” says Howatson. “They get my business and are really bringing to bear their experience to our benefit.”
KPIs and the Value Add of an Outsourced Partner | 3:50 mins
With the outsourced accounting model expected to grow for the foreseeable future, it’s time to consider the benefits of adopting this model. And with more people working remotely right now, outsourcing these non-core functions to a reputable expert makes more sense than ever.
By working with the right outsourced partner, companies can leverage the expertise of the outsourced accounting firm and everything that it brings to the table.
“The need for data-driven financial information coming from the office of the CFO with technology as the change agent is only going to grow,” says Sandler, who sees the outsourced model becoming even more popular as organizations grapple with new external challenges while finding ways to be more efficient, productive and profitable. “The risk of turnover is high, so why not work with the right outsourced accounting partner and leverage its expertise and all that it brings to the table?”
The Future of Outsourced Accounting | 4:20 mins
To learn more about ScaleNorth’s finance and accounting outsourcing offering, contact us today.
