Accounting is one of the most crucial parts of a business. It is convenient for big companies to hire a bagful of people and assign them responsibilities for managing their accounts. But what about small, medium, and start-up organizations?
They do not find it feasible to hire so many people to take care of their accounting and bookkeeping responsibilities. The 2018 Client Accounting Services (CAS) Survey conducted by Bill.com in association with CPA.com, involving over 1700 organizations reported that 52 percent of them are outsourcing their accounting job to a third-party and 80 percent of them were likely to do it for 2019 too.
In this article, we discuss things that you need to know about outsourced accounting and how it can benefit your business.
What do we mean by ‘outsourced’ accounting?
Outsourced accounting is a process where an organization hires a third-party to cater to their bookkeeping needs. This third-party is a replacement to the accounts department and handles your day-to-day needs for documenting transactions, managing payroll, financial reporting, debtors, creditors, and much more. It is responsible for sending over periodical overviews of the work completed and managing all the deadlines efficiently.
This is how the process works:
- Hand over your documents to your allocated outsourcing accountant.
- The dedicated accountant (from the accounting service provider) starts working on the documents.
- Queries and requests for more documents are sent to your team
- On receiving response to the queries, reports are prepared and checked for accuracy. Once approved, the financial reports are sent to the director.
- The Director reviews the reports and may ask for revisions or changes.
- Reports are finalised as per the stipulated deadlines.
Why do companies prefer outsourcing?
The primary reason for outsourcing is getting experts to do specific tasks on your behalf. It is a cost-efficient approach that lets you focus on your core competencies and not have the burden of over-hiring. If you choose the right partner for your needs, they can offer a host of benefits which can prove valuable for your business in the long run.
The finance department is a hub of tasks that ensure the upkeep and maintenance of books along with compliance to rules and regulations. Accounting tasks can prove arduous for organizations that are trying to scale up and have limited people. It is imperative for such businesses to free their workforce of additional duties and let them focus on skill development and growth.
Benefits of outsourcing accounting services for your company
A Clutch survey mentioned that Accounting and IT are the most commonly outsourced business processes. It is not without reason that organizations prefer handing over their accounts to third parties. Here are some of the benefits it entails –
1. Cost-effective approach
Businesses, especially inexperienced ones, think that outsourcing adds to the long list of expenses and is therefore unnecessary.
The truth is something else.
For companies with outsourced accounting, they have to employ a lower number of people. Even otherwise, the cost of incurring the additional workforce would have been higher than the outsourcing expenses. It includes savings in salaries, taxes, office space, supplies, and more.
Also, it allows organizations to free themselves from incurring additional costs of employee welfare such as insurance, sick leave, retirement planning, and bonuses. It also reduces the burden on the HR department pertaining to sitting and figuring out the right candidates and recruiting them.
The tedious process of inducing people to apply, reviewing their applications, screening, and creating a shortlist can take a lot of time. In the long run, outsourced accounting is cost-effective compared to in-house bookkeeping.
2. Saving time and labour
Most business owners know that their employees are only half as effective if all they do is sit and keep a tab of the transactions. They instead need proactive handling, which will let them showcase their true potential and harness it to improve their performance.
Most modern workplaces liberate employees by allowing them to explore, instead of asking them to abide by a plethora of stringent rules and regulations.
That is where outsourced accounting is so important. You can handover the monotonous and repetitive tasks to a third party, thereby letting the core team focus on improving their output.
3. Hiring experts to cater to your needs
The outsourced service providers are inadvertently better equipped to handle your needs. They are a team of highly qualified experts who know their job by the back of their hands and without any diluted focus. Their only goal is to deliver you the assigned work within the deadline and indulge in processes that help you grow as an organization.
4. Better efficiency
Hiring a set of experts unveils a host of perks for your business. One such advantage is improved efficiency and accuracy. Outsourcing your accounting department enables you to utilize the services of professionals who are experts at their job, and their focus is to provide the best services.
They are used to performing those repetitive tasks which enables them to reduce the slice of errors that you would have otherwise faced by roping in-house, relatively inexperienced candidates.
When you hire a third party, you will receive a package consisting of a fixed number of people that handle your accounting needs. If you did not do that, you would regularly need to inculcate new people to manage the increasing business volume efficiently. Recruitment is a long and tedious process that outsourced accounting helps you skip.
With an efficient outsourced accounting partner, you can negotiate the prices and get the services of additional people without going through the same cycle again and again. It goes the same way if you want to scale down.
6. Expert advice
Hiring a third party for your accounting needs gives you access to special expertise. This type of service provider not only helps you to remain competitive, it also provides you access to the latest trends, tools and solutions.
These professionals regularly engage with the management to help figure out ways to improve efficiency and minimize the workload of the workforce. They also act as advisors to suggest meaningful changes and upgrades that can help a company steer clear of the competition.
7. Access to the latest technology
Most small and medium businesses lack the resources to own newer and more advanced software capabilities. Even when they place themselves with the best in the market, they may lack the resources to utilize them to the fullest. An organization whose core competency is providing accounting services has no option but to buy and learn how to harness them.
Hiring a third party gives you access to the new-age automated processes and latest gizmos, which you would have missed otherwise or taken longer to procure. The automation helps them to better cater to your needs without being overbearing in costing terms.
Things to ascertain before assigning your accounting work to a third party
Before you delve into selecting a third party, these are the things that you must ascertain for yourself –
- Find out the list of services that you need. If the list is long and can be overbearing in terms of cost, strike off the less-important or relatively less time-consuming activities.
- Create a budget for the amount that you are willing to spend. Once you have ascertained it, invite quotations from multiple companies. Some of them may charge hourly, others monthly, and the rest may have a different payment model. Do not go for the most cost-effective one. Choose the one which offers the right mix of cost and services.
- Look into their experience and try and seek reviews from their clients to understand the capabilities.
- Always opt for organizations providing flexible SLA (Service Level Agreement). Talk to them about your aspirations and how where you see yourself in the coming years. Also, look into the agreement for the scalability clause before you sign it.
- Data security is the most critical aspect for every business, and it is the reason why most organizations are apprehensive of letting an outsider access their sensitive data. A Fortunly report concludes that 35 percent of survey participants fear losing intellectual property as their biggest concern while outsourcing.
Hiring a capable accounting services firm leads to not only better handling of your accounts, but it impacts your business as a whole. It lets your workforce focus on the more essential tasks, allows you to work with experts and access to the latest and the most remarkable technologies. Outsourcing is more of an investment than an expense, and if done effectively, you can start reaping the rewards within a few months.
Outsourcing does not come without caveats. You lose freedom. You can no longer keep a bird’s eye view of all the activities, and they only provide weekly or monthly updates.
Also, if you do not get the tone right from the onset, there can be a communication gap between the parties which can wreak havoc on your business.
It is imperative that you take note of any hidden costs and all the sundries while employing someone for your business. Outsourced accounting is no different. If you have your due diligence on point, it can prove to be a boon for your business.