Professional Service Organizations (PSO) often deal in Human Capital (i.e. they sell time), which creates pressure to manage quickly but not always effectively. Even as they advise business owners, leaders in a PSO neglect many of the same operational and financial issues in their own organizations. Before client service and profits begin to decline, PSO leaders must identify their operational inefficiencies and decide if they have the resources internally or externally to address them. A well-managed PSO anticipates change with the right key performance indicators — helping leaders look ahead instead of always over their shoulders.
Outsourcing has gotten a bad reputation ever since it became interchangeable with the concept of sending services to cheaper third-world countries — everything from IT help desks to customer service centers, simple tax returns and even some forms of legal assistance.
When we talk about outsourcing, we still use the term in a traditional sense, which is the delegation of non-core functions that will positively support firm revenue and professional or owner productivity. Commonly in small to mid-sized PSOs, such functions can include accounting and payroll, HR, IT and marketing.
At a certain scale, organizations will choose to manage such functions in-house. As a rule, however, growing companies can ramp up faster through an effective arrangement with outside consultants and vendors. The best outsourced partnerships act just like an in-house department with the same level of dedication and collaboration, but without the same overhead costs. In addition, the experts in these functions can educate leaders on KPIs, efficiencies, product and process selection and ultimately the selection of in-house staff when the time is right.
Some outsourcing functions, such as accounting and payroll, also provide a level of risk management by delegating sensitive financial and benefit information to highly trained professionals who consistently perform these functions for a variety of clients. Of course, you will want to obtain referrals and pursue due diligence to secure the right vendor relationship — one that understands your industry, workforce regulations or financials.
Often smaller companies will hire an office manager to handle their accounting, billing, taxes and payroll functions. However, growth in clients and employees quickly places a large burden on the original office manager to keep up with A/R and collections, payroll changes and financial reporting.
Rather than continue to hire support staff, PSOs should hire for the position most needed and augment back-office needs with services from their CPA. This move keeps the ratio of billable staff high, which leads to positive revenue per billable consultant and higher utilization.
Not all CPAs are equal in the level of accounting, payroll or tax services they can offer. Some provide the minimum in bookkeeping while others can support strategic planning, CFO-level consulting and related automation to increase the efficiency of KPI reporting and analysis.
A big question for owners is how well the outsourced relationship will align with existing processes, staff and the overall business model. In fact, will the outsourced relationship make the organization more efficient or just more expensive?
Here are the benefits you should look for:
- Owners and senior staff can focus on core, billable services
- Processes are added that increase efficiency and ease of reviewing ROI
- Communication is seamless and timely
- The link between business goals, operations and profits improves
- Leaders are updated on changes or opportunities to optimize the service
At Cornwell Jackson, our tax and business services teams have worked with clients for many years to optimize back-office functions, but also assist with business strategy and planning. We have supported PSOs in determining the best KPIs, the optimal level of staffing and timely introduction of accounting tools and processes that enhance their growth. For more information on how your PSO can face today’s growth challenges head-on with a qualified outsourced relationship, contact us.
Mike Rizkal, CPA is a partner in Cornwell Jackson’s Audit and Attest Service Group. In addition to providing advisory services to privately held, middle-market businesses, Mike oversees the firm’s ERISA practice, which includes annual audits of approximately 75 employee benefit plans. Contact him at email@example.com.