Outsourced bookkeeping and why I love it now
Not too long ago I didn’t care for outsourced bookkeeping. It felt expensive and I feared that I would lose control.
But as the world has changed around us, as I’ve learned and grown, and as I’ve gotten more exposure to highly professional, outsourced bookkeeping, I’ve come to see it as a wonderful solution for many nonprofits.
What is a bookkeeper anyway?
A bookkeeper, narrowly defined, is the person who records your financial data in your accounting system. Every expense, every deposit, and all the other transactions.
If the person who does those activities for you also does other accounting-type work, such as interpreting financial reports, crafting the budget, and the like, then that person is likely more than a bookkeeper (perhaps a controller or finance director).
What kinds of nonprofits can benefit from outsourced bookkeeping?
In my experience, small nonprofits can benefit the most.
They rarely have people on staff with the time and skills to be able to effectively hire, supervise, evaluate, and train a bookkeeper.
While their annual budgets are under $1 million, they rarely need someone full-time in that role (and frequently need just a few hours per week).
Even nonprofits with budgets of $2-5 million may not need a full-time bookkeeper.
Some nonprofits with budgets above $5 million can also benefit from outsourced bookkeeping, depending on their particular circumstances.
Bookkeeping as one of many responsibilities is a big risk
Many nonprofits with bookkeeping needs under 40 hours per week can feel tempted to combine that responsibility with others like office manager, greeter, administrative assistant, information technology, and the like.
Sometimes that kind of arrangement works out well.
However, it also runs some serious risks. For example:
It’s very difficult to find someone who can juggle all the things well. For example, the skills and disposition of a great greeter or other public-facing position rarely overlap well with the skills of a great bookkeeper. One emphasizes welcoming people while the other emphasizes precision and a strong attention to detail.
Even if you find the rare person with the skills and disposition to do all the things well, trying to do them at the same time can be stressful. A bookkeeper does their best work when they can focus; when that role gets combined with one that has frequent interruptions, that can lead to errors, burnout, or worse.
Jill or Jack of All Trades = Master of None. When you put multiple roles on a single person, you too often get mediocrity in one or more of those roles. People in these kinds of mixed roles find it incredibly difficult to stay up to date on best practices and trends in multiple fields, leaving them and the organization open to inefficiency, risk, or worse. Quality will also suffer when that person becomes busy and they spend less time on the roles they enjoy the least.
Bonus #1: Separation of duties
Small nonprofits frequently struggle with having enough personnel to have robust internal controls. They simply lack enough bodies. Internal controls, the mechanisms you have in place to detect and prevent fraud, function best with checks and balances that can only occur with multiple people.
It’s very tempting in a small nonprofit to delegate too many financial responsibilities to an in-house bookkeeper, effectively eroding internal controls. The temptation becomes stronger when the person has the skill and available time to do those other tasks.
An outsourced bookkeeper can make it much easier to have robust controls to protect you and your nonprofit.
Bonus #2: Accountability
When your bookkeeping gets done in house by a Jill or Jack of all Trades, holding that person accountable for excellent work becomes difficult because the nature of their multiple roles can make it hard for them to have the focus and time to do the job well. After all, how can you hold someone accountable when they’re not set up for success?
An outsourced bookkeeper, on the other hand, has just one responsibility: doing the books well. You can, and should, hold them to a high standard. If they fail to meet that high standard, even after adequate feedback, you can let them go with much less pain than if they were on staff.
Bonus #3: Continuity
Small and mid-sized nonprofits frequently struggle to let their bookkeeper take vacation (much less sick leave). All too often, they’re the only person on staff who knows how to make payments, prepare grant reports, and other time-sensitive responsibilities like payroll. Bad things happen when staff get their pay two days late, right?
The right outsourced bookkeeping firm will have a deep and broad bench of talent. If the person who typically works on your books is unavailable because they just had a baby, have a loved one in the hospital, or for any other reason, the firm should have other people who can jump in at a moment’s notice to make sure your staff get their paychecks on time and that your electricity doesn’t get cut off.
What if we just hire a CFO + Bookkeeper rockstar combo instead?
You’d probably have a hard time finding a good restaurant where the same person serves as waiter, chef, dishwasher, and everything else, right? The most effective restaurant staff have a narrower focus so that they can do what they do with excellence. The same holds true for accounting and financial professionals.
In the case of your nonprofit, while you can sometimes find people who have both bookkeeping and CFO skills you probably don’t want to hire them to do both roles. When you do that, you run multiple risks:
That you’re overpaying them for doing the bookkeeping (a role that typically gets compensated far below what you’d pay a CFO).
That you’re underpaying them for their CFO skills, so they will soon leave for a better-paying job elsewhere.
That they will quickly get bored of the routine bookkeeper tasks, so they will soon leave for a job elsewhere.
That the person can truly do both roles well. All too often, in these situations, I’ve seen that the person focuses on the role they enjoy more while neglecting the other.
That the person can effectively change gears between two different skill sets and mentalities. Bookkeeping focuses on data and accuracy while a CFO needs to be able to think creatively and strategically while interacting with many people. The bookkeeper tends to look to the past (what happened last month?) while the CFO needs to look to the future (what will happen next month?)
How can you find the right outsourced bookkeeping?
Identifying the right outsourced bookkeeper can be a challenge if you don’t have much of a background in accounting or finance.
Take these factors into account if you want to prioritize savings, efficiency, and accuracy.
Size matters. You take a big risk by working with a single shingle bookkeeper or even a small group. If they’re out of the office due to vacation or illness, that could leave your nonprofit in limbo. If they take a permanent vacation or get abducted by aliens, your work could end up in limbo forever (and it will be very expensive to recover from that).
Technology matters. Do they use QuickBooks Online? Exclusively? Do they have a favorite app for paying bills and sending invoices? Do they know which banks and credit cards sync easily with QBO? Do they run a paperless office? The answer to all these questions should be yes in most cases. Much of the accounting work that was manual just 5 or 10 years ago has become automated. You want someone who has stayed up with the latest technology because that will reduce errors, close your books faster each month, and save you money.
Technology trends matter. Groups with multiple bookkeepers are more likely to have stayed up with technology trends; they’ll sometimes even have individual staffers who specialize in particular modern tech tools, which comes in handy when the technology inevitably has a hiccup.)
In-house expertise matters. Is everyone on staff a bookkeeper or do they have an accountant or other expert on hand? While your bookkeeping probably doesn’t require expert attention on a daily or even weekly basis, it can help prevent costly mistakes when it comes into play.
Nonprofit focus matters. Run, don’t walk, away from someone who claims to be an expert in multiple industries. Someone without sufficient nonprofit experience can make big errors that you may not detect for years (once the fix becomes expensive to correct). Just one example: your chart of accounts (the way your books are set up for recording information). Someone who doesn’t understand nonprofits will likely set things up in a way that can set you up for trouble down the road, especially when it comes to using your financial reports for strategic financial decisions or even answering basic questions (like “is this program making money or losing it?”).
Good references matter. The best references will come from organizations of a similar size and similar issue area to you. That’s because a medical nonprofit will have very different needs (like being able to bill Medicaid) compared to a church (which needs to carefully manage the idiosyncrasies related to clergy compensation). Good references should be able to speak to that level of specificity.
Other services matter. Even if you don’t need other related services today, if you’re likely to need them as you grow then ask about them now. That could include such things as payroll, billing, completing your 990, and taking care of sales tax filings.
Insurance matters. A reputable, established bookkeeping firm will carry liability insurance because they know that no matter how careful and professional they are, accidents happen. Don’t hesitate to ask them to have their insurance company send you a certificate of liability insurance. If they have insurance, it’s quick and easy for them to get the certificate for you.
Pro tip: I’ve gotten to interact with a few outsourced bookkeeping groups over the years. They come in a variety of shapes and sizes, meaning each will match best with different nonprofits. Reach out to me via the contact us form and I’d be happy to make an introduction.
Additional Resources
Bookkeeping for a Tiny Nonprofit - Especially if the annual budget is under $100k