When You Should (and Shouldn’t) Outsource Your Accounting Services

Introduction

Managing financial accounts, from bookkeeping to financial reporting, to managing invoices remains a pivotal aspect of any business strategy. Yet, this task can be time-consuming and challenging, especially for SMBs lacking dedicated financial professionals.

If you own a business or lead a finance department, you must assess the extent of your capabilities to decide whether it makes more sense to hire and train someone in-house to manage accounts, or whether you should outsource your accounting services.

There are pros and cons to outsourcing, and the back-and-forth confusion between “we should handle it inhouse” and “we should trust someone else to handle it” is a struggle many organizations face when deciding how to manage their account operations.

Here, we’ll explore the benefits of outsourcing your accounting services to help you decide whether it’s a good option for your organization, or not.

But first — what are outsourced accounting services? Let’s clarify the concept before delving deeper.

What Is Outsourced Accounting?

Outsourced accounting refers to the practice where a business engages a third-party entity external to its organization to manage various accounting and finance functions.

These outsourced accountants undertake diverse accounting tasks, ranging from bookkeeping, payroll, and financial reporting to tax management, accounts payable, accounts receivable, debt follow-ups, and more.

Essentially, they function as an off-site accounting department, supporting the company in analyzing and enhancing its accounting operations for efficiency.

When to Consider Outsourcing Your Accounting Services — and When Not To

When deliberating whether to outsource, one crucial factor to ponder is your staffing capacity. Do you possess a knowledgeable, skilled team equipped to manage the task effectively? Moreover, outsourcing accounting services can offer both time and cost efficiencies.

 Pros of outsourcing your accounting services:

1. Outsourced accounting services can be time and cost-effective

   Outsourcing accounting services proves advantageous in terms of both cost-effectiveness and time efficiency. Businesses can opt for outsourced accounting to streamline their financial operations while concentrating on other core aspects or enhancing their financial bottom line by reducing overhead expenses.

   Particularly beneficial for smaller enterprises requiring specific services like financial reporting or payroll management, outsourced accounting offers tailored solutions without the need for extensive internal setups.

   If the billing structure of the accounting service provider aligns with a pay-as-you-go model, it can offer a more budget-friendly alternative compared to in-house options, which often entail higher initial expenses. This setup ensures scalability without the necessity of hiring full-time employees, making it a viable solution for businesses with fluctuating needs.

   Outsourcing accounting services also liberates valuable time that would otherwise be spent acquiring new skills or establishing an in-house accounting department. This allows businesses to focus on their core objectives, fostering growth and development.

2. Outsourced accounting services enhance expertise

   Outsourcing accounting services facilitates the broadening of your company’s expertise. Depending on the required accounting disciplines, access to skilled professionals is readily available without the need for direct hiring.

   Especially beneficial for nascent small businesses lacking internal resources or established training programs, outsourced accounting companies can prove highly advantageous. Rather than investing in employee recruitment and task-specific training, outsourcing accounting services offers the opportunity to bring in experienced professionals at a reasonable cost.

3. Outsourced accounting services are scalable

   Outsourced accounting services are tailored to scale alongside your business, efficiently adapting to changing resource requirements.

   These services encompass a proficient team equipped to grow harmoniously with a company’s expansion, swiftly catering to increased accounting needs while keeping overhead costs optimized.

   The rapid growth of outsourced accounting firms ensures a diverse range of skill sets and service offerings suitable for businesses of various sizes. Providers specializing in specific sectors, such as B2B or B2C markets, tailor their services to meet diverse business demands.

   A reputable outsourced accounting team boasts a solid track record, ensuring access to necessary tools for seamless financial operations. This reliability ensures consistent support and exceptional service, addressing any potential issues with expertise and efficiency.

   Recommended Reading: The Top 5 Advantages Of Using A Financial Close Solution

4. Outsourced accounting services reduce employee turnover

   Outsourcing accounting services offers a unique advantage in employee retention.Accounting firms employ specialists in various accounting functions, ranging from tax management to financial reporting. This eliminates the need for companies to recruit multiple specialists internally, thereby curbing turnovers. 

   Moreover, outsourced agencies are adept at aligning an employee’s skill set precisely with the required job descriptions, a feat that in-house accounting staff may find challenging to replicate.

5. In short, outsourcing your accounting services makes sense when:
   • You lack the resources to staff a full internal department.
   • You struggle to find a suitable and affordable full-time employee capable of handling activities like paying bills or reconciling deposits.
   • You desire to focus on business goals and growth, yet find yourself lacking the time to chase unpaid invoices or manually reconcile large volumes of data.

Now let’s take a look at the downside or risk of outsourcing your accounting services

Cons of outsourcing your accounting services:

1. Skill and approach differences

   Not every firm is familiar with your industry or the size of your business, which might cause issues with your tax and accounting requirements. Finding the right firm for outsourcing your accounting services isn’t easy; engaging an unfit firm may result in a disconnect between your company’s needs and the services provided.

2. Communication problems

   Engaging an external accounting service could disrupt your typical communication methods. Varied habits, work styles, and unfamiliarity with industry terms between your company and the service might lead to confusion or misunderstandings, potentially resulting in critical information being misunderstood or lost.

3. Reduced oversight

   Entrusting your accounting to an off-site entity means giving up daily oversight, which can heighten concerns about the security of sensitive financial information. Additionally, this loss of direct visibility into ongoing accounting processes might unsettle business owners who are used to immediate access and control.

4. Cost increases

   The initially agreed-upon monthly fees might not encompass the increasing needs of a growing company. As your business expands, additional accounting tasks may arise, resulting in unexpected costs beyond the initial agreement—an occurrence often referred to as ‘scope creep.

Getting the Most Out of an Outsourcing Relationship

If you’ve decided to engage in an outsourced accounting services relationship, consider these tips to maximize your investment.

Select a Partner with Shared Values

Choosing a partner whose values align with yours is crucial for enhanced growth potential. Find a firm that shares your passion for making a meaningful impact, particularly one specializing in accounting and finance.

Ensure Your Outsourced Accounting Partner Has the Required Skills

It’s essential to confirm that your outsourced accounting partner possesses the expertise necessary for your required tasks. Mere willingness to undertake a project doesn’t guarantee qualification or proficiency in that specific discipline. Finding a partner who understands your business intricacies is crucial.

Prepare Before Engaging an Outsourced Accountant

Before hiring an outsourced team, it’s vital to outline the necessary support and services, such as bookkeeping, reporting, payroll taxes, tax returns, transaction fee monitoring, etc. 

Additionally, defining your objectives, like improving cash flow or gaining better financial visibility, is crucial. Choose a firm that not only meets your needs but also offers tailored suggestions based on your goals, providing a customized package to suit your specific requirements.

Sometimes Outsourcing Your Accounting Service Is A Fit, Sometimes It's Not

Sometimes, outsourcing your accounting services is advantageous, while at other times, it might not be the ideal choice.

For companies with an existing in-house accounting and finance team, partnering with an outsourcing company offers benefits. This collaboration allows current staff to work alongside specialists, gaining expertise in technical areas. The close association with an outsourcing partner provides valuable learning opportunities for the in-house team.

However, if your company boasts a well-established finance leadership and infrastructure, outsourcing may not be essential. Instead, addressing any expertise gaps internally by recruiting specialized professionals can result in a comprehensive in-house accounting department.

Additionally, it’s crucial to consider the learning curve involved when integrating an outsourcing company into your business. The complexity of the business often determines the time required for an outsourcing partner to fully integrate. For some companies, this time investment might outweigh the benefits and become a significant consideration in terms of both time and expenses.

Moreover, these days you can leverage modern technology to streamline various accounting tasks, improving efficiency from Record to Report. Utilizing these tools facilitates enhanced management of your accounting operations