Contract Accounting Becoming Hot Option

/ December 8th, 2010 / No Comments »

Everyone knows the accounting industry for the stigma of being outdated and having a reluctance to change. This is why accountants take the brunt of jokes like “Why did the accountant cross the road?  Because that’s what he did last year.” This out-dated and traditional industry is starting to change and catch on. One of the big changes is the advent of the contract controller or contract CFO in place of the traditional in-house accountant.

Many clients ask, why change or move to a new model? Where is the increase in value?  Think of the following analogy, which involves the IT industry and their interaction with clients.  In today’s world, almost every company has some form of technology in their office that requires a qualified professional to implement, maintain, service or repair.  These companies don’t employee a full-time IT employee nor do they have the new hire that is somewhat good with computers install the latest updates to the server.  But rather, they contract that out to qualified professionals.  If companies buy into this model for their IT needs, why not their accounting needs?

If you answer yes to any of the following questions, your company may benefit from a contract CFO or contract Controller, something I have been doing for years.

  • Do you feel that your financials take too long to be prepared and when they are completed they are already irrelevant? (Not finished within 10 days after month end)
  • Would you have to make ANY modifications or consult with a professional prior to sending financials to a bank?
  • Are your tax preparation fees higher than you anticipated because your preparer had to make adjustments?

Not only will your company benefit by retaining someone with the higher skill set possessed by a contract controller, you can also lower your overall accounting cost.  By contracting, you are paying for direct results and you are only paying for what you need. No unused time, no payroll tax, no additional overhead.

The main alternatives to contracting are; hiring an employee, which I refer to as paying for someone’s time, or having your CPA firm perform these functions outside the office. The former can often be inefficient and comes with the traditional burdens associated with managing additional employees. The latter is not how a CPA firm is necessarily intended to operate. Independence issues and much higher fees will usually accompany this option over an employee or consultant. This option also often times leaves them stuck cleaning up the work during their busy season, when their time is already stretched

Here are some of the most common reasons a company would contract with a contract accounting consultant:

  • Their budget precludes them from employing someone with the necessary skill set
  • There is a pressing or urgent need
  • There is a short-term project i.e. obtaining a loan, major purchase, buy-sell agreement, year-end planning, new accounting system
  • Recent loss of full-time controller
  • Develop internal controls and accounting processes
  • Company is unsure of the long-term and only wants short-term commitments.
  • Desire to improve efficiency while possibly lower costs

When choosing a contract controller or CFO, it is important to chose a consultant who has past experience in both public accounting(preferably both tax and audit) and experience as a high-level accounting manager for a company.  By having this combination of knowledge, it enables them to see both sides of the coin when it comes to the internal reporting needs of a company and the external reporting requirements for banks, tax preparers, and public financial statements.

I have seen the positive impacts, improved efficiency and cost savings for the companies I have been involved with.  Although it is a fairly recent trend, I am seeing an increase every year and an opportunity many companies are beginning to explore.  Feel free to contact me with any questions you may have regarding this topic.

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