If there's one thing economists can agree on, it's this: We may or may not be headed toward a recession, at some undetermined point in time. It might be brief or prolonged. It could be mild or severe. We might even be in a recession already.
Today's economic uncertainty is both unsettling and difficult to plan around, especially when it comes to staffing. The pandemic-fueled Great Resignation, and the fact that fewer people are entering the accounting profession, has left many organizations and firms struggling to attract and retain talent. And while sectors like technology are already seeing layoffs as companies grapple with rapidly rising costs, others need to staff up — yet they face a dearth of qualified candidates.
For CFOs and accounting firm managing partners, it makes for an incredibly challenging time from several perspectives:
- Finance teams are under pressure to forecast the business' performance accurately amidst this unprecedented uncertainty.
- Finance and accounting teams aren't immune to the turnover problem, as qualified employees capitalize on a tight labor market to gain more money, more responsibility, or better work-life balance.
- Ever-changing tax regulations and requirements are creating year-round tax seasons that are driving those in public accounting to look for more predictable industry positions.
- Long-standing, inaccurate, "number-cruncher" perceptions about the job performed by accountants is leading those choosing a career to pursue other professions.
In this environment, many are taking a fresh look at the outsourced model as a potential solution to these challenges.
What's driving finance outsourcing
At one time, outsourcing was perceived solely as a way to replace in-house full-time equivalent with a lower-cost, more flexible contract workforce. Today, it's viewed more holistically as a strategic approach that can help businesses and firms achieve their objectives and gain a competitive advantage by supplementing (rather than displacing) in-house teams and finding alternative options for hard-to-fill roles.
When finance and accounting functions are outsourced, reasons like the following are often the impetus.
- Gaps in capabilities or expertise. The more complex the finance and accounting function becomes, the more difficult it is to maintain the full breadth of capabilities and expertise in-house. For example, with financial and accounting software playing a more critical role in automating processes and improving data access, technology capabilities have become a more important skillset. In private equity-backed companies, robust financial reporting capabilities are required to meet investors' expectations. For high-growth businesses, financial data analytics are essential to making informed decisions about how to drive the desired growth. For accounting firms, technological advances have streamlined the process of preparing tax returns and conducting audits. The nature of the business or the industry also can create unique needs for finance and accounting capabilities and expertise that are difficult to staff internally or not feasible to invest in with FTEs.
- Labor shortages and/or high turnover. With a tight labor market projected to persist for a while, accounting and finance professionals aren't likely to be in great supply. A limited labor pool means these positions often remain vacant or are filled with candidates who don't have the skills needed to contribute right away. In this environment, CFOs and CPA firm leaders may turn to outsourcing as a lower-risk approach to fill vacancies and supplement their core teams for the interim, or potentially, long term.
- Shifts in employee expectations. The old hiring playbook is no longer relevant in a post-COVID world. For example, as employees demand remote work arrangements, some organizations are looking beyond the local market for viable candidates. Others are rethinking their hiring models entirely and considering whether outsourcing finance and accounting functions would enable them to obtain the necessary skillsets — and thus meet client needs — more readily.
- The need for flexibility. Staying nimble is critical in any economy, but especially during volatile times. When a recession threat looms large, the idea of increasing internal head count makes hiring managers understandably anxious. The flexibility of outsourcing can ease concerns about economic uncertainty and allow finance and accounting teams to ebb and flow as conditions change.
What to consider before outsourcing
While outsourcing finance and accounting functions may be on the rise, it takes a calculated approach to make this model work effectively. The experience of many internal CFOs and CPA firm leaders indicates that asking the right questions can help determine whether outsourcing is a viable option, including:
- Does they need short-term, interim help or will outsourcing be part of the overall staffing strategy?
- Which finance and accounting functions are the most difficult to keep staffed? (For some, it's specialized skills like tax planning, auditing and financial modeling; for others, it's basic tasks like general ledger management, accounts receivable/payable, tax return preparation, and payroll processing.)
- Does the business operate in an industry, or serve clients in an industry, with unique accounting and finance needs? (For example, a nonprofit that must track grant funding, a biotech backed by venture capital, or a firm that specializes in ERISA audits, may find it tough to maintain staff with the skillsets and expertise to meet their requirements.)
- Does the company intend to go out to the capital markets for funding? (Ensuring the business' financials are investor-ready is essential to a good outcome but may stretch the internal team's bandwidth or capabilities.)
- Is the company considering a move to new accounting software, such as a cloud-based solution? (Often organizations find it more efficient to tap outsourced specialists to help set up and integrate a new solution.)
As economic uncertainties and labor market constraints persist, CFOs and accounting firm management teams are re-assessing their hiring strategies and evaluating the outsourced model as a solution to overcoming staffing challenges. By giving careful thought to the key considerations that impact this decision, finance leaders can arrive at the most effective solution to meet their strategic objectives.
