The traditional approach to accounting is facing a people problem. That’s true in the most tangible sense: there literally aren’t enough local accounting people to fill basic roles at reasonable prices.

And mid-market businesses (those with revenues around $10 million or more) – are the ones that are most affected.

Here’s what’s happening, why it’s happening, and how outsourcing can help to solve it.

What Happens to Internal Accounting Teams in 2019

This is how the issue typically develops: a CFO or senior-level employee is tasked with building up an internal accounting team in order to either keep up with projected business growth or to shift away from an existing subpar solution.

It sounds good in theory. It’s often pitched as a career boost for the employee who’ll be managing the team, and, in honesty, there’s a certain appeal to having people in-house – the company just seems bigger.

In reality, though, here’s what often happens: when the time comes to recruit an internal team, the price of the labor market makes acquiring talent difficult. Applicants who would be hired to fill basic accounting functions like accounts payable are asking for upwards of $60-70K. And even if they’re hired at that rate, they don’t stick around for long. They seek career growth and move on quickly.

The end result is a team that’s wracked by constant turnover, priced unreasonably, or worse – both.

And it’s a problem that hits mid-market businesses hardest. Major corporations have adjusted to outsourced services (often provided by a Big 5 accounting provider), and small businesses can often get by with a part-time or single employee (and so don’t need a team).

Why Internal Accounting Teams Struggle

There are two primary reasons internal accounting teams struggle with mid-market businesses:

Skewed Labor Market – Local accounting talent tends to be priced at unreasonably high levels. This is partly due to a labor shortage; there are fewer people seeking basic accounting positions because the global market has cut so far into the industry. Local accountants must compete with far cheaper resources abroad, and, as a result, basic accounting is less appealing.

The irony is that the shortage of local talent has driven up prices for the companies that want to build internal departments. So, basic accounting jobs are both more lucrative than they were 20 years ago, and more precarious, as they’re in constant danger of replacement by a global workforce.

The end result is a skewed labor market that makes internal teams infeasible.

Incorrectly Aligned Incentives – Internal accounting positions don’t offer the correct incentives toward high performance. This isn’t really a new development, but it’s an issue that’s been highlighted increasingly as global competition has increased.

That’s because general accounting is generally viewed as a utility. It’s an assumed business function. Accordingly, when internal accounting teams perform well, nobody notices. Business simply continues as usual. In fact, only when internal accounting teams perform poorly is there any feedback at all. This means there’s really no incentive to perform at a higher level, only an incentive to do the minimum required to avoid mistakes. Additionally, there are limited paths to career growth.

The result is that accountants tend to seek high-level or management positions quickly, as opposed to settling for internal entry-level roles. That increases internal turnover rates.

How Outsourced Accounting Helps

Outsourced accounting services don’t face the same issues. In fact, they solve them. Here’s how.

First, outsourced accounting services provide lower-cost service than internal departments using principles from the sharing economy. In the same way that renting an Airbnb with six people allows access to higher quality space at a lower cost, working with outsourced accounting providers allows access to higher-quality skills at a lower cost because resources are shared.

That’s not to say that outsourced teams can’t provide dedicated services to specific accounts – at GSS, we can and do. But it is to say that economies of scale simply allow for greater efficiency.

Second, outsourced accounting providers are able to align incentives for the people who provide accounting services. At GSS, for example, we focus on and reward good accounting work in a way that internal departments can’t. Our employees have career growth options through high performance. That’s not just a way to ensure better performance, though; we also believe it’s the right way to treat people.

Ready to Move Toward an Outsourced Solution?

The market is making internal accounting departments increasingly difficult to maintain in mid-market business environments. The answer in 2019 and beyond isn’t to stubbornly stay internal. Instead, the answer is to move toward outsourced services.

At Global Shared Services, we focus on providing restaurant accounting and franchise accounting services that are priced below the market and perform above it. If you’re in one of those industries and are ready to build a more efficient company this year, let’s talk.