As a business owner the demands on your time likely exceed the number of hours in the day. And if growing your business’s bottom line was not a big enough ask, you are likely having to attend to your company’s bookkeeping and accounting needs. While balance sheets, payroll, and the myriad of other accounting tasks are close to second nature for CPAs, bookkeeping and accounting are not for you, even on your best day.
Both bookkeeping and accounting can feel like laborious and mentally taxing responsibilities that one simply does not have the manpower or bandwidth for. What once used to be exclusively an option for large, more established companies, outsourced accounting today is an option available to businesses of all sizes.
In a recent study conducted by KPMG, research found that about 40% of organizations planned to delegate Controller/CFO services to agencies that specialize in outsourced accounting. Why? Because outsourced accounting is cost-effective, reduces internal expenses, and saves businesses a headache or two from the hassle associated with bookkeeping, all while giving businesses time to do what they do best and strengthen their business from inside out.
If your business answers “yes” to any of the below questions, then it may be time to consider outsourcing your accounting functions:
- Does your business have a need to access financial information from anywhere at any time?
- Would your time be better spent growing the business as opposed to focusing on tedious accounting tasks?
- Does your business lack the right financial reports to make accurate business decisions?
- Does your business spend too much time and money on accounting?
Just because your business does answer “yes” to one (or more) of these questions does not mean your business is bound to fail– it just means there is room for positive change to ensue.
As mentioned previously, handling accounting functions is not for everyone. But that does not mean you should forgo not knowing the basics.
What is Outsourcing Accounting?
Outsourced accounting is a service in which an external agency provides a full, accounting department experience. Some of the offerings included in outsourced accounting are as follows:
- Day-to-day transaction coding
- Accounts payable
- Accounts receivable
- Management financial reporting
- Filing federal taxes & submitting payments
- Balance ledgers
Outsourced accounting can either operate on a fixed or fluctuating fee and companies have the choice to have one or multiple business tasks performed by the third-party service provider.
Who Should Consider Outsourced Accounting?
There are no limitations preventing any type of business from receiving outsourced accounting services, but typically the organizations that most commonly opt for this assistance are:
- Businesses in their beginning stages
- Businesses that have outgrown bookkeeping
- Small businesses that experience one or more triggers:
- Reaching $1 million in revenues
- Employing eight to ten people
- Accepting outside investor capital
- CEO can no longer be involved in every aspect of the business
- Entering the accelerated growth stage of the business lifecycle
- Needing to get more out of QuickBooks than billing and collections
- Wanting technology systems to interface and talk to each other
- Requiring more sophisticated financial reports for data-based decision-making
- Non-profits who encounter one of the following scenarios:
- Revenues reach $500,000, mandating audits in many states
- The Board of Directors requires more confidence in the financial reports
- Programs are competing for limited funds and need ROI justifications
- Acquiring grants necessitates foundation reporting
- Transitioning to true Fund accounting requires the accrual basis of accounting
Despite their differences, the businesses described above all have a few things in common. Continue reading to learn why businesses might choose to turn to outsourced accounting.
1. Employee and Infrastructure Cost Savings
In general, businesses spend 2%-5% of revenues to train and build an accounting department. This figure does not sound like much, but from a high-level, outsourced accounting is more cost-friendly than staffing an internal accounting team. To be more specific, businesses that turn to outsourced accounting will save valuable dollars on the cost of employees and benefits such as insurance, paid time off, unemployment, sick days, and workers compensation insurance. In addition to reducing these overhead costs, businesses can also reduce the infrastructure costs on software and hardware needed to maintain accounting data.
2. Enables Flexibility
Most outsourced accounting providers rely on cloud-based technology which allows businesses to access financial data anywhere and everywhere, 24/7. This is extremely beneficial for business owners who are always on the go because it provides them with up-to-date information such as cash balances, giving business owners greater flexibility and greater confidence in knowing the status of their business while being away or on travel.
3. Access to Accounting Expertise
Not only does outsourced accounting relieve businesses of the burden of recording their own financial transactions, but it also provides businesses with the intellect and knowledge that comes from partnering with an industry expert. CPA firms and accountants specialize in knowing the ins and outs of business accounting, all while providing clients with unbiased insights and financial date to businesses. This may save your business from incurring unnecessary penalties and interest.
4. Improved Processes
Possibly the greatest overlooked benefit of outsourced accounting is process improvement. Outsourcing experts integrate best practices and controls into your business to help with efficiency. More often than not, the time it takes to close books is greatly reduced, giving businesses enhanced benchmark data that can be leveraged to meet regulatory requirements. When systems are improved, they generally have a positive domino effect and impact other areas of the business, such as the level of service the serviced business delivers to its customers.
5. Reduces Risk
Another commonly disregarded aspect of keeping accounting functions in-house is internal fraud. More than one in five businesses will have money stolen from them by trusted employees because all functions of cash inflows and outflows are typically performed by one person. There is little to no segregation of duties, increasing the chance of theft, inaccuracy, and blurred workflows (Association of Certified Fraud Examiners).
Consequences of Negligent Internal Bookkeeping
Should your business keep your accounting arm in-house and ignore the substantial cost-saving, risk-reducing benefits associated with outsourced accounting, be mindful that you may run into the following outcomes as a result of poor, internal bookkeeping:
- You do not know your numbers/financial health, so you don’t know your business
- Cash flow issues: falling short on credit, incur overdrafts, etc.
- Missing tax deadlines that could result in tax penalties and IRS audits
- Invoice mistakes: failing to provide clients with accurate estimates, failure to collect payments on time, charging inaccurate prices for your services
- Increased risk for internal fraud
- Eroding work culture: employees feeling inadequately compensated and overwhelmed by growing, daily responsibilities
- Inviting avoidable fees from banks, lenders/vendors, and the government
Moving Forward with Technology-Supported Outsourced Accounting
While there are certain activities that are best done by hand, accounting is not one of them. Paper reporting, hand-keyed entry, and snail mail invoicing all have one trait in common: low effectiveness. Making the transition from traditional accounting to technology-backed outsourced accounting can mean all the difference for a company competing in a saturated market or simply a company wanting to perform better than last year. Tech-supported outsourced accounting is the determining factor for businesses to achieve improved processes and, as a result, operations.
Below are some of the tools we think companies should be utilizing in their accounting efforts:
- Expense Tracking Apps – Expense management apps allow businesses to bypass the tedious responsibilities of managing paper recipes and reducing approval and payment times, making way for a more streamlined approach for conducting daily business activities.
- Cloud-based Accounting Software – Cloud-based systems can sound more complicated than they are, but they are truly intended to make tasks easier for the user. Cloud-based systems save businesses from having to upload files, download data, granting access to a list of never-ending users, all while helping businesses make more informed decisions by producing comprehensive reports for an array of functions.
- Hosted Applications – Hosted applications on secure servers are a great alternative for systems that cannot yet be cloud-based. With hosted applications, virtual file rooms, remote access, and paperless environments work harmoniously to support growing businesses.
- Custom Reports & Dashboards – An issue that is far too common among businesses is that they are not getting the reports they need to gain insight into performance and their bottom line. However, there are tools that combine outsourced accounting with accounting technology that compute data for you in a clear and concise fashion.
At Ryan & Wetmore, we understand that keeping efficiency high, costs low, and books balanced is a top priority for our clients and other businesses. If you are interested in learning more about Ryan and Wetmore’s outsourced accounting services, please contact us today.