Small Business Accounting Strategies

In the rapidly evolving landscape of small business entrepreneurship, a concerning trend around the accounting profession has emerged. The lack of accounting talent available signals potential challenges ahead for small business owners.

A recent report from the American Institute of CPAs reveals a sharp decline in students earning U.S. post-secondary accounting degrees. In the 2021-22 school year 47,067 students earning a bachelor’s degree in accounting, marking a 7.8% decrease from the previous year. This downtrend is not limited to bachelor’s degrees; the number of students who earned a master’s degree in accounting also fell by 6.4% to 18,238. This decline in accounting graduates could exacerbate the existing talent shortage in the accounting profession, presenting a significant challenge for small businesses in need of skilled accounting services.

Additionally, based a report by CFO Magazine, finance departments this year will have a 5% greater total workload than they did last year. This is a tough pill for accountants who already feel overwhelmed and underpaid. These factors have already lead to a mass migration away from accounting jobs the past several years.

I Sell Widgets, Why Should I Care?

Eighty-one percent of CFOs told surveyors told Avalara in a recent survey they are trying to overcome talent shortages in accounting roles. This exodus of accountants isn’t just impacting the ability to keep the books; it’s also preventing companies from leveraging finance talent for analysis and decision-making.

The decrease in accounting graduates comes at a time when the demand for accounting and financial expertise is growing, driven by increasing regulatory complexities and the need for strategic financial planning in the ever-competitive business environment. On a micro level, I have had more clients in the past 12 months unable to find resources for things like accounting, tax preparation, and other day-to-day bookkeeping tasks. They get the same answer no matter who they talk with, “Sorry, I’m full”.

While 47,000 graduates might seem like a lot, take into consideration that the big 4 accounting firms alone typically start 20,000-30,000 new hires. That means that 30-60% of those graduates may be taken up by 4 employers. That doesn’t include the approximately 10,000 hires that the remaining top 100 firms take up. This adds up to little talent left over for small businesses.

This gap between supply and demand suggests that small business owners must think creatively and strategically about how to fulfill their accounting needs without relying solely on the traditional model of hiring full-time in-house accountants.

Building an Outsourced Team: A Strategic Approach

For small businesses, especially those with limited financial resources, building a team of outsourced accounting professionals can be a viable and efficient solution. This team can consist of a bookkeeper, an outsourced controller, and/or an outsourced Chief Financial Officer (CFO), each playing a crucial role in managing different aspects of the business’s financial health.

Bookkeeper

A bookkeeper is essential for managing day-to-day financial transactions, including payroll, invoicing, and reconciliations. They ensure that your financial records are accurate and up-to-date, which is crucial for maintaining operational efficiency and compliance with tax laws.

Outsourced Controller

An outsourced controller goes a step further by providing oversight over the bookkeeping process, implementing financial controls to mitigate risks, and preparing financial reports that offer insights into the business’s financial performance. They play a pivotal role in budgeting and forecasting, helping small businesses to plan for the future and make informed decisions.

Outsourced CFO

An outsourced CFO brings strategic financial leadership to the table, focusing on long-term financial planning, capital structure management, and investor relations. They can provide invaluable insights into financial strategies that drive growth, improve profitability, and enhance shareholder value. For small businesses looking to scale or navigate complex financial landscapes, an outsourced CFO can be a game-changer.

For many small businesses, an outsourced CFO and bookkeeping may provide all they need. For small to medium-sized enterprises, a commonly cited benchmark is that businesses should expect to spend between 2% to 5% of their total revenue on their accounting and finance functions. This range can encompass everything from basic bookkeeping and payroll to more complex financial analysis, tax planning, and compliance activities.

For startups and smaller businesses, the percentage might be higher due to the fixed costs of accounting software, external advisory services, and the need for strategic financial planning to support rapid growth. As businesses grow and achieve economies of scale, the relative percentage spent on accounting and finance may decrease, even as the absolute dollar amount increases.

Leveraging Global Talent Pools

Recognizing the talent shortage in the local market, small businesses can also look beyond borders to meet their accounting needs. Outsourcing accounting functions to countries like the Philippines or India, known for their skilled accounting professionals and cost-effective services, can provide small businesses with access to high-quality accounting services at a fraction of the cost of hiring full-time, in-house personnel.

Many small businesses, in my experience, shy away from this. They would rather hire an on-shore firm to do their accounting. These entrepreneurs may be surprised to learn that 81% of accounting firms hired offshore employees in 2022. If you like the comfort of knowing that a Big 4 firm is doing your accounting, know that each of them has outsourced their accounting groups overseas.

This global approach not only mitigates the impact of the talent shortage but also offers small businesses the flexibility to scale their accounting services up or down based on their needs, without the overhead associated with full-time employees. Furthermore, leveraging technology and cloud-based accounting platforms can facilitate seamless collaboration with outsourced teams, regardless of their location, ensuring real-time access to financial data and reports.

Embracing Technology and Innovation

In addition to building an outsourced team and exploring global talent pools, small business owners should also embrace technology and innovation in their accounting practices. Implementing cloud-based accounting software, automating routine tasks, and utilizing data analytics can enhance efficiency, reduce errors, and provide deeper insights into the business’s financial health. This technological approach not only complements the work of accounting professionals but also empowers small business owners to take a more active role in managing their finances.

Technology in Practice

Imagine Sarah, who owns a boutique digital marketing agency with a team of 15 employees. As her business grows, she finds it increasingly challenging to manage her company’s finances efficiently. Recognizing she needs help, Sarah dives into leveraging technology and innovation to enhance her financial management.

Sarah starts by implementing a cloud-based accounting software, which allows her and her outsourced accounting team to access financial data in real-time, from anywhere. A cloud-based accounting software is as easy as signing up for Xero or QuickBooks Online. This move not only facilitates collaboration with her outsourced bookkeeper and CFO but also ensures that financial records are always up-to-date and easily accessible.

Next, Sarah automates routine accounting tasks such as invoicing, expense tracking, and payroll processing. For instance, instead of manually processing invoices, the software automatically generates and sends them to clients each month after a review of hours is completed, while also tracking payments and sending reminders for overdue accounts.

By embracing technology and innovation in her accounting practices, Sarah not only enhances the efficiency of her financial operations but also gains valuable insights that support informed decision-making and strategic planning for her business’s future.

Conclusion

The decline in accounting graduates poses a challenge for small businesses, but it also presents an opportunity to rethink and innovate in how accounting services are sourced and managed. By building a strategic team of outsourced accounting professionals, leveraging global talent pools, and embracing technology, small businesses can overcome these challenges and ensure their financial management practices are robust, flexible, and cost-effective. This approach not only addresses the immediate need for accounting expertise but also positions small businesses for sustainable growth and success in the competitive market landscape.

Krieger Analytics Can Help

Krieger Analytics has several small business owners who rely on them as their outsourced CFO. These businesses range in size ($1M to $15M in sales) and industries. We are an expert in servicing small businesses because we have been entrepreneurs. Our expertise doesn’t just come from theory, it comes from practice.

Contact us now if you want to learn what a CFO can do for your small business. We’d love to see if we are a good fit and can help you accomplish your goals.

Small Business Accounting in 2024: Outsourcing and Tech Strategies to Beat the Shortage