Audit partner Harvey Susnick advised LIBN on what businesses should weigh when looking into outsourcing their accounting.
Capital Spring is a small private equity firm in New York City with a decent-sized balance sheet. The firm boasts $250 million in assets under management and revenues of about $18 million, according to controller Craig Dolinick. Yet when it comes to the company’s own financing needs, Capital Spring outsources its accounting services.
"We have 16 people on staff," Dolinick said. "To spend money to hire someone to handle accounting versus hiring a person who could be a revenue generator, we felt our money would be better spent outsourcing."
A handful of accountants from Schwartz & Co., a national firm with an office in Bellmore, manage Capital Spring’s year-round accounting needs and tax filings, from monitoring day-today accounting services and monthly closing reports to cutting weekly checks and inputting wire transfers. Rather than bringing on an in-house accountant, who would require health insurance, take time off or potentially leave after being trained, Dolinick said he prefers to pick up the phone and immediately connect to five or six accountants available 24/7.
Many companies, particularly small businesses, are on the same page with Capital Spring. Enticed by the ability to access experienced accountants without having to pay full-time salaries and provide fringe benefits, numerous firms are turning to outsourcing as a cost-effective solution.
Rather than simply a way to streamline and cut the fat, however, technological advancements are being lauded for the recent increase in outsourcing by some local accountants. “Technology has afforded our clients the ability to work this way,” said Michael Schwartz, founding partner at Schwartz & Co., noting he and his staff can have video conferences with clients without ever leaving their desk. Clients who may have mailed their bills on a weekly basis are now able to scan the documents and send them electronically on a daily basis, he said.
“Technology has really afforded us the ability to get resources as a business that we never could before,” he said. “And, I think folks want to outsource more of whatever is possible so they’re not carrying as much overhead.” To be sure, outsourcing eliminates the need for a company to supply desks, computers and health benefits to additional employees.
“Managing human capital takes time and energy,” Schwartz said. Additionally, often in-house staff may handle the bookkeeping and later have to call on degreed professionals to come in and review, adjust and correct their work, Schwartz said. Outsourcing, however, provides continuity of records and efficiency for tax returns.
“Most small businesses don’t need a full-time bookkeeper,” said Robert Mayer, managing partner of accountants Mayer & Co. in Woodbury. In fact, Mayer said he attributes the onset of growth in outsourcing to numerous situations in which business owners discovered their bookkeepers were stealing money.
“Outsourcing has become very necessary based on people skills, so to speak,” he said. Bookkeepers have access to wire transfers, passwords for electronic transactions and company credit cards, Mayer said. “Some people see money in the bank and think they are entitled to participate. We tell clients that bank statements need to be opened by business owners in order to prevent this.”
Still, Harvey Susnick, partner at the Jericho office of Berdon, said he only recommends outsourcing for businesses that have very modest internal accounting needs or unique circumstances. For instance, his firm has been called on by the comptroller of a large company with its own accounting department seeking information from Berdon’s state and local tax group. “We see much more outsourcing for special projects and less mundane items,” he said.
While firms will save on salaries, Susnick cautions outsourcing can become expensive as accounting firms need to raise their hourly billing rate so they can make a profit.
Additionally, he said, there is a definite difference between a company employee and an outsourced worker when it comes to a sense of corporate responsibility. For instance, a medical office that outsources its billing and collections might pay an accountant 8 percent of whatever it collects. If a $50 bill has not been paid, an employee might feel a sense of responsibility to go after that payment, while the outsourced worker might think: ‘This is only going to mean 8 percent of $50 for us. Is it worth a half hour of my time to sit on the phone and try to get $4?’
An outsourced worker also doesn’t understand exactly how a company operates, such as who within the company to call to get a certain answer and what day that person has off. Susnick said, “They won’t have that intimate knowledge of the topography of your office … all of the little things [an employee] knows because they’re living there.”
Even unintentional mistakes made by bookkeepers or in-house staff unfamiliar with tax laws could end up costing firms a lot of money in the long run, said Ed Slott, an accountant in Rockville Centre. “Just like I wouldn’t fix my own roof – I’d pay a guy who knows how to do it right – doctors should be studying medical books, not tax code,” Slott said.
And while medical offices are likely to outsource their billing and collection needs, the service is available to companies in all industries. Mayer & Co.’s clients include a nursery school, interior design firm, entertainment, human resources and construction companies and small manufacturers. The firm also keeps the books for a radiation and oncology office that sees $13 million a year in volume, Mayer said. His accountants receive and pay all of the office’s bills, monitor their bank balance on a daily basis and cut checks. Mayer’s fee is based on a percentage of the collections of their deposits.
“Rather than hiring a bookkeeper for $30,000 or $40,000 a year, you can outsource your books for half that amount, “while creating better internal controls for your company,” he said.