Recently there has been a trend in the business world to outsource certain business functions in order to make a more efficient operation and/or save cost of operation. In years past there was little consideration given to outsourcing accounting functions because the financial numbers were so proprietary to the business and the fear of security of this information being compromised. With the advent of secure cloud computing this fear started to relax a little bit and there has been a general trend in the accounting world toward using cloud computing and storage with more confidence and security. The recent pandemic has helped reshape opinions on the ability and security of remote operations.
With this in mind, it is worth while to review the top advantages to a small business for outsourcing their DCAA (or other agency compliance) accounting. There can be many reasons to do this but let's review the most important benefits for outsourcing this important business function.
1. DCAA Compliant Accounting is More Complex than Commercial Business Accounting -
When a company receives an award from the Federal Government there are always a plethora of terms and conditions on the award. Many of these terms relate to the financial risk that the government perceives in the way the award is structured. For instance, a Cost Reimbursable contract is a high financial risk to the government so they will require that the contractor adhere to many different Federal Regulations. Many times this involves not only compliance with Federal Acquisition Regulations (FAR), Code of Federal Regulations (CFR) but also many agency specific regulations (such as DFARS, DEAR, etc.). Many times the awardee will see terms like DCAA (Defense Contract Audit Agency) compliance required. These regulations are intertwined and form what I often refer to as a "rat maze" of compliance. Most accountants and bookkeepers are not familiar with this rat maze or how to navigate it. It can take years of experience for people to learn this maze. Finding a firm like ReliAscent who has well over 200 years of experience with the maze is a benefit for a small business.
2. Business Owners/Operators Should Focus on High ROI Activities -
Small Business owners and/or operators are forced to do many tasks. This is usually done without much thought of consequences since everything seems critical to the success of the business. This can cause the owner to spend too much time on tasks that are not important to the success of the business and taking time away from valuable tasks. I suggest that business owners/operators should prioritize their activities in order to provide the best use of their time and at the same time provide the best chance for impact to growing or making the business succeed. One way to do this is to identify tasks as their impact on ROI. There are high ROI activities, like developing new clients, business development, securing needed funding among others. Then there are lower ROI activities like trying to figure out how to be DCAA compliant, bookkeeping, general accounting and more. It makes sense for owners and top management of the business to free their minds from low ROI activities and spend their precious time on high ROI activities. This is not to say accounting numbers are not important to the business, they are. But the owner/operator should not be generating those numbers. They should review summary reports regularly and have a competent finance person explain to them the company's position. This allows the owner/operator to focus on this at a very top level (view the forest and not get lost in the trees) and give the best ROI to their time and thus the business.
3. Outsourcing Allows a Small Business a Full Function Accounting Department
A small business usually can only afford one accounting and/or finance person if they have one at all. In a large business there is a full accounting department with individuals that concentrate on bookkeeping and then accountants that focus more on analyzing the data. Usually there are Controllers to fully analyze the data and reports generated by the accountants as well as do more of the upper management reporting and summarizing. Of course there is a CFO to do more of the interpreting of the data and planning. Somewhere in the accounting department there is usually a contracts specialist to focus on the contracts, keep track of CLINS and deliverables as well as the terms and conditions that the company must focus on. With only one individual, many of these functions are missed or not performed, hampering the performance of the small company. When the accounting function is outsourced you will get a full accounting department, with all functions performed, on an "as needed basis". Again, this results in a broader depth of experience within the small business than having one individual perform all these tasks (or attempting to perform them all).
4. Save Money on Compliant Accounting While Maintaining Full Compliance
In the above discussion we found that the small business can employ more depth and breadth of experience by outsourcing the accounting and contracts functions. This might seem to be more expensive but it really is not. While it is true that the hourly rate of an outsourced accountant might be higher than the hourly rate of an internal accountant, the total cost is usually lower. When comparing outsourced accounting to internal accountant, we must weigh in that the outsourced accountant can delegate tasks to a lower priced individual as well as they only charge for the work that is required. An internal hire will draw a full salary, regardless of the time required to complete the work. It is also worth noting that the internal accountant will require some overhead cost such as equipment, office space, office materials, fringe benefits and other expenses. This can add 30 to 50% on top of their salary. This is not to mention the time spent by an internal accountant when they encounter a new contract term they are not familiar with and have to research the regulations to possibly find the answer. An error in interpretation could also be severe opportunity cost if the correct answer is not found.
5. Better Checks and Balances and Financial Control
In any company, there is always a concern about the integrity of financial performance. This is why the SEC and IRS have many regulations for internal controls and checks and balances. There is also a concern that money could be siphoned out by employees that either do this maliciously or make innocent mistakes. By outsourcing the accounting this will ensure that proper checks and balances can be employed as well as internal financial controls. Trying to implement these checks, balances and internal controls sometimes will cause employee morale problems when there is only one internal person doing the accounting. Outsourcing the function takes away this possibility as well as increases the integrity of the financial reporting. These controls can be extremely valuable as the company grows and sources of external financing are sought.
ReliAscent has been at the forefront of helping small government contractors with their accounting for many years. We have a large staff of highly experienced and trained personnel that are experts in compliance with FAR, CFR and DCAA requirements. We have helped hundreds of small business' grow and succeed in this market space. Please call us today to see if we might be able to help you.