Breaking Down the Costs of Outsourced Nonprofit Accounting

by | Feb 28, 2020

There are many reasons nonprofit organizations are moving to outsourced accounting services (OAS). The one most cited by top managers of fast-growth organizations is being able to focus on the mission, programs, and fundraising while having the assurance that finances are being competently managed.

Further points to consider when noting why nonprofits are moving toward outsourced accounting services include employee turnover, audit issues, and inadequate accounting technology.

outsourced nonprofit accounting vs. in-house staffBut, what about the cost of purchasing outsourced nonprofit accounting services in relation to maintaining an in-house staff? Are the benefits worth the cost? There’s a perception that outsourcing accounting services are more expensive than maintaining an in-house staff. Is this true?

Though NFP Partners is a provider of outsourced nonprofit accounting services, our goal here is to help you and your nonprofit organization decide the best-fitting accounting option. Let’s examine the costs of outsourced nonprofit accounting services by looking more closely at the cost components. Namely, we’ll discuss personnel costs, service pricing, and additional cost savings. 

Personnel Costs

Based on PayScale’s nonprofit accounting annual salaries for accounting and finance personnel, the median by position are:

Financial Controller          $90,000 

Accounting Manager        $75,000

Senior Accountant            $69,000

Staff Accountant               $53,000

For illustrative purposes, let’s assume a composite of these skill levels is required in two full-time equivalent positions for a small- to mid-size nonprofit. The average salary is $71,750 and with two people, that total is $143,500. You must also add 25% for employer-paid taxes and benefits making the annual cash outlay $179,375. Let’s set this as the ceiling for which a nonprofit will not exceed when purchasing outsourced accounting services.

Outsourced Accounting Service Pricing

So, how does an outsourced accounting services provider price its equivalent services and return a profit? Likely, its personnel costs are at least 15% higher for full-time equivalents. Therefore, in order to make a profit, its personnel must work smarter and faster, eliminating much of the time spent by internal personnel that doesn’t deliver a direct benefit.

Modestly, this could range from 40- to 50-percent, including vacation and sick leave, training, attending meetings, and non-productive (water cooler) time. Assuming an accounting services provider can do the work in significantly less time than in-house staff, the price charged on an annual basis would range as follows. For more context, we’ve also included the cost-saving figures from 2018, which is when this article was originally written:

OSA Efficiency (% time required) Annual Price of OSA Service Cost Saving
40% $115,000

$56,000 in 2018

$64,375 in 2020

45% $142,000

$29,000 in 2018

$37,375 in 2020

50% $156,000

$15,000 in 2018

$23,375 in 2020 

Additional Cost Savings

The above presentation is incomplete without mentioning other potential cost savings from outsourcing some or all of the nonprofit’s accounting functions. Here are a few:

  • Reduced office overhead expenses
  • Staff recruitment and personnel training costs
  • Audit fees
  • Additional costs attributable to personnel turnover and discontinuity
  • Losses due to employee theft or fraud
  • Maintaining accounting technology – software and IT support

Our conclusion is this – outsourced nonprofit accounting services can deliver significant benefits with stronger financial management at a cost less than maintaining an internal staff for most organizations from startup to maturity. For more information, read How Your Nonprofit Can Benefit from Outsourced Accounting Services. 

For more information on how NFP Partners can help your nonprofit through our outsourced nonprofit accounting services, click here. To learn more about outsourced nonprofit accounting, visit our Ultimate Guide to Outsourced Nonprofit Accounting.