Outsourcing refers to the process of hiring a third party to perform services usually done by the company’s employees or staff. Companies that outsource are usually trying to cut costs. For some small businesses, hiring an in-house team can be more expensive than outsourcing ad-hoc or ongoing tasks.
While the main driver for companies to outsource is to save on costs, some companies don’t plan to outsource due to the nature of their business, especially when they’re dealing with sensitive data and information. Some companies may not need to outsource because they’re too small. Another reason is that their employees might feel threatened and fear they may be replaced by a contractor.
Clearly, there are pros and cons to outsourcing. If you’re wondering whether outsourcing accounting tasks is right for your business, here’s what you need to know:
Why Companies Outsource
There are two forms of outsourcing: companies and individual contractors. In a 2018 survey from Client Accounting Services (CAS), they found that:
- 30% of companies that outsourced accounting received advice from their accounting firm and helped them increase profit.
- 80% have more time to focus on their business.
- 50% worry less about mistakes.
Outsourced services include accounting, customer service, IT, software development, and others. The main reason companies outsource is to save on expenses. Some companies outsource to find great talent outside the walls of their office. Other companies outsource so they can focus on the other side of their business.
Benefits Of Outsourcing Accounting
Aside from saving on costs and finding great talent, other benefits for outsourcing include the following:
Outsourcing companies maintain a high standard for their work. It’s their goal to make the client happy, thus they’re more efficient at what they do. Some outsourcing companies go above and beyond the requirements of the company.
Outsourcing companies operate 24/7. They have staff that can cover all the days of the month. These companies are also capable of hiring new talent and can let them go when they’re no longer needed. During the filing of taxes and auditing season, your accounting department may be understaffed. You can enjoy the extra workforce if you hire third-party business accounting services to augment your department.
Outsourcing companies are responsible for the equipment they provide to their employees. They’re also responsible for scaling their infrastructure as well. Thus, it will be cheaper for companies who don’t want to invest in hardware and accounting software to get their work done.
You can also save on office expenses. The outsourcing companies will be the ones buying the software and hardware, as well as the office supplies. Outsourcing can also help in budget forecasting and improving your cash flow.
Many companies have hired and trained bookkeepers and accountants. But they run the risk of paying more for the skills especially if these employees are experienced talents. Hiring junior accountants can be risky as well since they may not have the experience needed for the job.
Outsourcing can help you with these problems because the third-party company will be the ones doing the recruiting, training, and onboarding. Outsourcing can also help you save on retirement benefits, health insurance, and salary.
If you’re a busy entrepreneur, you may not have the time to check and balance the cash flow of your business. Without an accountant, you run the risk of losing more money. No one is there to file your taxes which can lead to penalties.
You don’t have to worry about these problems with outsourcing since you’ll have trained expert accountants with the latest accounting technology. They’ll keep your records up to date with the latest accounting practices.
Scale Up Easily
Having an in-house accounting team is great, but scalability can be a challenge. When your business grows, you’ll have to identify and hire skillful employees. You’ll have to train them until they can reach their full potential. Until the new hires can settle in their new role, the present team will have to work overtime.
With outsourcing, the team is already there, ready at any time. The third-party company can scale up or scale down, depending on your needs. For example, if you need one more personnel to do your accounting, they can assign one more person without the need to go through recruitment again.
Accounting and tax preparation is a time-consuming and rigorous process. Accountants or bookkeepers spend more time checking books and other data including tax declarations. Higher management will have to go through this in a meeting before approving instead of focusing on bringing profits to the business. When you outsource, your third-party partner will handle tax preparation and other tasks in your tax workflow, so you can focus on growing your business.
Outsourced Accounting Jobs
Some of the commonly outsourced jobs in accounting include:
Bookkeeping is the process of recording financial transactions. It also involves the preparation of documents such as transactions, operations, and other events related to the business. With bookkeeping, you can keep transaction records updated, which can help you generate accurate financial reports and measure your business’ performance. These records can be very handy during a tax audit.
Bookkeeping is important because it provides the exact financial situation of your company. It also helps you track cash flow accurately and detect fraud or banking errors.
Payroll processing means compensating the employees for the work they’ve done. Some of the typical payroll tasks include checking the employee’s time information, withholding taxes, benefits, and deduction, as well as distributing the employees’ pay for a given period. Employees who do payroll may use payroll software.
Internal auditing checks a company’s governance and accounting processes. This ensures that the company complies with the laws and regulations, and maintain accurate and timely financial report. Auditing is important because it provides insight into an organization’s culture, policies, and procedures. It also checks if the company complies with the relevant laws and regulations.
Outsourcing is not for everyone. If you consider outsourcing your accounting processes, you’ll enjoy easier scalability, access to great talents, and savings. However, you need to weigh the pros and cons before you decide if outsourcing is the right choice for your business.