In considering a solution for fund accounting and back-office processes for your fund, It’s important to consider what is the most effective use of your time and attention.
When evaluating whether to outsource fund accounting and administration or to keep back-office processes in-house, you should keep in mind that an in-house team is one that you will have to manage. Hiring, training, equipping and managing an in-house team comes with all the challenges and distractions of employee relations with the added risks of wage inflation and key person risk. To outsource fund accounting is to keep things simple, stable and compliant from a management perspective. But what about the costs?
Payroll vs. Partner
From a cost perspective, outsourcing may seem like the more expensive option. That is a myth. In reality, outsourcing is far more cost-effective than managing accounting in-house.
Hiring staff to handle your fund accounting needs internally means employing at least one dedicated professional who can support accounting and financial management. Depending on the size of your firm, you may need to hire multiple individuals. Over time, with success and growth, fund accounting will certainly require an extensive staff.
Searching, interviewing, hiring, equipping, training and managing a fund accounting staff is a laborious and time-consuming process that can easily cost tens of thousands of dollars per employee. At the end of a successful hiring process you have inevitable concerns of payroll, benefits, vacations, sick time and key person risk.
Engaging a professional outsourced fund accounting partner accesses an existing team of experienced and well-equipped professionals with operational back up and industry expertise you can draw on. Costs are contained by billing based on the time and effort required to accomplish the necessary tasks rather than the fixed costs of in-house employees.
Effectiveness
You may be fortunate in hiring the perfect fund accounting employee each and every time but this is not the norm. Your approach to doing business is bound to conflict with the experience of some new hires. Personalities and expectations can collide. There are no guarantees in hiring and retaining your own fund accounting team.
Professional outsourced fund accounting can be evaluated in advance through referrals, reviews and the recommendations of clients. Once you have partnered with a fund accounting firm that is familiar with your workflow and the way that you do business, ramping up the support level as your fund grows happens seamlessly.
Scalability
In-house fund accounting becomes increasingly complicated with scale. Well before each team member reaches the limit of what can be accomplished day-to-day, a new employee must be found, interviewed, equipped and trained – before there is yet enough for that person to do to justify the hire. The fund accounting team is in a perpetual state of understaffing and overstaffing – the more so because of vacation, sick, parental leave and holiday time that occurs erratically among the staff.
Outsourced fund accounting gives you access to the permanently deep bench you need to grow. While you concentrate on investments, your fund accounting team will grow and evolve with you, scale their services as needed and ensure your fund accounting needs are always met.
Implementation
The hiring process for a competent in-house fund accounting team cannot be rushed. Hiring and onboarding a new hire can take months. Achieving a smooth and effective workflow will take even longer. Hiring replacements, as needed, is even more disruptive.
Outsourced fund accounting services can be in place and operating smoothly in a couple of weeks. If your onboarding process is involved, available resources can be dedicated temporarily to get your fund accounting structure up and running quickly.
The added benefit of an outsourced fund accounting team is ready access to the additional services you may need either now or in the future. Tax document production, a web portal for LPs, accreditation services, printing and mailing, valuations, audits and compliance are all services your fund accounting partner can either perform or refer to proven providers. A professional fund accounting firm can be a multi-faceted back-office service provider and your window into the wide array of other professionals you may need.
