Posted by Neha De
August 20, 2020 | 5-minute read (877 words)
As a startup owner, you may be trying to single-handedly take care of every aspect of your business – but did you know that multitasking could be taking a toll on productivity? Research from the American Psychological Association says that even brief mental blocks that result from repeatedly switching between tasks can cost more than 40 percent of a person’s productive time.
Wouldn’t it be nice if you had the option of spending more time on growing your bottom line and less time on administrative tasks? Many businesses do this by hiring a specialized accounting outsourcing firm for all their finance and accounting needs. This allows them to enjoy such benefits as cost savings, access to the latest tech tools, security and confidentiality, among other features.
Check out a few of the pros and cons so you can make an educated decision on whether outsourcing your accounting function is the right choice for your business.
First, the Pros:
- Significant Cost Savings: Outsourcing allows you to cut overhead costs because you don’t have to spend on salary and such benefits as retirement, vacation time and health insurance. In addition, you won’t need to spend money on software and the equipment essential for handling the accounting processes.
- Access to Experts. Accounting mistakes can have disastrous repercussions on a business, such as penalties, cash flow issues and even an investigation by the Internal Revenue Service (IRS). Outsourcing the accounting functions gives you access to a team of highly qualified and trained professionals, who use the latest technology and processes to ensure that your data is accurate and secure. Since accounting provides a platform for improving cash flow, driving profits and growing your business, it can also have an effect on such things as the number of employees you need to — and can — hire, identifying the most and least profitable product lines to your future expansion plans, and so on.
- Improved Internal Control: According to the Association of Certified Fraud Examiner’s study from 2012, the most common victims of fraud are small businesses that employ fewer than 100 employees, and the median fraud amounts to an astounding $147,000. This is because most small businesses don’t have access to a controller or CFO who could spot abnormal activity in the transactional and billing data. Outsourcing accounting helps you reduce the possibility of fraud, as you’ll have a dedicated team of accounting experts who will accurately check your books and transaction reports. It also lowers the risk of having your books manipulated.
- Enhanced Data Security: Outsourcing accounting firms are aware of the serious data security threats that exist and usually have robust, impenetrable and expensive security systems in place. This takes care of issues that come with data breaches and security compromises.
- Flexibility and Scalability: By selecting an outsourcing company that specializes in finance and accounting, you can benefit from a solution that is tailor-made for you. You can also add or remove financial and accounting processes depending on your needs.
- Access to Latest Tech: A finance and accounting outsourcing firm invests in cutting-edge technology and software in order to be competitive. And if finance is not your core function, this type of investment does not make sense for you. With an outsourcing partner, you can benefit from having access to the latest technology at no additional cost.
- Round-the-Clock Service: When you outsource your accounting services to a third party, you can operate 24/7 with a time-zone advantage. You can be assured that all important tasks will be taken care of in the scheduled manner and on time.
- Protection in Down Economic Times: As situations change economically, businesses tend to shift their workforces, which can be a challenging and resource-intensive process. But since the responsibility of managing the talent assigned to a project lies with the outsourcing company, you can scale up or down in terms of staffing with ease.
- Security and Confidentiality: Because finance and accounting are their core functions, outsourcing partners make sure that your information remains confidential and secure. You can ask them to sign a non-disclosure agreement for your peace of mind.
Now, the Cons:
- Less Control: When you receive finance- or accounting-related queries, it can sometimes be easier to communicate with an in-house accountant. This may not be the case with an outsourced team handling your accounting function, because you may not have direct control over how things are being handled. However, this issue can be resolved by setting up policies and procedures during the initial stages of the partnership itself.
- Additional Costs: Sometimes, there may be hidden costs when dealing with an outsourced accounting firm. These costs may be in the form of additional tasks that weren’t specified in your arrangement and so on. To avoid this risk, you can ask about any hidden or additional fees and anything else you may have concerns about, and settle the cost of service right at the beginning.
- Risk of Selecting the Wrong Company: When outsourcing a job function, there’s always a risk of things not going your way, and in the case of finance and accounting, errors being made. To avoid this from happening, ask your chosen outsourcing firm for references and contact those companies to get their opinions.