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How Much Should Companies Spend On Their Accounting Department?

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Occasionally, we get asked to help companies understand where and why they should allocate budget to improve accounting functions. Typically this stems from a concern that a company is overpaying for its accounting and bookkeeping and highlights a desire to improve efficiencies and decrease costs. While the two are not always intrinsically linked, there are often opportunities to improve across the board—from reducing costs to improving results.

There is no magic formula for determining how much a company should spend on its accounting, bookkeeping and controller functions. Some costs are a product of environment—often staff in metro areas will simply command higher salary rates than in rural areas. Other costs can be a product of history—and can be rectified easier with a combination of modern technology and revised internal and external structures.

A Formula For Accounting Expenses

We can’t tell you that your company should spend “X%” of your revenue on your accounting expenditures. It simply wouldn’t be responsible to not take into account the complexities of your unique business and financial reporting needs. For example, if you require highly technical controller oversight and advanced reporting—perhaps you have considerable job cost reporting needs or inventory management issues—you will need a greater degree of expertise among your staff. This will directly increase your costs because you will have to pay for that level of experience and training. For very basic monthly reconciliations, your personnel costs will be much lower. However, there are other areas you also need to review for cost considerations.

Accounting Technology Costs

Many of our prospective clients come to us asking about accounting technology integrations and automation options. They are rarely using the best available options for their needs—and cost and efficiency considerations are rarely recognized during their internal review processes. On one hand, their internal staff isn’t trained to look for improved technology efficiencies on a regular basis—it simply isn’t a priority or requirement of their positions. Additionally, the fear of replacing human support is always lurking to dissuade staff from investigating automated improvements. So many businesses forget to look at accounting technology options—or simply don’t know where or how to begin.

With respect to how much of your costs should be allocated to technology or personnel, this will be a combination of your automation needs, current technology implementations and expertise requirements. The best way to start reviewing whether your costs and return on investment are appropriate for your business are to examine the output from your staff and systems. Are you getting what you need, when you need it? Does it translate into actionable data—are you missing anything you need or lacking something you require? If you are getting everything you need and everything is working for you—you only need to really review whether there are any cost improvements you can introduce. However, if you are missing something you need, then you need to start from the perspective of improving results first and then review cost allocations.

If you need help reviewing your current systems or determining what level of success your processes are having, our experts can help you get a clear picture.

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