I have recently read several articles about the current shortage of accountants and how these shortages are impacting public accounting firms and large companies. Two recent articles that I particularly enjoyed reading were The Accountant Shortage Is Showing Up In Financial Statements written by Mark Maurer from the Wall Street Journal’s CFO Journal and Hiring New Accountants: The Challenge For The CPA Community And The IRS written by Dean Zerbe from the Forbes.com Money Taxes Contributor Section.
These articles did not mention that the accountant shortage is impacting early-stage companies as well. I believe that early-stage companies are being more negatively impacted by the accountant shortage than large companies. As a serial small company CFO, I have seen this shortage impact both a company’s day-to-day operations and its annual audit.
Early-stage companies often have small accounting staffs. In the companies where I have served as CFO, the total U.S. based accounting staffs were four or less employees, including the controller. (The one exception was Constant Contact, which had annualized revenue of well over $100M when I left the company.) An open accounting position requires the remaining accounting staff to absorb a significant amount of additional work. This in turn, pulls the controller into assisting with the transaction processing, which pulls the CFO into helping the controller, which limits the CFO’s effectiveness as a business partner.
As a Senior Lecturer of Finance at Bentley University, I am seeing the best and brightest accounting students take jobs at public accounting firms, often with the Big 4. I have seen far fewer students joining companies as entry-level staff accountants.
Early-stage companies are competing for staff accountants with large companies. Because large companies often pay higher salaries and offer better benefits, early-stage companies often offer stock options as an incentive to attract talent. However, few early career employees place significant value on stock options.
In addition to a shortage of early career accountants, I see evidence of a shortage of latter career accountants. The search for a controller at one of my consulting clients took months to complete. In addition, as a member of the High-Tech Financial Executives Network, I see a steady stream of emails from CFOs who are looking to hire controllers.
Like any supply and demand imbalance, the shortage of accountants has led to increased salaries for accountants. Small companies often do not have the ability to increase prices and must absorb these higher G&A costs.
To hire and retain auditors, audit firms are increasing auditor salaries and passing these cost increases to their audit clients. Small companies have little bargaining power with respect to audit fees and usually accept the higher fees. In addition, certain audit firms have begun charging clients for other audit-related fees, such as technology fees.
To address the impacts of the accountant shortage, early-stage companies should consider the following options.
1. Outsource transaction processing. A company will receive two primary benefits by outsourcing its transaction processing. First, the outsourcing vendor will take on staffing responsibilities. In addition, the outsourcing firm will be able to provide other accounting services, such as the issuance of 1099s. Outsourcing can lead to cost savings at times. One of my consulting clients is currently employing this outsourcing option. The amount of accounting work at this company is not large enough to justify a full-time employee and hiring multiple part-time employees is not cost effective.
2. Offshore the transaction processing. A company can offshore the transaction processing by engaging an overseas firm to do the accounting work or by hiring overseas employees. Offshoring will lead to cost savings. If a company engages an overseas firm, the company will receive similar benefits to those companies which outsource transaction processing. Whereas, hiring overseas employees requires a company to set up the infrastructure to hire and pay these employees. This option is more effective for larger companies. One of my consulting clients has engaged an overseas entity to process its transactions. This option has been very cost effective for the company.
3. Engage a regional audit firm. The larger the audit firm, the higher the billing rates are likely to be. Regional audit firms serve the audit needs of most early-stage companies well. Companies that are on the IPO path will benefit from engaging a large national audit firm. However, few early-stage companies end up on the IPO path.
4. Schedule the audit outside of an audit firm’s busy period. Audit firms often offer lower rates outside of their January to April busy periods. By scheduling an audit starting in May or June, a company will receive a lower audit fee. I have successfully used this option to manage audit costs. However, I was unable to employ this option at one prior company because a bank loan covenant required an early audit completion date. Prior to moving the audit date, a company should speak with its lender and investors to ensure that the audit can moved to an earlier date.
Hopefully, the accounting profession will become more attractive to college graduates and the shortage of accountants will slowly abate.
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