What is the Cost of Managed Accounting?

Managed accounting is the process of outsourcing your accounting and sometimes finance tasks to an external party, such as an accounting firm or a freelance bookkeeper. Outsourced accountants combine accounting expertise with advanced technology and human oversight to provide you with comprehensive, proactive accounting management. A few common services provided by outsourced accountants include:

• General Bookkeeping – General ledger management, AP, AR, bank and credit card reconciliations
• Payroll Processing – Regular payroll processing, quarterly reporting, year-end reporting, 1099 management, fringe benefit management
• Financial Reporting – Making adjusting journal entries, drafting formal financial statements for management review
• Budgeting – Assistance with budgeting and creating budgets in Zoho Books 

Working with an outsourced accountant means you can select one or all of these services, giving you the ability to customize your outsourced accounting function.

Managed accounting has advantages outside of freeing up time in your schedule. Let's cover a few of the benefits that your company can leverage.  

Access to Accounting-Specific Software

Accounting-specific software can get expensive, and some accounting agencies may offer use of their own software while others will work with what your business already uses internally. By using managed accounting, you may be able to leverage these programs without having to make an investment. This may save your company money while still giving you access to unique insights and opportunities. Even better, your outsourced accountants are inputting and deciphering the information on your behalf, providing you with reliable and understandable information to guide your decisions.

Cost Savings

Despite what you might believe, managed accounting is often more affordable than hiring an in-house accountant. For one, outsourced accountants are a separate entity, meaning you don't have to pay payroll taxes, offer benefits, or manage their day-to-day activities. Similarly, outsourced accountants only work (and bill) your company when there are tasks to be completed. This means you are only paying for what you need, compared to an in-house employee, who you are paying regardless of whether there is work.

Independence

One often overlooked advantage of managed accounting services is independence. Outsourced accountants don't work for your company; they work with you. This provides a layer of independence that can reduce fraud and asset misappropriation in your company. For example, an outsourced accountant might process your payroll. Since they aren't on payroll, there's an extra layer of protection. Independence can also be helpful if you need assurance services, such as a review or an audit. An in-house accountant can't sign off on those types of reports, even if they are a CPA. 

Time Management

Making the shift from completing the work yourself to reviewing reports and making strategic decisions is crucial to scale. Additionally, shifting to outsourced accounting services can alleviate stress and pressure on your in-house staff, giving them the ability to pursue other value-added activities, like strengthening customer relationships. Furthermore, managed accounting services also infuse efficiency into your operations, giving you timely insights. For example, instead of taking your team two weeks to close the month, your managed accounting team might have final reports to you within a few days. Timely insights help you make decisions based on current data.

While the advantages of managed accounting might be a key driver in your decision to outsource, there are a few disadvantages to be aware of.

Less Oversight and Control

While many founders and accounting leaders benefit from taking a step back from accounting, some struggle with less control. Moving your accounting services outside of the company can lead to a disconnect in the day-to-day activities. After all, you are no longer the one reviewing transactions or managing the general ledger.

Communication Challenges

For some companies, finding the right communication channels with the managed accounting team can prove difficult, especially when outsourcing overseas. From time zone differences to differing schedules, communication can be a challenge if not managed properly. When working with a domestic team, communication challenges are often minimal.

Data Security

Data security can be another disadvantage of managed accounting services. Your accounting data is no longer kept in-house. Instead, you will either give your managed accounting team access or completely transfer your data management over. Ensuring the proper data security protocols are in place is important to ensure that you and your customers’ sensitive information is protected.

Now, the part you've been waiting for: what is the actual cost of managed accounting? Unfortunately, the final cost will vary based on a few different factors; however, expect to pay somewhere between $500 and $10,000 per month. Before we get into the cost by service level, let's first go through a few items that can influence the price.

• Geographic Location – Outsourced accountants in high cost-of-living areas will be more expensive.
• Business Size – The size of your business often translates to more transactions and entries, which increases the cost.
• Services – Bookkeeping services will cost less compared to formal financial strategy or statements.
• Firm Depth – A freelancer will usually charge less than an accounting firm.
• Industry – Specific industries can warrant higher managed accounting services. For example, a business with complex inventory or fixed asset needs will pay more.  

It's also important to understand the different types of pricing models that outsourced accountants adopt. There are three common models, including:

1. Hourly – Some accountants will charge an hourly rate, which can range from $150 to $400 per hour based on the above factors and the experience of the accountant. For example, a CPA will charge more than a bookkeeper.
2. Monthly Fee – Standard monthly fees are common when the services are recurring each month. For example, an accountant might charge $1,500 per month to complete all reconciliations, make adjusting journal entries, and issue internal financial statements.
3. Project-Based – For one-time projects, outsourced accountants might provide you with a flat fee. For example, $2,800 to clean up your accounting records from the past six months.

Let’s explore common managed accounting services levels and what you can expect to pay. Keep the above factors in mind that can influence the final cost.

Basic (Startups and Small Businesses)

Basic managed accounting services include general bookkeeping, monthly financial statements, and payroll in some instances. These services are geared towards small businesses or startups that have few transactions and simple structures. Expect to pay around $500 to $2,000 per month.

Premium (Mid-Sized and Growing Businesses)

As your business begins to grow, you will approach a premium level of service. While you might not be adding new specific services, your transaction levels and business complexity are generally increasing. You might have expanding state sales tax requirements, increased tax planning requirements, and new forecasting needs. Expect to pay between $1,000 and $3,000 per month for this service tier.

Comprehensive (Complex Needs or Multiple Services)

Complex accounting requirements, such as unique ownership structures, active subsidiaries, or multiple locations, will increase your monthly fee. Expect to pay $2,500 to $5,000 per month.

Gold Star (Large Businesses)

Large businesses often need “gold star” services, meaning they need an outsourced accountant on standby to handle any question, problem, or filing. In some cases, an outsourced accountant may step in as CFO for a short period of time. Businesses of this size will pay between $5,000 and $10,000 per month.

A La Carte (Select Services)

Sometimes you might have a one-time project or need a singular service that doesn’t fit into one of the above managed accounting service tiers. These “a la carte” services, like payroll processing or tax return filing, can still be handled by an outsourced accountant. The rate will vary based on the service.

Finding the optimal balance between cost and value is important when using managed accounting services. Here are three strategies to maximize your value and minimize your costs.

Know Your Service Needs

First, it’s important to only pay for the services you need. For example, if you don’t need any tax-related work, you might not need to work with a CPA or even an accounting firm. A freelance accountant might be able to handle your service needs. Make a list of the services you need and find an outsourced accountant that offers those services. The accountant you work with should be able to provide you with a price only for the services you need.

Think Long-Term

You might not need managed accounting services now, but will you in the future? If you are entering a growth phase, it can be beneficial to partner with an outsourced accountant now to avoid growing pains. For example, if your business starts expanding domestically, you might trigger new state sales tax filing requirements. Having an accountant on standby to file these reports on time can help you maintain compliance. Think of the long-term plans for your company and decide if being proactive with hiring an outsourced accountant is beneficial.

Consider Value

While it can seem expensive to pursue managed accounting, it’s important to evaluate the benefits. Could your company scale due to the insights outsourced accountants provide? Can you improve your compliance with the IRS and state agencies with a vetted and experienced CPA filing your returns? Can fraud and asset misappropriation be lowered with an independent party processing payroll? Before you write off managed accounting as being too expensive, think of the value you receive in return. Is the cost to your company worth the benefits? Oftentimes, the answer is yes.

Managed accounting services give you access to cutting-edge technology, expert insights, and extra time in your busy schedule. The cost will vary based on the level of service you need, but expect to pay anywhere from a few hundred to a few thousand dollars per month. If you’re ready to talk about outsourcing your accounting, contact one of our team members today.