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What to expect when you outsource accounting

Posted by Shivali Anand

May 11, 2022    |     8-minute read (1573 words)

As an entrepreneur, you may find yourself in a position where you’re continually keeping track of every aspect of your business and wondering whether something will slip. Ensuring your company grows as planned is a challenging undertaking, but one at which you excel. At the same time, accounting is an area that is similar across all business types and requires no creative input from you, so you may be considering whether you should outsource the responsibility.

It's no longer surprising for bigger companies to outsource their IT or HR functions. However, there are other ways in which outsourcing can help businesses, regardless of size. A prime example is outsourced accounting, which can help keep track of your company's finances and maintain accurate records.

An outsourced accounting firm allows you to hire highly trained accountants while saving money and time versus hiring comparable staff in-house. So, should your firm outsource its accounting functions? Here's what you should know about outsourcing accounting and how doing so can help your business.

What does it mean to outsource accounting services?

Outsourced accounting is when a company engages a third party to perform its accounting functions instead of having an in-house accounting team. Outsourced accountants handle all of the client company's accounting systems, including bookkeeping, payroll, management accounting, taxes, accounts receivable, accounts payable, financial reporting, following up on debts and other accounting-related tasks.

It's important to understand that outsourcing accounting services doesn’t necessarily mean contracting a foreign company. Rather, it means you are engaging an independent contractor or accounting company to handle compliance and accounts on behalf of your business.

Before moving any further, let’s review what accounting services an outsourced firm can provide. 

What kind of services can you get by outsourcing accounting?

Accounting services that a company can outsource include:

1. Bookkeeping

Bookkeeping is a time-consuming task that requires constant vigilance. But cloud accounting software has made it much easier to outsource bookkeeping responsibilities. Outsourcing this function can give you comprehensive reports that boost financial data transparency and lead to better business decisions. 

By hiring someone else to do your bookkeeping, you can free up your time and money from doing time-consuming tasks such as:

• Billing and payments.
• Subscription renewals/maintenance.
• Setting up accounting software.
• Processing employee expenses.
• Ledger balancing.
• Multi-entity and multi-currency consolidations.
• Order to cash management.

2. Preparing financial statements, reports

Accounting firms offer expertise in preparing financial data and reports for external and in-house use. CPAs will compile financial accounts to show how much you've spent and how much money you've earned. This in turn helps you keep better track of cash flow. They will also monitor your accounting records, assuring the accuracy and integrity of your financial records. Additionally, they can prepare financial reports for the general public, board members and stakeholders.

3. Accounts receivable/payable 

Accounts receivable and accounts payable management are frequently outsourced to ensure timely payments and collections. An outsourced AR/AP service can also perform tasks such as:

• E-payment acceptance.
• Billing and payments.
• Budgeting and reporting.
• Managing collections.
• Managing debt.
• Process control.
• Handling vendor inquiries.
• Order control.
• E-billing and storage.
• Invoice approval.
• Expense tracking.

4. Controller services

Outsourcing your controller services confers strategic assistance and guidance. It can also further accurate financial reporting and analysis. 

Typical duties performed by outsourced controllers include: 

• Compliance management.
• Analyzing and preparing performance indicators.
• Evaluation of service or product efficiency.
• Enforcing cost-cutting measures and monitoring overhead charges.
• KPI reporting.
• Vendor and employee communication.
• Management reporting.
• Adherence to policy and procedures.
• Transactional processing oversight.
• Analyzing cash flow.
• Audit reporting.

5. Cost accounting

Cost accounting is an essential facet of accounting services because it determines the actual costs of producing a product or service. Manufacturing, supply chain, marketing and research and development units collaborate closely with outsourced cost accountants to help determine price strategies.

6. Planning and analyzing finances

Outsourcing financial planning and analysis can give you an in-depth review of your organization's financial status, which in turn helps you make better decisions. 

You can access all your financial data at any time while simultaneously having these functions handled efficiently:

• Developing management reports.
• Investor communication and reporting.
• Budgeting, foresight and planning.
• Reports on cash flow forecasts.
• Process mining.
• Data gathering and analysis, integration assistance.
• Board and bank reporting assistance.
• Financial data analysis.

7. Forensic accounting/fraud investigation

If your firm has been the victim of fraudulent activity or your accounting contact has left without keeping your books updated and accurate, forensic accountants can help recover your losses. They can help reassemble records, recover lost papers and perform a variety of other related tasks. Outsourced staff can also review your internal procedures to increase efficiency, boost security and safeguard assets from future fraud attempts.

8. Reporting and filing taxes

The right outsourced accounting firm can ensure you remain up to date on all applicable tax rules in your jurisdiction. The firm can also reduce your business's exposure to accounting and financial calculation mistakes, with CPAs filing and reporting your taxes on time.

An overview of business tax preparation services provided by an outsourced accounting firm includes: 

• Tax planning to reduce tax burden and risk.
• Performing a compliance check on statements.
• Assisting taxpayers with tax collection, filing, remittance and compliance.
• Franchise tax assistance.
• Compiling and paying payroll taxes.
• Preparation of the business’s federal and state income taxes.

9. Payroll processing

With an outsourced accounting firm, you will always have access to the most up-to-date software versions available for payroll processing. Once you submit relevant data, this software may even automate your payroll procedures. Keep in mind that when you outsource your payroll, you reduce the chance of being held liable for fines or penalties arising from errors.

Why do businesses outsource their accounting?

Every company has its own needs, so each must decide for itself the right time to outsource accounting to a third-party firm. Although businesses have varied reasons, the primary ones are listed below.

• Financial difficulties – When there is a reduction in cash flow, companies are forced to make strategic decisions on where to save money. Accounting skills are not always available in-house, but finding an outsourced provider is a relatively straightforward process. Doing so frees up your business’s limited resources to focus on critical capabilities, client acquisition and retention.

• Investor interest – Once investors show interest in your business, you’ll be expected to provide them with thorough and accurate financial information documents. By furnishing them with such information, you may persuade them to invest. Proper documentation is essential for building investor confidence, and it can be provided by the outsourced accounting firm.

• The role of accounting is changing – CFOs are under pressure to improve decision-making by rigorously following generally accepted accounting standards and regulations. Outsourcing helps businesses to optimize such time-consuming and complex operations.

• Bank loans – As your firm matures and gets ready to expand, it may need financing from a bank. This process necessitates accurate and thorough financial reports, which the outsourced accounting firm can provide.

• Growth – When sales are doubling every year and the company’s cash flow is expanding, more resources are required to manage the revenue. Outsourcing is the simplest way to ensure that all aspects of the business are still taken care of during periods of rapid expansion.

• Tech advancements – Less expensive communications platforms and enhanced infrastructure are making business operations more mobile. As a result, businesses now have access to more potential partners and experts than ever before, including outsourced accounting firms.

Benefits of outsourced accounting services

The following are five key reasons why outsourcing accounting is a savvy business move.

1. Cost savings. By reducing the need to pay for in-house accounting staff’s salaries and benefits such as retirement, vacation and health insurance, outsourcing cuts your overhead expenses. The cost of accounting software and equipment is also no longer a consideration.

2. Expertise. Accounting mistakes can have disastrous effects on a firm, including penalties, cash flow issues and even an IRS inquiry. But outsourced accounting gives you access to a team of specialists who ensure your data is accurate and secure. 

3. Innovative technology. An outsourced accounting firm invests in advanced technology to stay competitive. This level of investment in-house does not make sense unless accounting plays a critical role in your business’s operations. There is no need to worry about keeping up with evolving technology if you have an outsourcing partner on your side.

4. Enhanced data protection. Data security is a chief concern for outsourced accounting firms. Typically, these firms deploy highly sophisticated and expensive security methods to proactively protect their clients' information, in response to widely publicized problems caused by data breaches and other security lapses.

5. Adaptability and scalability. When working with an outsourced accounting provider, you receive a customized solution for your business’s particular needs. You can quickly add or remove financial and accounting activities to meet your changing needs.

Conclusion

While accounting is an essential part of running a business, it is also complex and requires a lot of time, as well as specialized training and skills. If you have limited or no accounting knowledge, you could end up making mistakes that hurt your business. 

Businesses that choose to outsource their accounting enjoy an array of advantages. Cost-effectiveness is chief among them, followed by the ability to scale services up or down as needed. An outsourced accounting firm can bring scalability and automation into your company’s infrastructure, providing you a competitive edge.

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