Most small and mid-size businesses outsource their bookkeeping, accounting, taxes, and other financial needs. However, according to IMPACT Controller Eric Choma, companies should seriously consider brining these tasks in-house. Hiring your first financial expert needs to be done with care, as the right person can help your company grow intelligently.
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Me: When I asked you to interview, you said that you want to talk about in-house finance and accounting. Why is this on your mind?
Eric Choma: I think that it's a beneficial discussion for our target audience, which includes mostly small and midsize businesses. The rewards of doing so — of finding somebody that you can bring in-house to do your accounting and finance work — allows you to make decisions more quickly.
If you're a small agency, you're likely not going to have somebody on staff who specializes in accounting and finance. You're going to outsource and find somebody that's going to do your bookkeeping and your taxes at the end of the year.
Allowing that to come in-house gives you the ability to ask those questions you want to ask and be able to identify issues you may be having in reaching your goals. Additionally, for IMPACT, insourcing enabled us to truly practice open book management.
Open book management is more than just opening up the financials to your company. With proper training and knowledge, all levels of your business start to act and engage just like the business owner, or the leadership team.
At IMPACT, we fully engage with our employees on a weekly basis during our All-Hands meetings. We start these meetings off with a review of our profit and loss statement. It’s a collaborative exercise that requires each team to assess where they are currently at, and forecast where they will be at the end of the month.
We focus on teaching every employee the inner workings of our business and the financial literacy needed to understand our books. With this knowledge, everyone begins to be able to make decisions that impact the business on a daily basis, and everyone gains ownership of the outcome.
Our ultimate goal is to create a “business of business people” who think, act, and feel like owners. Open book management would not be possible without an in-house finance team.
Finance vs. accounting: What's the difference?
Me: Can you break down the difference between finance and accounting? Can the same hire do both?
Eric: If you're just looking to hire somebody that take your bookkeeping in-house, you're looking at hiring a $40k - $60k a year employee, depending on their experience.
Whereas if you're looking to take on somebody that not only fully understands your bookkeeping and accounting systems, but can also perform financial statement analysis, understands financial accounting, and can teach financial literacy within your organization, you should expect to pay them from $75k to $120k, depending on their experience and your location.
Me: When you say “small business,” is there a size that’s too small? At what point should a business begin to think about hiring for this need? At what size can this be justified?
Eric: I think once you hit, say, 20 people, that should probably be an indicator that you should be considering having someone in-house that's managing your administrative, accounting, and finance functionalities. For a small business, one person will probably handle all financial aspects of the business.
Me: Could that include things like investments, debt, credits — beyond just the financials of money coming in and money coming out?
Eric: Yes. I think that's where the difference in that level of your first hire comes in. If you're looking for somebody that's just going to be doing bookkeeping, you're not going to get that extra perspective.
IMPACT's first financial hire, which was me, is a controller position that not only does the day to day bookkeeping, but also the higher-level financial initiatives, like credit, figuring out the credit cards for the company, managing payroll, all of our payables, managing collections.
All these things that help to propel and maintain the business, like generating cash from receivables. All those things centralized with one internal person owning that process helps to enable the leadership and decision-makers with more valuable real-time information, as opposed to having this work outsourced.
Me: Might that person also spearhead dealings with banks if, say, the company needed a line of credit or another loan?
Eric: Absolutely. Ideally, this new hire would have their CPA or would be on a “CPA track” (meaning they have earned all of the necessary college credits and have performed the work required to be able to sit for the CPA exam and pass the test).
Once you have a CPA in your company, they would be more than capable of leading dealings with banks, regulators, auditors, and any other financial institution or regulatory body.
Why companies are hesitant
Me: So, why don't companies insource their financial needs?
Eric: I think it's tough for companies to see the value in hiring somebody at, say, $75K to $120K, depending on where you are in the world. The biggest hurdle is being able to see the value, and for everybody to be on board to take all of this in-house.
Me: But that investment makes sense as you grow?
Eric: Yes. If you're outsourcing, you likely have somebody that's very knowledgeable giving you information already. However, you're not their only client. And I think that's the biggest differentiator. You can make business decisions more quickly and be more confident in the data that you're seeing in real-time, for all things accounting and finance related.
Me: From a cost perspective, if a company were to outsource all of those responsibilities, what would be the cost comparison? So often, insourcing seems expensive until you start adding up the costs of outsourcing.
Eric: You're probably looking at three to five thousand a month, depending on what time of year it is. For bookkeeping and review of the financials, the bookkeeping would likely be at a lower rate, and then someone else would review. So you’re already looking at a range from $36K on the low end to $72K.
Me: What about tax season? End of the fiscal year? Is it more likely that companies are going to outsource then?
Eric: At IMPACT, we still outsource our tax work. That's something I could do, but it's not my specialty. And that's something that I would recommend. You'd be very lucky if you took somebody in and they were fully versed in both technical accounting and tax accounting.
Me: And obviously you would pay accordingly, in salary, essentially?
Eric: Right. If they had that tax background as well.
When it comes to our tax season, I work hand in hand now with our tax accountant to provide her with the documentation she needs to make that process cheaper. I perform what would normally be done by her team, so the process is quicker and more efficient.
Hiring your first in-house finance expert
Me: So, how does a company hire for this position?
Eric: First, you should create a list of the responsibilities that your new hire will be taking over.
It’s important to take a look at the current status of your accounting systems and make sure your candidate has experience with that system. For example, if you use QuickBooks online, you're going to want somebody that understands QuickBooks online before coming on board.
But that being said, if you have somebody that is very talented, has the history working with a big four public accounting firm, it's hard to go wrong. There are a lot of really talented accountants out there. You just have to find the right fit for your culture, for your budget range, and for how you want to eventually grow that side of your business.
For example, with IMPACT, we're still trying to figure out what our ideal finance team will look like as we grow from a 65-person agency to a 75-100-person organization.
There are administrative-type accounting tasks, but there are also bigger picture financial analyses that could help the company save and grow smartly. That’s the advantage of having this position in-house. You have somebody that fully understands your business, fully understands where your debt is, and where you're looking to grow, and can help position your company to achieve those goals.
In addition to interviews, I think it’s important to have your candidates complete an activity related to the job they’ll be performing. You need to ensure that they’ll be ready to go on day 1.
Like hiring for any other position within your organization, you need to make sure that your candidate is going to be a good fit for your culture. They should ideally have a solid background in financial accounting, experience with your accounting system, and 2-4 years experience at a public accounting firm.
This is a very important position in your organization. Don’t settle for anything but the best!