Pros and Cons of Fractional Accounting

To scale successfully, a business must constantly seek out novel ways to lower costs, increase efficiency, and utilize its existing resources optimally. 

The modern solution to these challenges for small- and mid-sized companies often involves outsourcing specific business tasks. By delegating such activities, business leaders can access specialists at an earlier stage and lower costs—all without having to hire a full-time employee. 

And few outsourced tasks provide as much immediate value to a budding organization as fractional accounting

But how does a fractional accounting model work? What are the pros and cons?

Here is what you need to know. 

Reaching an Accounting Crossroads

In the early stages of business development, the business owner often handles activities by default. Typically, activities are limited to rudimentary bookkeeping and tax filing processes, which are completed with the assistance of accounting software. 

But the larger a business scales, the more complex and time-consuming financial accounting becomes. Eventually, the task proves to be too great a challenge for anyone but an expert, especially as pressure mounts regarding financial transparency and governmental compliance. 

Once a business owner has arrived at this critical junction, they are left with one of two options: hiring an in-house accountant or enlisting the fractional services of an outside expert.

 

How Does Fractional Accounting Work?

With a fractional accounting model, a company only pays for the accounting services it actually needs. How this relationship functions depends on each business. You may only have enough work to justify hiring a singular fractional accountant, or you may require the support of an entire team of high-level accounting experts. 

A fractional accountant lends their services on a contractual, as-needed basis. They temporarily provide their expertise to ensure that your financial data is organized and maintained accurately. And they use best practices and modern technologies to accomplish this. 

What services can a fractional accountant provide? 

Although services may vary from one outsourced accounting firm to another, ideally, a fractional accountant should be capable of providing the following accounting support: 

  • Accounts payable and accounts receivable – Organizes and maintains accounts payable and accounts receivable so that cash flow remains properly managed, with an eye toward liquidity maximization.
  • Month-end close – Ensures that your month-end financial statements are accurate and completed on time. The review, reconciliation, and reporting of financial statements enables businesses to maintain a healthy cash flow, make strategic business decisions, and measure progress towards stated goals.
  • Transaction coding – Works with your team to systematize coding, implementing best practices to increase record-keeping efficiency and accuracy.
  • General ledger reconciliation – Reviews your general ledger to verify that accounts are reconciled and then provides a comprehensive month-end reporting package. 

With a fractional accounting model, the outsourcing professional works with the business to understand its accounting needs, budget, and pain points. Once that is understood, they then provide the hours of labor necessary to satisfy those factors. If the situation changes, the fractional services will flex to accommodate, either scaling or reducing capacity as needed. 

Pros and Cons of Fractional Accounting 

Every business decision has its tradeoffs. Fractional accounting may be a perfect fit for one organization but incompatible with another company’s needs. 

To help you judge for yourself, here is a quick list comprising the pros and cons of fractional accounting.

Pros of Fractional Accounting

The pros of fractional accounting range from increased internal bandwidth and expertise on-call to reduced operational costs:

  • Access to finance and accounting experts – By teaming up with an outsourcer, you receive immediate access to qualified financial professionals who are singularly focused on accounting services and hand-picked to meet your business’ specific needs. 
  • Improved compliance – Are there industry-specific accounting regulations you must comply with? A fractional accountant will be up-to-date with the most recent laws and regulations, best practices, and technologies—all of which ensure that your accounting and reporting tasks are conducted properly.
  • Optimizing internal resources – When internal processes are outsourced, the employees who were previously tasked with those jobs can instead direct their time and energy toward the business’ various other demands. Outsourcing this task leaves the accounting to the experts and frees internal resources to focus on core competencies. 
  • Saved money on hiring – Hiring an in-house accountant is an expensive process. Just the starting salary for an in-house accountant is approximately $70,000—not including insurance, raises, or benefits. But you also have to factor in the costs of hiring, onboarding, and training. Then, there is also the risk that they may not be a good fit, which would force you to start the entire process over again.
  • Business intelligence – In the right hands, your financial statements can tell a story of the business’ health. A fractional accountant can translate the data into actionable insights, using the financial information to measure the business’ progress toward stated goals.
  • Improved record keeping – An expert accountant has the skills, tools, and resources to ensure that bookkeeping is done as quickly, accurately, and efficiently as possible, providing business leaders with the data and confidence they need to act decisively.    

Cons of Fractional Accounting 

The cons of fractional accounting are not unique; they cover the same considerations that must be accounted for whenever any responsibilities or services are outsourced:

  • Less control – A fractional accountant provides a valued service, but they are not an employee. Outsourcing these tasks means business leaders have to relinquish control of the books and their management processes. That requires putting a great deal of trust in your fractional accountant’s skills, professionalism, and character.
  • Less proximity – With an in-house accountant, you have the luxury of being able to ask a question or make a request and get an immediate answer. Although a fractional accounting team is available, their response may not be instantaneous. As a result, you must partner with a firm that has robust communication policies so that you can manage expectations accordingly.
  • Scope creep – As the business scales, its accounting needs may increase and become more complex. This can lead to unpredictable increases in the cost of service, particularly if the fractional accountant does not have transparent billing policies.

CFO Hub—Premium Fractional Accounting Services

Financial accounting is integral to companies’ health and growth. 

When financial data is organized and maintained accurately, business leaders can make the best strategic decisions that help achieve their stated goals. And by outsourcing a fractional accountant, you can derive many of the same benefits as hiring in-house at a fraction of the cost.

Are you looking for accounting, month-end close, back-office support, and greater financial insight? 

We can help with that.

At CFO Hub, our team provides fractional financial and accounting services that align with your business needs. Whether you need the assistance of a single accountant or wish to outsource your entire accounting department, we can save you time and money on data entry and reconciliation.

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