Matter & Substance
  July 12, 2023

The Rippling Effects of Accounting Turnover

Authored Content by Matt Schoenholtz, Client Advisory Services Partner

As the group responsible for the financial health of the company, an accounting department—whether it’s a single bookkeeper or a CFO—is vital to every organization. The accounting team is responsible for many things, from managing the organization’s financial resources to creating budgets for the organization.

When a member of the accounting team leaves, effects can be felt throughout the company. Some may be immediate, while others take a longer time to emerge. But by being proactive and strategic, companies can minimize the negative effects of accounting turnover and ensure a smooth transition that keeps their organization running efficiently.

Disruption to financial operations

The accounting team plays a critical role in managing financial operations, including budgeting, planning, and financial reporting. By maintaining accurate and up-to-date financial records, the department helps management make informed decisions in line with the company’s goals.

When a member of that team leaves, there can be a temporary disruption to accounting operations, which can cause delays or errors in financial reporting, impact decision-making, and even lead to regulatory issues. For small- to medium-sized businesses, this effect is felt even deeper as other, potentially less experienced team members may have to temporarily step into the role. Although cross-training can help prevent disruptions, a full-time employee will not be able to take on the full-time responsibilities of a departing employee.

Turnover in your accounting team can also be costly, both in terms of direct expenses such as severance pay and recruitment fees, as well as indirect costs such as lost productivity and disrupted operations.

Loss of institutional knowledge

In small- to medium-sized businesses, the accounting team tends to possess a lot of institutional knowledge. They are typically highly experienced and knowledgeable individuals with a deep understanding of the financial and operational workings of the company. When they leave, they take with them a wealth of institutional knowledge which can be difficult to replace. This loss can lead to a period of instability and uncertainty as current team members try to fill the gaps while looking for a replacement.

If the departing accounting team member directly guided the financial strategy of the organization, problems can arise even when a replacement for the role is found. With new leaders come new perspectives, and there can be a large shift in where the company is going and their efforts to get there.

Talent loss and culture challenges

Depending on the individual and the nature of their departure, one accounting team member’s departure may trigger further talent loss as others follow suit, either because they were loyal to the previous team member or because they see the departure as a sign of instability within the company.

When an employee leaves, it can create a sense of uncertainty and anxiety among other employees who may worry about their own job security or the direction of the company. It is important for leadership to address these concerns and maintain a positive culture during times of transition.

How can you ease the transition?

Companies should be prepared for the potential effects of accounting personnel turnover and have a plan in place for managing the transition. Primarily, there are two preventative solutions that should be deployed to minimize the operational risk associated with losing a long-time employee. They are:

Cross-training: By cross-training your internal team, you can create redundancies within the accounting function that minimize the risks associated with staff turnover. In addition, cross-training also creates opportunities for other team members with different perspectives to assess the efficiency of existing procedures. The downside? Cross-training is an interim solution, not the end-all-be-all, and an employee can only step into another person’s role for so long before their roles and responsibilities start to conflict, potentially leading to burnout and further turnover. As a result, cross-training should be coupled with partnering with a third party.

Partnering with a third party: Whether they’re used independently or in conjunction with an internal team, an outsourced CFO, controller, or entire accounting team is a great hedge against turnover. With an impartial perspective not always available in small and family-run businesses, an external accounting team can offer unbiased, expert financial advice. Another key differentiator is the alignment of goals. As employees are incentivized to change companies and expand experiences, employment relationships tend to be transitory. A third-party’s primary goal is to help you grow and work with you throughout the life of your business. As a result, there is a complete alignment of goals.

The final advantage, and likely the most important, is the mitigation of operational risk associated with having a third party that knows your procedures and won’t allow your business to skip a beat. Having an individual or team that, at a moment’s notice, can come into your business and close the books, provide valuable insights, and ensure the accounting function continues to operate efficiently is a great insurance policy.

When it comes to your business’s accounting operations, you should always be looking for the path with the least amount of risk. By putting preventative measures in place through methods like cross-training and third-party accounting teams, you can avoid the rippling effects of accounting turnover and keep your organization thriving, even in periods of transition.