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Outsourcing Your Accounting Team Could Save up to 43%
Considering Scaling Your Accounting Team? Pros & Cons of Outsourced Your Accounting Team
As companies continue to operate on leaner budgets, some have found that outsourcing certain functions is a good way to keep quality up and costs down. Outsourcing is not a new concept. For many years, businesses have transferred services such as bookkeeping, accounting, and Controller/CFO services to third-party firms. While once seen as an option for larger companies in the past, today the floodgates of outsourcing have opened and more and more companies are reaping the benefits.
According to a recent KPMG survey, about 40 percent of companies planned to increase their use of outsourced accounting. With the availability of advanced financial automation solutions and a deluge of cloud-based systems, all types of companies, small and large, are taking advantage of what it can do to for their businesses.
According to a survey by the National Small Business Association, 40 percent of entrepreneurs spend more than 80 hours each year managing their finances. Even if you’re working 10-12 hour days to bootstrap your startup, those hours add up to more than a week each year. A week that you probably don’t have the luxury of spending doing anything other than growing your business (unless it’s taking a much-needed vacation).
If those hours aren’t enough to make you want to offload your accounting to someone else, there are also a few key milestones to have on your radar. Hiring your first employee, reaching $15,000 in monthly expenses, and seeking out additional capital (either from investors or lending institutions) are all signs it’s time to increase your investment in accounting.
With that in mind, many business owners still struggle to handle their business accounting as they scale. If you’re a pragmatic business owner, you know that one the best ways to make a decision is through a good old fashioned list of pros and cons. Follow along to learn more about the advantages and disadvantages of outsourcing your business’s accounting team.
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Should you outsource your business’s accounting team?
We compiled this list of pros and cons to help you decide whether to take your accounting to an outside professional, instead of handling it yourself or hiring an in-house accountant or bookkeeper.
Pro: You can get more experienced guidance for your money.
Determining the exact savings of outsourcing your books versus hiring an accountant or a bookkeeper is nuanced, but the consensus is that outsourcing saves businesses money. This is even more true when you factor in the years of experience. Some outsourced accounting solutions can offer decades (if not centuries) of collective accounting experience for less than the cost of a single entry-level hire.
Businesses typically spend 2 to 5 percent of revenues to properly train and staff internal accounting departments.
While it might not seem like a lot, outsourcing your accounting can actually lower your total costs by eliminating expenses related to employee benefits, training, accounting software, hardware, and office supplies.
In addition to the time and overhead costs you’ll save, a team of professional accountants has more small business accounting experience and can catch errors and provide foresight into potential implications down the road. Accounting mistakes are an expense no small business owner wants to worry about. The longer they go unnoticed, the more expensive and time-consuming they are to fix.
Pro: Outsourcing means you can allocate more resources to activities that add direct value to your core competency.
Every business owner is motivated to run an efficient business. When it comes to hiring, increasing efficiency means connecting additional headcount to additional revenue. As niche business service companies become more common, there are more opportunities to look outside your internal team to scale operational efficiencies. This should liberate you and your team to focus on more activities that generate sales.
There are also the added costs of hiring teammates who require specialized tools. Any accounting professional that you hire will need accounting tools to do their jobs—and those aren’t always cheap. Outsourced accountants typically roll the cost of these tools into their own operating expenses. Avoiding this cost helps you streamline your suite of tools and eliminate even more overhead costs that don’t directly create more value for your customers.
Pro: Improve Processes.
One of the hidden benefits that many businesses don’t realize is that outsourcing your accounting function provides an opportunity to upgrade and improve your current financial accounting processes. Outsourcing vendors instill best practices and controls that can help improve efficiency and timeliness of data. In addition, companies have found they can reduce the cycle it takes to close books, and they can develop better benchmark and baseline financial processes to help them meet regulatory requirements.
Whether it’s having access to the latest accounting software or improving your payroll processes, implementing up-to-date accounting procedures can help improve service levels, reduce costs, create better cash flow and position your company for growth.
By spending less of your day overseeing bills and payroll, you’ll free up valuable time that can be redirected back into managing and growing your business. As an expert in your field, it’s critical that you use that expertise to focus on business goals, growth and managing your day-to-day operations.
Pro: Access to Expert Accounting Resources.
If a small business is doing its own accounting, chances are good that the person in charge of the task isn’t a master accountant. If you’re lucky, someone on staff may have a background in accounting but it’s not their core competency.
By outsourcing you’ll have access to a team of skilled accountants having a wide range of experience in the area. This ensures that your books are always up to date, payroll is done on time and you’re not at risk of being subjected to penalties due to inaccurate paperwork and underpayments
I’m going for outsourced accountancy, what you need to be aware of;
If you think that outsourcing is the best solution for you, there are may things to take into consideration before you make your decision.
- First of all, it could be more than just the quality of their services that influences the reputation of an accounting firm. Some accounting firms are more susceptible tax controls and draw more scrutiny for some reasons. Choosing a company like this puts your business in the crosshairs of tax inspectors, which is always very stressful.
- Along with that is the way the accounting company works. Some have chosen to keep up with the times and offer online tools and process your documents digitally, so they can get the work done every week. Some others have decided to stay old-school and will be able to do your accounts much less frequently.
- It’s also important to know the extent of the services that are being offered. Will they advise you or are they just there to “do the work you can’t do yourself”? A good piece of advice is priceless and can win you ten times what it’s cost you. Accounting is the key function, but expertise in taxes is highly recommended too.
- Speaking of costs, price is of course determining. Some companies won’t hesitate in charging you 3 or 4 times the amount others do, so it’s really important to know if the investment is worth it. If you own a small business, you should consider a contract with fixed fees – it’ll protect you from unforeseen expenses. Keep in mind though that they will probably limit their services to what’s normally inside the work package.
- And finally, what’s your relationship with them like? If you find the person can’t handle the tasks you give them with the necessary calm and flexibility, check other firms before you settle for one and see who you feel best with. You can also call their current clients and get their opinions.
It takes a lot of hard work, time and skills to keep a business running smoothly. There are so many tedious tasks that take time away from the important work that needs to be done when you run a small business. Even if you have all the brains and brawn to wear all those different hats, trying to take care of everything yourself could soon become very overwhelming. When you add bookkeeping errors to the mix, it could also become pretty costly to a business. Wouldn’t you rather focus on the more important aspects of your business?
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