To handle your finances, you need to be good at bookkeeping, financial reporting, and invoicing; in fact, any business strategy is not complete without one.
However, let’s be honest here: it can sometimes be a headache, especially for small or medium-sized businesses (SMBs) that do not have full-time finance teams.
That’s why the financial and accounting business processing outsourcing market is growing year over year. According to Grand View Research, it’s going to reach 70 billion dollars in 2025.
Not all businesses outsource all of the accounting but 1 third of small businesses outsource at least some of the accounting functions. Research found that over 70% of small businesses outsource their tax preparation and 37% completely outsource accounting functions.
So, if you are managing a financial department or running your own company, the biggest question will eventually come: is it better to keep it in-house or outsource accounting?
There’s a lot to think about here and many companies vacillate between “we should keep it in-house” and “let the experts handle that stuff.” This is a common dilemma.
This article will weigh all the advantages and disadvantages of outsourcing your accounting services so that you can make an informed decision.
What Are Outsourced Accounting Services?
Outsourced accounting is when you hire a separate company to do your financial jobs, such as record keeping, payroll matters, financial statements, tax issues and more. They are like your offsite finance team, which helps you streamline your operations and make your business more efficient.
When Should You Consider Outsourcing Accounting Services?
So does your current team have the expertise and capacity to manage their accounting needs effectively? If not, then outsourcing may be cost-effective for both of you.
Like with any significant decision, consider the advantages and disadvantages before deciding whether or not to outsource your accounting requirements.
Pros of Outsourcing Accounting Services
If you could manage to find the right outsourcing partner, here are the benefits you will enjoy with outsourced accounting.
Pro #1: Reduced Costs
Outsourcing can be an intelligent method of managing your finances without breaking the bank. It’s even better for small businesses that only require certain specialized services, e.g., payroll or financial reporting, among others. Furthermore, if a pay-as-you-go scheme is available, you are going to save on costs as compared to full-time employment.
Outsourcing means missing all the additional expenses linked with staff hiring, like vacations and leaves, medical coverage, pension plans, etc. Similarly, instead of being dependent on one person, outsourced services provide the collective experience of teamwork.
Pro #2: Focus on What’s Really Important:
One significant benefit of outsourcing your accounting is that it allows your in-house team to concentrate on what really matters.
Rather than getting tied down with daily financial responsibilities, leadership, and key departments can now be focused on core business activities and strategies for growth.
When professionals manage financial operations, you will have peace of mind because everything is taken care of by experts in their areas. Therefore, this helps to release resources and also gives top leaders mental space for concentrating on bigger objectives as well as revenue-generating activities.
Pro #3: Scalability and Flexibility
Outsourced accounting services are similar to a tailored suit—they expand or shrink based on your business needs. Whether you are about to enter a busy season, merge with another company, or go into new markets, you can easily change the level of support based on which direction your business is heading.
The good news? You pay for only what you want. From basic bookkeeping to high-level financial planning, you can adjust these services as per your needs at the moment. This kind of flexibility becomes priceless when facing unpredictable changes in growth or unexpected challenges.
Pro#4: Less Chance of Fraud
Fraud is an elusive challenge, especially in smaller businesses where one person handles all the accounting. This makes it easier for unscrupulous activities to go unnoticed, like false expenses and altered records.
In some instances, an employee may be pushed into fraud by financial problems that they have personally. Thus, there must be internal controls.
By outsourcing your accounting operations, there are multiple sets of eyes looking over your finances and this helps catch anything fishy. While you can never completely eliminate fraud altogether, having a bunch of pros who know their onions makes it much more difficult for malpractices to escape attention. Rather than relying on one overburdened employee to catch everything, outsourcing is a wiser option.
Pro #5: Enhances Expertise
Outsourcing your accounting needs can significantly enhance the level of expertise in your company. Instead of hiring and training employees yourself, you can access skilled professionals immediately.
This is even more important for smaller businesses that lack resources or even programs to train them. By outsourcing, you will get experienced accountants without having to go through the process of recruiting and training others. It is a cheap way to have expert knowledge when you need it.
The Cons of Outsourcing Accounting Services
Everything comes at a price. You will enjoy the fruits of outsourced accounting but here are some disadvantages you might see in your outsourcing journey. Yes, if you choose the right partner, the chances of seeing these cons are less.
Con #1: Hidden Costs
One of the limitations of outsourcing is that it can lead to concealed costs. At times, a single job could turn into several others, leading to unplanned expenses that you may not have planned for.
So always ensure that your month-to-month expectations and work scope are clearly defined from the very beginning.
This helps to avoid surprise costs by maintaining full transparency in the interaction between you and your accounting service provider.
Con #2: Less control
Another consideration when dealing with an outsourced accounting team is that you can’t just walk down the hallway to check on every financial detail.
However, you will receive regular updates and reports from your account manager, which assumes that your outsourcing team must be trusted.
At the early stages of giving away financial control, it might feel a little bit uneasy at first. Kick things off by having a well-rounded onboarding program to ease into this transition.
Define roles, policies, and procedures early enough to clarify expectations and foster a smooth communication flow.
Con #3: Communication hurdles:
Working with an external accounting service might shake up your usual communication routine. Differences in work styles, habits, and industry jargon can cause some confusion or misunderstandings.
This may result in misinterpretations or missing valuable information.
Think of a scenario where you require urgent financial information but the response is not forthcoming within the expected time frame. This is frustrating, right? Without in-house staff, you might also run into issues like network problems and difficulties with task management.
Time zone differences can also create challenges. Be mindful of this when setting deadlines and communicating expectations.
It’s better to choose a firm that is responsive and ensures smooth communication to avoid these problems.
Con #4: Data Security Concerns
It can be a bit nerve-wracking to share your vital financial information with an external accounting firm. Ensure that the business you select for this purpose has effective security measures put in place to safeguard your data.
You’ll want to know they’re doing everything possible to protect your information from any potential breaches.
Choosing Between In-House and Outsourced Accounting: What’s Best for Your Business?
When deciding on in-house or outsourced accounting, consider which choice is most suitable for your business.
In-house accountants who are members of your team know your company’s values and day-to-day activities. They are usually more reachable on the premises but this does not come cheaply and may restrict service flexibility.
Alternatively, external accounting entities often provide a wider range of services at a more attractive price. These firms can offer fresh, objective views because they do not dwell so much on the daily run-ins.
However, it may prove difficult to get a hold of them like you would with an in-house team, which might result in a loss of individualized touch.
Making the right decision depends on what your business needs. If you need a fully integrated team that is always available, then perhaps go for an internal accountant.
But if you need flexibility, cost savings, and access to a wide array of services, outsourcing can be just perfect. Besides, don’t forget to think about the experience and reputation of the accounting firm under consideration.
How to Get the Most Out of Your Outsourced Accounting Team
If you are engaging in outsourced accounting, there is a need for you to assess how best to benefit from the process, as discussed below.
First, find a partner who shares your values. You should be careful about choosing a firm that is also committed to making an impact in the accounting and finance worlds.
Secondly, ensure that the skills of your outsourced accounting partner are relevant. Their enthusiasm about working for you should not be taken as an indication that they can do great work. Find a firm that specializes only in the areas in which you lack competence and understands your business well enough.
Ensure everything’s set before starting with your offshore team. This entails stating what kind of assistance you require, whether it involves bookkeeping, reporting, payroll preparation and compliance or transaction monitoring.
Further, define specifically what you want to accomplish, like improving cash flow or gaining better financial insights. This entails settling on a firm whose solutions can be customized and thus deliver a package that fits your requirements as well. By doing this, you can make sure that the collaboration gets off to a good start.
Should you consider outsourcing?
Outsourcing might be a good option, but it may not suit everyone. When you have a good finance team in your company, this service isn’t necessary for you.
On the other hand, if you don’t have expertise in certain areas or want to plug the gaps within the company, then outsourcing is the perfect option for you.
One thing should be clear, though: integrating external partnerships takes time and sometimes effort does not match the expected benefits.
And remember that today’s technology enables businesses to automate a lot of accounting processes, thereby making them operate efficiently.