Any business owner, new or established, understands the need for accurate and up-to-date financial records. Between maintaining compliance with changing tax and accounting laws, being prepared for an audit, or simply issuing precise and thorough financial statements for investors to review, the need for quality bookkeeping and accounting services is high. But, as a new business owner, or an owner running a small or medium-sized business, you don’t always have the time, expertise, or funds to work on your own books or hire a full-time staff to do it for you.
What if we told you, though, that you didn’t have to do all the work yourself? What if we told you that you could pass the work to someone else without paying for a full-time accountant or staff?
Enter outsourced accounting.
What is outsourced accounting?
Outsourcing involves sending work to an outside party, rather than completing it internally. It is common practice in the United States, especially among small businesses.
Clutch conducted a survey of 529 small business owners and managers in 2019 to understand who is outsourcing and what they outsource. The survey revealed that 37% of small businesses currently outsource a business process and more than half plan to do so at some point in 2019. Of those activities outsourced, accounting and IT services ranked the highest.
Outsourcing different business processes is common practice among small or medium-sized businesses, as well as not-for-profit organizations.
Typically, an outsourced accounting practice is able to provide support through monthly accounting close and oversight, accounting for specific transactions or financial statement line items, or even assist with budgeting and cash flow analysis and oversight. Monthly services (or some other variation of frequency) often include:
- reviewing expenses and cash receipts to ensure accuracy
- recording payroll and related expenses;
- recording other journal entries as necessary at the end of the month;
- analyzing and reconciling account balances on the Statement of Financial Position;
- closing monthly operations and preparing financial statements;
- meeting with management to review statements and details of account analysis and reconciliations;
- meeting with finance committees to review the financial statements.
It doesn’t stop there. Some outsourced accounting teams have the ability to step in as controllers, provide CFO Advisory services, help your company prepare for an audit, address bookkeeping functions, and handle accounting IT.
When should I consider outsourcing my accounting?
As your business grows, it is important to understand how your needs change. Financial processes are among the most important aspects of any business and as your company expands, having the right software, people and expertise is critical. It may be time to consider outsourcing your accounting functions if you experience the following:
1. Company growth surpasses your accounting expertise
Company growth is a great thing. But as you grow, it is essentially inevitable that you will encounter financial scenarios that are unforeseen or totally new to you. Interstate commerce, local and state tax application, foreign exchange rates and international regulations all require the expertise of a qualified accounting professional to keep your records updated and in accordance with applicable regulations and generally accepted accounting principles in the United States (US GAAP).
Outsourcing your accounting functions as you grow allows you to address growing financial needs with the expertise that you need – without the stress of hiring and building an entirely new team from scratch. Rather than spending money on additional salaries, filling office space, or worrying about taking the time to hire the right individuals, outsourcing allows you to take control of complex accounting situations while saving time and money.
2. Your employees need to focus
As a small business, your employees may multitask and take on other duties not directly related to their primary job functions. One of these tasks tends to be bookkeeping and accounting. However, similar to above, as your company grows your employees need to dedicate more time to their primary tasks; thus usually leaving accounting as a vulnerable area. Outsourcing the accounting functions eliminates distractions, keeps your accounting processes up-to-date and accurate, and allows your employees to focus on the job they are there to do.
3. Your company needs more room to grow
As your company grows, you need to have scalable business processes to keep up. Outsourcing provides you with additional features and expertise scaled to meet your needs now and as your organization expands. Whether your accounting needs include tackling daily tasks, incorporating mobility solutions or garnering expertise in expanding service markets, outsourced accounting services can provide you with the support your business needs most.
When should I consider outsourcing my accounting?
If your business is in the process of growing and/or the accounting processes of your company have become too complex and time-consuming, outsourcing the accounting functions may be the best option for you. Outsourced accounting services may provide a variety of benefits for you and your company.
1. Cost savings
One of the biggest advantages of outsourcing your accounting processes is the cost savings. By choosing to outsource the function as needed, you eliminate overhead costs. There is no need to spend on monthly compensation for a full-time in-house employee and their employment packages consisting of health insurance, retirement, vacation benefits and other items. Instead, you can hire an external accounting need to tackle the functions as needed. Other savings stem from not needing to purchase additional equipment and software as those you may hire should already have access to the necessary supplies.
Furthermore, if you were doing the work yourself but lack the accounting expertise, outsourcing the operations to experts may minimize missed deadlines and potential penalties. Also, expert accountants can point you towards tax deductions and credits that you may have missed otherwise.
2. Gain valuable time
Not only is outsourcing your accounting functions going to save you money, but it is also going to save you something else that is incredibly valuable: time. Rather than allow backend office functions to distract from the day-to-day operations of running a business, outsourced accounting services allow you to focus on what you know best.
3. Expert advice
Investing in external accounting services does not simply mean sending your income and expenses to an outside party so they can help you file your taxes. Instead, hiring an outsourced accounting team means that you have access to a team with full-time knowledge and expertise. They are there to be your partner, invested in the success of your business. Your team is there to answer your questions, manage your business workflows, aid in business structuring, and so much more. They can help you identify suspect transactions, take advantage of deductions, and point out possible tax savings with different tax credits. Not only that, but these accountants will already have access to the best software and technology to make your accounting functions more efficient and reliable.
Hiring a firm to handle your accounting needs means investing in a team of people ready to help. Small business owners typically require only one or two accounting staff, but what happens in the event that the business achieves astronomical growth within a short amount of time? Working with an external accounting team means they can simply add additional resources to your account without skipping a beat. You avoid the time and financial hardships of hiring more employees, while your accounting team simply makes the right moves to grow alongside you. It also works the other way as well. If you need to scale down, rather than laying off an employee, your outsourced accounting team will readjust the necessary resources for your accounting functions. Gone is the headache of bringing on or letting go of employees, instead you have a team working and adjusting with you.
5. Improve efficiencies
With experts in place, business owners can expect the accounting responsibilities to be completed in a timely fashion. In fact, streamlining accounting tasks produces higher quality results and frequently includes powerful analytics to help you better understand budgeting concerns and business performance. Not only that, but an experienced and diligent team is able to report suspicious activity to you, reducing the likelihood of fraud or government penalties.
Outsourcing your accounting processes will also help to eliminate errors, mistakes, omissions and oversights in your financial documents. Therefore, not only is the job done more efficiently, but also more accurately.
6. Focus on business aspects rather than accounting
With the right outsourced accounting provider, you receive support for your accounting functions, free up valuable time and allow for better workload management. Firms with an outsourced accounting practice often provide help with a range of treasury and cash management tasks such as working capital optimization, cash flow preparation, credit facility analysis, debt compliance monitoring, investment monitoring, and even special projects such as initial public offering preparation. This means you can delegate responsibilities and redirect your focus on what really matters to you: the future of your business.
How can Squar Milner help?
At Squar Milner, we pride ourselves on being a firm with comprehensive solutions to each of our clients’ accounting needs. That includes stepping in and helping with their actual accounting processes. Our Consulting Department features a robust Outsourced Accounting practice ready to guide you through the growing pains of developing a developing or running a not-for-profit organization.
Whether you need CFO Advisory Services, temporary accounting staff, or help preparing your financial statements, our team can get it done. Your focus should be on the growth of your business, let us handle the accounting.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.