Many small business owners dread accounting. Organizing a pile of receipts, sending invoices, and finalizing financial statements are tedious tasks that mean less time spent growing their businesses.
Outsourcing your accounting needs to an expert—or team of experts—can help you avoid this problem. Read on to learn how engaging an accounting firm can streamline your business’s financial management and set you up for enduring success.
Why businesses outsource accounting
Businesses generally outsource accounting in one of these scenarios:
1. The business owner doesn’t have financial expertise
Not all entrepreneurs have the skills to maintain detailed accounting records or file taxes—and that’s OK. Knowing how to do double-entry accounting isn’t a requirement to start a business.
2. The business is too big or it’s too costly
Every hour a business owner spends on accounting and bookkeeping is an hour they can’t spend on growing their company. The opportunity cost of managing every financial task can be immeasurable. Outsourcing accounting allows business owners to focus on critical business decision-making and growth.
3. It doesn’t make sense to hire an accountant in-house
For most small businesses, hiring a dedicated in-house accountant, let alone having an entire internal accounting department, may not be necessary. Hiring someone in house entails not only an hourly wage or salary, but also benefits, training, and management. With an outsourced model, you pay only for the time and services you need.
Additionally, an outsourced accounting team provides a deep bench of financial professionals with a variety of skills. These experts may include seasoned bookkeepers, certified public accountants (CPAs), tax specialists, and even virtual chief financial officers (CFOs). This team-based approach means you have access to specialized knowledge for every need, from tax compliance to detailed financial statement preparation.
It can also help ensure accuracy. If you outsource to a firm, you can have multiple sets of eyes on your financial reporting and financial statements, increasing the chances that your books are accurate. This is essential when trying to secure financing or navigate an audit.
Finally, an outsourced accounting model can entail incremental services like cash flow management, tax preparation, and financial analysis. These value-add services can help you spot trends, identify areas that could be more efficient, and create a proactive strategy to ensure a healthy cash flow.
What kinds of accounting can be outsourced?
- Bookkeeping services
- Accounts receivable (AR) and accounts payable (AP)
- Financial reporting and analysis
- Payroll processing
- Tax preparation and planning
- Outsourced CFO services
The scope of outsourced services is far-reaching, and can be customized to meet your company’s needs. From day-to-day bookkeeping services to high-level executive support, outsourced accounting professionals can handle it all.
Bookkeeping services
Professional bookkeeping services handle the recording of every financial transaction for your business. An outsourced team will take on categorizing your expenses, reconciling bank and credit card accounts, and reviewing your general ledger.
Accounts receivable (AR) and accounts payable (AP)
The management of accounts receivable and accounts payable is important for a healthy cash flow. With accounts receivable management, an outsourced accounting team can manage the entire process, from creating invoices to pursuing late payments. For accounts payable management, they can handle the receipt and payment of bills, ensuring vendors are paid on time and helping you avoid late fees.
Financial reporting and analysis
Outsourced accounting teams can prepare your financial statements on a monthly, quarterly, and annual basis. They can also create custom reports that monitor key performance indicators (KPIs), budget-to-actual analysis, and insights into your company’s performance.
Payroll processing
Outsourced accounting services can manage payroll on your behalf. This includes handling employee wage calculation, deducting taxes and benefits, initiating direct deposits, withholding and remitting taxes, and filing payroll reports with federal and state agencies.
Tax preparation and planning
An outsourced accounting firm that employs CPAs can prepare and file your federal, state, and local tax returns. Many firms also offer year-round tax planning services, such as a tax specialist who can work with you to understand your long-term business goals.
Outsourced CFO services
For small businesses wanting executive-level financial guidance but that can’t afford a full-time CFO, outsourced CFO services may be the ideal solution. An outsourced CFO acts as a high-level financial adviser assisting with tasks like raising capital, long-term forecasting, budgeting, and business planning. They also provide insights for management and board meetings, helping you navigate major business decisions and come up with strategies for sustainable growth.
How to choose an outsourced accounting partner
- Industry expertise
- Technology and data access
- Communication
- Reputation
- Data protection and security
- Scalability
The right outsourced accounting firm can impact your business for years to come. Consider these factors when evaluating potential accounting partners.
Industry expertise
Search for an accounting firm with a proven track record working with other businesses in your industry. Often, they will better understand the challenges and financial nuances of your market, which can render their advice more accurate. Be sure to request references from their current clients in your field.
Technology and data access
A modern outsourced team should be leveraging the latest cloud-based accounting software, providing you with secure, real-time access to your financial data. Ideally, they also use a secure portal to communicate and share documents.
They should be able to answer questions about their technology stack, explaining the tools they use and why. Ask about their knowledge of accounting software such as QuickBooks Online, Zoho Books, Xero, and other industry-standard tools.
Communication
The best partners act as an extension of your team, not just a vendor. Look for a firm that emphasizes communication with a point of contact for you and your team, and even regular check-ins. A firm that reaches out with insights before you even ask indicates a true partnership.
Reputation
Research the reputations of accounting firms you’re considering. Check out their online reviews and client testimonials, and ask for a list of references. A positive reputation is an indicator of their quality of service.
Data protection and security
You will be sharing sensitive information with your accounting partner, making data protection a priority. Inquire about their security protocols, encryption methods, and compliance with data privacy regulations such as the General Data Protection Regulation (GDPR). A reputable firm will be transparent and have demonstrable measures in place to protect your confidential information.
Scalability
Choose a partner that can grow with you. As your business expands, your accounting needs will become more complex. The best outsourced firms offer a tiered service model so you can easily scale from basic bookkeeping to advanced outsourced CFO services, without needing to switch firms.
Outsourcing accounting services for small business FAQ
How much does accounting services cost for a small business?
The cost of accounting services varies widely, depending on the services needed, the size of your business, and how complex your financial transactions are. You can expect costs to range from a couple hundred dollars per month for basic bookkeeping services to several thousand for financial management and outsourced CFO support.
Is outsourcing accounting a good idea?
Yes, outsourcing accounting is often an excellent idea for most small businesses. It provides access to experts, improves the accuracy of your financial statements, and offers a huge cost savings compared to building an internal accounting department. It also saves the business owner valuable time for critical tasks like product development, growth, and strategic planning.
What type of accountant does a small business need?
For day-to-day tasks, a bookkeeper or a firm offering bookkeeping services is sufficient. For financial planning and complex tax matters, a certified public accountant (CPA) or a firm offering outsourced CFO services is recommended. The right outsourced accounting team can provide a full spectrum of expertise.
