Scaling Your Business Operations? Pros & Cons of Outsourced Accounting
According to a survey by the National Small Business Association, 40 percent of entrepreneurs spend more than 80 hours each year managing their finances. Even if you’re working 10-12 hour days to bootstrap your startup, those hours add up to more than a week each year. A week that you probably don’t have the luxury of spending doing anything other than growing your business (unless it’s taking a much-needed vacation).
If those hours aren’t enough to make you want to offload your accounting to someone else, there are also a few key milestones to have on your radar. Hiring your first employee, reaching $15,000 in monthly expenses, and seeking out additional capital (either from investors or lending institutions) are all signs it’s time to increase your investment in accounting.
With that in mind, many business owners still struggle to handle their business accounting as they scale. If you’re a pragmatic business owner, you know that one the best ways to make a decision is through a good old fashioned list of pros and cons. Follow along to learn more about the advantages and disadvantages of outsourcing your business’s accounting.
Should you outsource your business’s accounting?
We compiled this list of pros and cons to help you decide whether to take your accounting to an outside professional, instead of handling it yourself or hiring an in-house accountant or bookkeeper.
Pro: Outsourcing means you can allocate more resources to activities that add direct value to your core competency.
Every business owner is motivated to run an efficient business. When it comes to hiring, increasing efficiency means connecting additional headcount to additional revenue. As niche business service companies become more common, there are more opportunities to look outside your internal team to scale operational efficiencies. This should liberate you and your team to focus on more activities that generate sales.
Let’s say, for example, your company sells portable charging devices to keep traveling minimalists connected to the cloud. Hiring a full-time bookkeeper or accountant isn’t going to help you produce more inventory, improve your digital retail experience or reach more potential buyers. You’re poised to make more money hiring a professional product designer, web developer, or sales/marketing rep to increase demand than a bookkeeper, accountant, controller, or CFO.
There are also the added costs of hiring teammates who require specialized tools. Any accounting professional that you hire will need accounting tools to do their jobs—and those aren’t always cheap. Outsourced accountants typically roll the cost of these tools into their own operating expenses. Avoiding this cost helps you streamline your suite of tools and eliminate even more overhead costs that don’t directly create more value for your customers.
Con: There are limits to your ability to communicate with and control someone outside your company.
While remote teams and work-from-home policies are increasingly popular, there is something special about having team members physically in the office. It also makes sense that availability would be high on a list of priorities when it comes to your financial information. However, there are ways to build a communicative relationship with those outside of an organization.
Client-vendor communication tools are getting more and more robust—especially for smaller and more flexible businesses. Some companies invite contractors and freelancers to be part of their chat systems (like Slack and Hipchat). Others choose accounting providers who build live chat systems into their tools to make back and forth communication accessible right from a dashboard interface.
As you’re deciding what’s right for your business, be sure to ask both potential teammates and outside vendors or contractors about communication styles.
Pro: You can get more experienced guidance for your money.
Determining the exact savings of outsourcing your books versus hiring an accountant or a bookkeeper is nuanced, but the consensus is that outsourcing saves businesses money. This is even more true when you factor in the years of experience. Some outsourced accounting solutions can offer decades (if not centuries) of collective accounting experience for less than the cost of a single entry-level hire.
In addition to the time and overhead costs you’ll save, a team of professional accountants has more small business accounting experience and can catch errors and provide foresight into potential implications down the road. Accounting mistakes are an expense no small business owner wants to worry about. The longer they go unnoticed, the more expensive and time-consuming they are to fix.
Con: You may feel like you’re losing oversight of business spending and activities when you stop doing it yourself.
Some business owners who have been holding accounting closer to the chest tend to worry that out of sight will mean out of mind. After all, your financial performance is a great place to uncover insights that have broader implications for your business’s efficiency.
This is why it’s good to maintain transparency with regular meetings with your accountant or CPA. We recommend scheduling a check-in each month, or at the very least each quarter. The goal of outsourced accounting and bookkeeping is to relieve you and your team from the manual data entry and report building, which is ultimately not the best use of your time. It’s not to keep you in the dark. An experienced small business accountant should be even better at identifying key business takeaways from your company’s financials and bringing them to your attention.
Pro: You can relax with peace of mind that you’re getting the most reliable, responsible support.
When it comes to your business, it’s your responsibility to provide a high-quality product or offering based on your industry standards. Likewise, an accounting services company is operating under even more pressure to ensure compliance with business and tax laws.
If you’re outsourcing your accounting with an outsourced provider or firm, you can rest assured knowing that they are well equipped with legal knowledge and advanced knowledge of the always changing small business tax and accounting laws. It’s likely that with multiple accounting professionals with various backgrounds on staff that they have someone who even specializes in your industry
Choosing the Right Accounting Solution for Your Business
The right accounting provider will help your business thrive, and there have never been more options for outsourcing your accounting, taxes, payroll, and other back office duties. Before you jump into a contract with the first business accountant you meet, take the time to research all of your different options to identify what will work best for your specific business.
Once you’ve narrowed things down a bit and are ready to make a decision, you’ll want to prepare for what an outsourced accountant will need to know about your business to get started. The sooner you can get an accountant up to speed on your business, the faster you will be able to see results.