Outsource Your Bookkeeping!

The most strategic decision you make regarding how to staff your accounting department may be to not staff it at all. Well, at least not with employees of your organization. Outsourced accounting -- having the accounting done by an outside person or firm -- isn't new, but it is getting a second look as nonprofits search for ways to cut office costs.

We've written here before about using accurate and timely financial information to manage your organization well. But the question for many executive directors is: how do I get that financial information? While a good in-house bookkeeper is probably better than an outsourced bookkeeper, an outsourced bookkeeper is much better than a bad in-house bookkeeper.

"For a long time I had various people in the office do it," one executive director said. "But they didn't have the skills and as we grew we needed real skills. Then I hired an MBA and only much later did I find out that MBAs don't know how to do accounting or bookkeeping. Then I hired an accountant but he didn't know anything about nonprofit accounting and got our grant reports all screwed up. Then I hired a controller who could talk a good game but could never seem to get anything accomplished and in fact ended up suing us for wrongful termination. Finally I hired an outside bookkeeper who is doing a great job."

Many executive directors find it difficult to find someone with the right skills to prepare invoices (for government or clients), produce financial statements, and analyze financial data to answer management questions. And finding such a person at an affordable rate is even more challenging.

What does outsourced bookkeeping look like?

The term outsourcing may sound bigger than it really is. Many smaller organizations "outsource" their accounting by hiring a part-time, contracted bookkeeper who comes in for half a day every two weeks (for example), writes checks (for the executive director's signature), reconciles the bank statements, posts the transactions into QuickBooks, and prepares monthly financial statements. Such bookkeepers often have five or more nonprofit clients at any one time.

In other situations a nonprofit will contract with an accounting firm to perform the above tasks as well as others.

Here is an example of how financial responsibilities might be assigned in a nonprofit that outsources its bookkeeping:

Sole practitioners vs. accounting firms

Sole practitioners --individuals in business for themselves -- tend to be less expensive and will usually come to your location. Depending on your geographic area and the experience of the bookkeeper, they can charge from $15 to $60 per hour. (One executive director told us: "I used to have a great outside bookkeeper, but then her band finally got a touring contract and she could quit her day job: us.")

Some organizations have volunteer, part-time bookkeepers as well, or contract with a retired accountant to do the bookkeeping.

But some boards are more comfortable with an accounting firm that has accountants, bookkeepers and data entry people on staff, thereby providing some backup and different skills. Accounting firms are more expensive, though, and usually want the data sent to their office. We asked around and found an approximate rate of $30,000 per year for a $1 million organization.

With today's technology, there is little difference between having an accountant down the street or out-of-state, and as a result, some companies can provide outsourced accounting at lower rates (typically because labor costs are less expensive where they are located). While some people may feel uncomfortable with having their accounting done 2,000 miles away, such a choice might be a good and more cost effective option for you. One executive director in Idaho told us: "I can see why someone in New York would want to outsource to an Idaho firm that can find a bookkeeper for $14 an hour, but here in Idaho I can do that, too."

If you have an annual audit, your auditor may offer to do accounting services for you as well. They will make sure that the accounting work would be done by a separate department and team than the group that does your audit. It might sound easier to maintain a relationship with only one firm, but we recommend that you use two different firms. This will assure the independence of your auditor and you will benefit from two perspectives on your finances.

When is outsourcing a good idea?

Outsourcing tends to work the best when:

  • A smaller organization doesn't need a full-time bookkeeper, but needs more skills than the receptionist or office manager can provide
  • An organization of any size can't find a full-time person with the appropriate skills at a cost they can afford
  • There have been multiple failures trying to hire a good full-time bookkeeper
  • When temporary services are needed -- e.g, if the bookkeeper is on maternity leave, or if there will be a vacancy of several months (perhaps to wait until a new COO is hired who will then hire the bookkeeper)

Don't forget that someone -- perhaps the executive director -- will still need to be involved with finances, from coding and approving invoices, reviewing time sheets, making deposits, and so forth.

Outsourcing is probably not a good fit for your organization if

  • You have cash flow challenges that require day-to-day decisions about what to pay and what to hold
  • You have a complicated and unique financial system, or
  • You want your finance staff to be part of your management team

Building in-house accounting staff may seem like a good goal -- and for many organizations it is -- but the important part is to build a relationship -- either externally or internally -- to meet your financial information needs.

What if you have to write a check on the spot?

The fear of the last minute check is something that keeps many people from outsourcing. Yes, it is often more difficult to cut an immediate check when your bookkeeper isn't on site all the time, but you should be able to work something out with your outsourced provider. For example, you may keep some checks in your office under lock and key that can be written manually and posted later by the bookkeeper when she comes in, or you can use an organizational credit card.

Finding an outside bookkeeper

Ask other nonprofits in your community for their outsourced bookkeepers, and only rely on a recommendation if the person has used the bookkeeper for six months and through an audit. Ask your auditor (if you have one) for recommendations. Talk to references about what they like best and least about their outside bookkeepers. And don't forget that this relationship should be reviewed at least once a year; it may be right to move to a staff bookkeeper or a different external bookkeeper.

Finally, remember the primary audience for financial statements is the organization's management. Just as you wouldn't (or shouldn't!) accept incomplete, inaccurate, or late information from your staff accountant, you shouldn't accept that from an outside vendor either.

See also in Blue Avocado:

Steve Zimmerman, CPA, MBA, maintains a consulting practice to nonprofits in accounting systems, finance, and strategic planning. With Jeanne Bell and Jan Masaoka he co-authored Nonprofit Sustainbility: Making Strategic Decisions for Financial Viability. He can be reached in Milwaukee at www.spectrumnonprofit.com.

Comments (18)

  • Steve; another great article; thanks for putting a spotlight on this idea. Here at eCratchit we have been providing outsourced bookkeeping to nonprofits for 10 years and currently work with over 50, all over the country. I would add a couple thoughts: - Firm vs Solo- a firm offers a range of services from bookkeeping thru CFO support and creates redundancy in case someone "joins a band" - Cost - outsourcing can create incredible efficiencies, our fees start at 12k per year for a full service solution for smaller nonprofits ( 500k to 1M) -Experience - a good outsource firm will have the experience to hit the ground running; we quickly- cleanup, setup, create process and reporting and engage a clients audit firm. Outsourcing is a great,cost effective solution for many nonprofits. Ed Mulherin, CPA, Esq Founder & CEO - eCratchit Bookkeeping www.ecratchitnonprofitbookkeeping.com

    Jun 08, 2011
  • Anonymous

    I went this route several years ago and I can't tell you what a great difference it has made. I have a CPA who comes in 1 day a week for about 5 or 6 hours and serves as our FInance Manager. I highly recommend it. Costs me about $18,000 a year and worth every penny. Prior to that I had a consultant CPA who came in once a month and my office manager would do some of the bookkeeping. It was a mess.

    Jun 08, 2011
  • Anonymous

    Steve, a great article (as always) and one lesson that I have finally learned. As a small nonprofit, we have had multiple failures in hiring for the position (any number of reasons that I could name). We started with an operations manager (twice), then moved to director of administration (not worth the price), ended with office manager (worth her weight in gold, but left for a higher salary elsewhere). With all that turnover, the challenge of keeping up-to-date financial reports proved to be difficult and quite a lot of work on me, the executive director. I have finally found a terrific firm that now manages all the bookkeeping and reporting, while I review the monthly reports and approve payroll, etc. The best part is that it is all cheaper than any one staff person could have been! A huge relief to the organization!

    Jun 08, 2011
  • Thank you for the comment and I'm guessing that your experience is pretty similar to many smaller organizations out there. I know in a mid-size town like Milwaukee, where I live, skilled nonprofit accountants are in high demand and many smaller organizations either can't find someone with the necessary skills, can't afford them, or experience high turnover because they can't pay enough. The turnover can be a real impediment to getting accurate financial information and if your organization relies on government funding, can also delay invoicing and impact cash flow.

    Jun 10, 2011
  • Can I have the name of a firm you would recommend to outsource book keeping services

    Nov 13, 2015
  • I think there's an advertiser or two who might be able to help you? Check those out!

    Nov 14, 2015
  • Wow! Great article, Steve. Our company has offered bookkeeping services exclusively for nonprofits since 1986. Sometimes the decision can be difficult, especially if a nonprofit is used to having a bookkeeper on staff. The other benefit of going with a company versus a sole proprietor is that you won't be left in the lurch. Our company has eight employees, so we usually have room for another client, and if one of our bookkeepers is out sick, or on vacation, we never drop the ball. If you're looking at outsourcing your bookkeeping, make absolutely sure that the company you chose has a strong background in nonprofit accounting, which can be difficult to find. Good resources to find a contract bookkeeper include advocacy groups for nonprofits in your area, or sometimes your auditor can offer recommendations. Erin Jones Susan Matlack Jones & Associates Portland, Oregon Specializing in not-for-profit accounting since 1986 www.smjones.com

    Jun 08, 2011
  • Steve, you really nailed this topic! Another advantage is the support boards have when there is a change in staff leadership. Support Kansas City is a nonprofit providing support services for critical back office functions unique to nonprofits, including accounting, to over 90 agencies in our area. When our agencies have a change in leadership, the board members already have a connection to our staff and we can help them during the transition. Once new staff leadership is hired, we work closely with new leadership with their transition needs. Debra Box, Executive Director, Support Kansas City. www.supportkc.org

    Jun 08, 2011
  • Anonymous

    My experience is different. The outside accountant knew QuickBooks, but not fund accounting, as was no help at all with grant work. Likewise, 990 prep by the outside accountant was out of touch with program expenses versus overhead, and no use at all with respect to accounting for special even t revenue. Payroll is a fine portion to outsource, but my experience is that most outside accountants can't deal with temporarily restricted revenue, and a CPA who can is arrogant and condescending.

    Jun 08, 2011
  • Steve - Great article! As a service provider of outsourced bookkeeping and accounting for nonprofits, from my biased perspective we clearly think this is a great thing for nonprofits. :) However, I'd really encourage groups to take an honest self-assessment if they are ready. The process of working with an outside provider forces a level of process discipline that the organization may, or may not, be ready for. There are clearly benefits around improved controls, improved accuracy, minimized impact of turnover, lowered cost, etc. but organizations must be ready to alter their processes and to be disciplined in those processes A good service provider should help in that process, but the organization must be willing and able to change. Another thing I'd point out is that although hourly rates are clearly important, I'd encourage groups to really consider efficiency as well when they consider costs. For example, we took over for a local client - drawing from the same labor pool at the same salaries - and we saved them nearly 25% of their accounting budget. Their bookkeeper was working 40 hours / week and we do the same work in 15-20 hours / week because of our invesments in technology, and our structured and efficient processes. Enjoy- Jeff Russell, CEO Easy Office, www.youreasyoffice.com

    Jun 09, 2011
  • Jeff, Thank you for the comments. I think your point about client readiness is incredibly important. Also, as the table shows, you're not handing over all involvement with your finances, but rather looking at another way of accessing skills and getting the financial information Executive Directors and board members need to manage and lead their organization. Success really depends on a true partnership between the organization's staff and the outsourced accountant. Great points Jeff. Thanks for weighing in. Steve Zimmerman

    Jun 10, 2011
  • Anonymous

    I really appreciate Jeff's comments. I thought he'd just give a "company line" about how great outsourcing can be...because he was just promoting his business. But he provided the insight that an organization MUST BE READY internally to outsource the bookkeeping. Outsourcing is not a blanket solution to bad financial management, but an interesting and effective financial tool...that is part of a grander financial strategy. There are no true shortcuts for a well-managed nonprofit organization.

    Jun 09, 2011
  • Anonymous

    This is only cost effective if you have part-time needs. If it is a full-time need you are generally better having the function in-house, both for coverage and for cost.

    Jun 15, 2011
  • Thanks Steve for putting this issue out there. Most non profits (or small businesses for that matter) don't have enough work for a full time bookkeeper. As an accountant and EA (enrolled agent) in New Hampshire, I have found this role very rewarding. jvlea@aol.com

    Jul 26, 2011
  • You have made some decent points there. I checked on the web for more info about the issue and found most people will go along with your views on this web site.

    Jun 01, 2016
  • Nice article, good to read and informative. Thanks, for sharing

    Jun 07, 2016
  • Anonymous

    Thanks Mike for sharing the post. These are really good tips for someone who has little clue on bookkeeping outsourcing. I really appreciate your advice. Outsourcing even provide services like cost savings, increase effectiveness, improved control etc.

    I am a Cpa and my site is northtexascpas.net/

    Jan 05, 2017
  • Our bookkeeper started prior to my arrival as ED and we may be discontinuing his services due to some costly errors that occurred recently. Long story short, he charged extra hours outside of his monthly contact rate to update a large quantity of investments we moved to a new program. He did it incorrectly and our Form 990 prep bill ended out being double due what it usually is to the assistance the CPA firm had to provide correcting the transactions. The best part - he hasn't offered to rectify the situation outside of a one line email apology.

    This person's contract was never formally renewed after the first year, we've just kind of continued on with the services so I'm a little worried about what's going to happen when we terminate. (Not the most pleasant personality I've dealt with and the only person with a copy of our Quickbooks file.

    With that said, I'm going to be requesting that my board of directors does a RFP so that we find someone with actual nonprofit experience. Do you have any recommendations on what to include include in a questionnaire or in the agreement that is offered?

    I was thinking we need to address fund accounting, handling of restricted donations, utilizing Quickbooks features for maximum reporting capabilities, file back up, donor list privacy - what else is there?

    I'm honestly capable of doing the Quickbooks myself as ED, but I know that's a no no with internal controls.

    Mar 29, 2017

Leave a comment

Fill this field in if you want to post a name a user login

Filtered HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <small> <sup> <sub> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd> <h1> <h2> <h3> <h4> <img> <br> <br/> <p> <div> <span> <b> <i> <pre> <img> <u><strike>
  • Lines and paragraphs break automatically.

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.