How Businesses Can Measure the ROI of Outsourced Accounting in 2024

8 min read

July 30th, 2024

For a business to be competitive and financially successful, leadership must scrutinize every expense on the budget, and these expenses should justify themselves either by necessity or by generating a return on investment (ROI).

While businesses have embraced outsourcing non-core competencies as a money-saving strategy, outsourcing is still an expense on the budget. 

Plus, not all outsourced providers are of equal quality, competence, or effect. To ensure that your outsourced accounting provider is generating a great enough benefit to your business to justify the cost, your business should be measuring and tracking the ROI of these outsourced services.

Overcoming the Challenges of Calculating the ROI of Outsourcing

Measuring the ROI on outsourced accounting services is, unfortunately, a fairly complicated matter because an outsourced back office has the potential to impact a business in a variety of complex ways. While some benefits are simple to measure (i.e. the difference in cost between an in-house back office department and the outsourced accounting services provider), others are more difficult to quantify (i.e. employee happiness that arises as a result of automating repetitive processes).

Depending on the type of services being provided and the type of back-office systems put in place, some businesses might lack the data to measure ROI. Keep in mind that if you work with a reputable outsourced accounting service provider that offers management accounting services, you should have ample data available to measure ROI.

Read More: The Pros and Cons of Outsourced Accounting Services for Businesses

What Is Management Accounting?

When you think about your bookkeeping and accounting department, you most likely think about compliance and taxes. However, a good back office is one that works for your business with a high-functioning management accounting system in place.

Management accounting is a particular type of accounting that exists to improve business management with financial and operational insights and data-driven decision-making.

With management accounting, business leaders can set goals and use their back-office systems to track the metrics that are relevant to those goals in order to measure performance and evaluate results. Management accounting also uses trailing twelve-month charts and forecasting to help identify trends in costs and revenue to better predict cash flow.

How Management Accounting Best Practices Can Help You Measure Outsourcing Performance

Without a system in place to facilitate management accounting (to deliver reliable management reports and metrics), business leaders won't be able to measure the ROI of outsourcing, and they'll struggle to evaluate their business's operations and performance, in general.

A business management accounting strategy should support the business's overall business strategy. The management accounting system should be based on SMART goals, and it should provide the tools to measure performance and track progress toward accomplishing those goals.

For example, when outsourcing its back office, business leaders should set specific goals and expectations for these outsourced services. A business leader should be thinking about how they want an outsourced back office to impact the business (cost savings, increased profit margins, improved efficiency, automated processes, better-timed hiring, improved employee retention, etc.). Plans and systems should also be in place to measure and track these effects.

Read More: Financial Reports vs. Management Reports: What’s the Difference?

7 Strategies for Measuring the ROI of Outsourced Accounting in Your Business

1. Know Your Baseline

One significant challenge in measuring the ROI of outsourced accounting services is that many businesses do not have adequate back-office systems in place prior to outsourcing. As a result, they do not have the data necessary to get a baseline of their business's performance numbers. Businesses without complete, reliable, historical data won't be able to see the full picture of how outsourced accounting services have impacted their financial health because they won't actually know where they were when they started working with the outsourced provider.

Do everything you can to create complete and accurate back office records so that you will have a baseline against which to compare your business's future performance after you begin outsourcing your back office.

2. Back-Office Cost Comparison

This is the most straightforward strategy for calculating the ROI of outsourced accounting services: comparing the cost of an in-house bookkeeping and accounting department with the cost of outsourced services.

On average, an outsourced three-person accounting team costs about $48,000 annually. Compare that to the base salaries of an in-house, three-person accounting team:

• Bookkeeper - $44,320
• Staff Accountant - $72,893
• Controller - $253,511
• Total Base Salary Cost = $370,724

Note that these basic back-office employee costs do not even include the average salary of a chief financial officer (CFO) - a whopping $441,037. So, for a complete back-office department, the average business in the United States could be looking at nearly a million dollars in just basic salary costs. Even if you decided to go all-out with your outsourced bookkeeping and accounting services and also sign up for outsourced CFO services, you'd still stand to save hundreds of thousands of dollars annually.

Additionally, remember that in-house employees come with "hidden" costs such as office space, supplies, equipment, software licenses, paid time off, payroll taxes, insurance, employee benefits, overtime, productivity lags that occur during time off, and the high cost of employee turnover.

It is also important for business leaders to consider the value of what their money is purchasing as well as the price tag. Consider what your business receives in exchange for the money spent on outsourcing compared to what it receives in exchange for the money spent on in-house employees.

3. Productivity Gains

Outsourcing an entire department of your business to a high-quality provider should result in increased productivity throughout your business. If you maintain an in-house back-office department, the burden should be significantly lightened so that these employees can focus on higher-value tasks. Additionally, a smart outsourced accounting provider will implement automation tools throughout your business to streamline data collection and other processes. As a result, employees should have more time to focus on the most important aspects of their responsibilities and your business's core functions.

After working with an outsourced provider, you should be able to use your management accounting reports to identify and eliminate inefficiencies throughout your business while identifying the most productive and efficient processes. This will help you further increase productivity, and this productivity should be reflected in your time-tracking data, leads, sales, revenue, and costs.

How do outsourced costs compare to your in-house accounting department? 👇

Download the full infographic HERE.

4. Revenue Growth and Profit Trends

Of course, increased productivity should improve your revenue and profits. Working with an outsourced management accounting provider should also help you identify your most profitable revenue streams. As a result, this should help you focus in on the types of clients, jobs, and services that are most profitable for your business. You should begin to see a positive trend in growing profit margins - whether your total revenue grows or stays the same.

5. Total Expense Trends

Increased efficiency means reduced costs. This should put your expenses on a downward trend. Additionally, an outsourced management accounting provider can help you identify additional areas where costs can be cut or reduced to help improve profit margins.

Knowing your true costs also makes it possible to optimize your pricing structure and fees. When you know how much your services actually cost to provide to clients, you can be sure you're charging them enough to cover direct materials and direct labor in addition to allocated overhead expenses while still generating a profit.

Read More: How Much Do Outsourced CFO Services Cost?

6. Consider the Intangible Benefits

To completely understand the ROI and total impact of outsourced accounting, one must also consider the intangible benefits that outsourced accounting delivers. In other words, it's essential to also look at the total value of outsourced accounting including the quantifiable and unquantifiable returns.

Outsourcing delivers value through a variety of benefits that are difficult to quantify with a specific dollar amount, such as:

• Access to top talent in the financial industry (bookkeeping, accounting, and financial expertise)
• Industry experience
• Implementing tried and true systems, tools, and technology in your business
• Shifting the burden of compliance to a third-party
• Mitigated risk of internal fraud
• Market and industry insights

Additionally, outsourced accounting providers that offer management accounting and CFO services will also impact your business's future by providing a financial strategy to support and guide the business's overall strategy and goals.

7. Use an ERP to Reveal Organization-Wide Impacts

An outsourced accounting provider can set you up with a powerful accounting software system that integrates with a wide array of applications. Software solutions like Sage Intacct or QuickBooks Online can be expanded with these types of integrations to provide you with a centralized platform for enterprise resource planning and organization-wide management. These types of tools can help you measure the impact of outsourced accounting services on just about every aspect of your business.

Maximize Your Outsourcing ROI: Proven Outsourced Accounting Services for Businesses

An outsourced back office has the potential to deliver a massive ROI that will impact your business's present financial health, business strategy, position in the market, and future growth. To enjoy all the benefits of outsourcing and maximize its ROI in your business, it is essential to choose the right outsourced accounting service provider. Look for an outsourced accounting firm that offers basic bookkeeping and accounting in addition to management accounting and CFO services. Plus, choose a provider with a proven track record, client success stories, and experience working with other businesses in your industry.

These providers will have the insights they need to understand the unique ins and outs, challenges, and opportunities that your business can leverage to maximize its potential and transform your future vision into reality.