Outsourcing accounting is a growing trend that has helped small businesses level up their size and revenue. A study from Clutch shows that Accounting is one of the two most outsourced services by small businesses, marking an upturn in growth vectors. As more businesses outsource their accounts departments, which is increasing exponentially, they gain a competitive edge widening the gap between them, and those who don’t. For businesses looking to outsource their accounting tasks to proficient masters in the field, here is a brief guide that sets the tone for how outsourcing accounting works, the challenges, risks, and costs involved in the process, and how small businesses can find reliable outsourcing professionals.
Accounting outsourcing is when a business chooses to delegate its accounting tasks and processes to individuals outside of its organization. At the core, it allows professionals to tackle every task related to accounting, just managed and facilitated by another company. Usually, a business may choose to outsource one or all functions. For example, you may wish to outsource General Ledger Management, and Financial Reporting to outside professionals, while doing the rest in-house. Or you may wish to outsource the entire accounting department to professionals, taking care of each function with care. Nevertheless, outsourcing accounting services covers a long list of functions.
Let’s explore these functions briefly to give entrepreneurs an idea of how many functions outsourced professionals usually handle.
Outsourcing organizations have evolved to handle any accounting tasks to allow businesses to delegate the entire department into the hands of trained professionals, allowing them to free up time and resources for other core functions directly related to generating revenue and planning the roadmap for growth. Here are a few of the outsourced functions that outsourcing experts usually tackle.
Outsourcing professionals actively handle the task of accounts payable which includes the management of vendor invoices, payments, and expense approvals to ensure timely and accurate payment processing. They’re also proficient in handling Accounts Receivable tasks such as tracking customer invoices, payments, and collections to maintain consistent cash flow and reduce overdue accounts.
With experts trained to handle anything outsourcing Payroll Processing tasks such as calculating employee wages, taxes, and deductions, while ensuring timely payroll disbursement in compliance with labor laws is a common practice among successful smaller and larger businesses globally.
General Ledger Management is not as widely outsourced, because it requires the integration of software that helps record and maintain all financial transactions to ensure accurate financial reporting and bookkeeping. Businesses are instantly equipped with the necessary software and training to allow streamlined reporting and recording in this case.
Financial planning, reporting, and analysis are functions that can be tasked separately for outsourcing, but they serve a greater purpose when combined. This process involves the preparation of income statements, balance sheets, and cash flow reports for informed business decision-making. Expert outsourced accounting consultants and analysts are also put to the task, offering insights and strategies for future financial performance, focusing on maximizing profits and controlling costs.
While taxation laws are constantly changing, outsourcing this function keeps the business up to date with every change that mitigates risks related to tax filing errors. Tax preparation and filing is usually outsourced to professionals who are mainly responsible for compiling tax documents, calculating liabilities, and ensuring compliance with federal, state, and local tax regulations.
While not so widely outsourced, it could prove helpful to delegate this task to experts who are more in touch with work related to banks and their terms. Bank reconciliation usually involves the intricate processes of matching financial records with bank statements to verify accuracy and identify discrepancies in transactions. As more businesses adopt outsourced bank reconciliation, their hands are freed up from doing all the research, and the back & forth that is required to keep up with banks.
Budgeting and Forecasting is a task usually reserved for experts with decades of experience, and it is a challenge recruiting such experts. This is where outsourcing this function allows businesses to have professionals on the roster analyzing financial data to create budgets and forecasts that guide business planning and resource allocation effectively whenever required.
Auditing is considered the most strenuous task for businesses It requires the handler to have exceptional knowledge of tackling auditors and collaborating with them until the completion of the auditing. Outsourced Audit support professionals help businesses bypass this hurdle by providing necessary financial records and reports to auditors to ensure smooth and compliant audit processes.
While being the most outsourced accounting service, offered by experts all over the globe, Bookkeeping plays a vital role in recording daily transactions such as sales, purchases, and expenses to maintain organized and up-to-date financial records. Outsourcing this function alone can free up the majority of time spent on daily tasks.
With experts on the team, outsourcing organizations routinely outsource the extensively intricate task of Expense management solely invested in tracking and controlling company expenditures to optimize cost efficiency and prevent overspending. The task of Cash Flow Management is also among the most popular outsourced accounting functions that involve monitoring incoming and outgoing cash to ensure the business meets its financial obligations in the short and long term.
Among the most crucial functions that fall under outsourced accounting services is Compliance Management. Their main tasks revolve around ensuring financial practices comply with regulations, industry standards, and internal policies to avoid legal issues. With professionals on their side, businesses can safely get around compliance issues which could have catastrophic outcomes if mishandled.
Fixed Asset Management is one of the rarer outsourced accounting functions which involves tracking company assets like equipment and property, ensuring proper valuation, depreciation, and disposal when necessary. The reason this is rare is due to its requirement of being onsite to inspect assets and collaborate with in-house staff to secure records for each.
Outsourcing accounting functions and tasks to experts enables business organizations to unlock 9 direct key benefits. Having in-house teams for accounting tasks comes with a plethora of challenges that outsourcing can address directly, and these are evident through the listed benefits. These self-explanatory benefits are the key factors to a business reaching its full potential when functionality and focus is in question. Let’s briefly go over the 9 key benefits of outsourcing accounting.
Outsourcing entire accounting departments helps businesses up to 62% on wages, overheads, and other operational costs, according to a recent survey. It also eliminates the need for costly in-house teams and infrastructure that are crucial to its operations. Businesses can focus on paying a single contract, which is more cost-effective in the long run.
Outsourcing provides access to highly skilled and certified accountants who have a proper understanding of changing global trends and standards. These experts bring in-depth experience and knowledge that would be too costly and time-consuming if hired in-house. Businesses also benefit from their expertise in the use of up-to-date accounting software and tools.
Outsourcing allows entrepreneurs to concentrate their time and resources on strategic business activities that are linked with generating profits, serving customers, and building to a new level. Instead of managing accounting tasks, they can entirely shift their focus to growth and innovation. This entails effective resource allocation, which also streamlines all other business processes, feeling into the main artery of the entire organization.
Outsourcing accounting tasks and functions also gives business organizations the benefit that ensures precise financial records and adherence to strict regulatory standards. Trained accountants follow IFRA, SOX, AML, and tax compliance protocols to provide businesses with precision beyond the capabilities of regular in-house accounting staff. This reduces the risk of costly errors while also keeping businesses legally compliant.
Outsourced accounting services adapt to your business’s changing needs, adding a much-needed benefit for businesses set for rampant growth and expansion. Whether scaling up or down, the accounting team can adjust seamlessly. This helps businesses grow without the hassle of constant recruitment, training, and cost allocation. Flexibility becomes a competitive advantage, which businesses badly need in a time where the global grand stage is the ground to conquer.
Outsourcing provides business organizations access to up-to-date and standard accounting software and technology. Businesses don’t need to invest heavily in these tools, as the outsourced teams come equipped with these necessary tools, including the expertise needed to operate them. This ensures accurate and efficient financial management while allowing the organization to have higher accounting capabilities.
Outsourced accountants follow strict data security protocols like SOX and GDPR, allowing the benefit to trickle into the business organizations they serve. Multi-factor authentication and encryption protect sensitive information, while regular security audits are enforced to ensure safety. This guarantees confidentiality and reduces data breaches.
Outsourcing to industry experts also speeds up accounting processes with quicker results, a benefit businesses desperately need in an environment that is especially fast-paced and competitive. Dedicated teams work with precision and faster deadlines. Reports are delivered on time, improving decision-making. Businesses can act swiftly on financial data without delays.
Outsourced teams bring strong risk management systems that help mitigate the plethora of roadblocks and dangerous predicaments businesses usually face. They handle compliance monitoring, audits, and backups with effective hands that leave no room for error. In-house teams may not have this level of readiness, usually taking up the heat from top-level management, and causing hiccups along the way. Outsourcing ensures better preparation for financial risks and challenges with a cool head, and prepared protocols for risk mitigation.
The following procedure describes the crucial steps in outsourcing accounting tasks to selected providers. Each of these 5 listed steps highlights points that a business must go through to complete and seamlessly maintain the entire outsourcing process.
The first step requires business organizations to research potential accounting service providers, compare portfolios, and get recommendations. Businesses typically request proposals to evaluate expertise and pricing followed by a quick consultation call.
Once a reliable and researched outsourcing provider is tracked down and selected, it is customary to get on a brief call, sometimes followed by a more in-depth conference call that discusses all involved processes, goals, strategies, and KPIs for good measure.
Once a provider meets every need of the business organization, both parties negotiate and agree on services, costs, timelines, and confidentiality clauses. A formal contract is signed over a grandiose conversation to outline responsibilities, set up KPIs and plan for the next big step.
Once the deal is locked, the business provides access to its financial systems, records, and software to the outsourcing team. The provider then integrates their team with the business’s financial processes, lays out the tasks, and assigns daily duties to get the work underway.
The outsourcing provider for accounting services then Establishes clear communication channels with the business organization to communicate through weekly meetings, email updates, or dashboard reports to ensure alignment on tasks and deliverables.
The outsourced team manages the assigned accounting tasks on a regular basis, like payroll or financial reporting, with regular updates, keeping the accounting department up and running for their client business organization. Businesses also monitor the progress to ensure compliance and quality, providing feedback for change.
The outsourced accounting service provider seeks routine feedback on the performance and stability from their client business organization. The business in turn can also opt to add or remove services, scale up or down, and adjust the entire team through a simple meeting and agreement.
Businesses choose to outsource their accounting department for a long list of viable reasons. Initially, they outsource to reap the 9 key benefits listed above, which could also be counted as their objectives. While most companies have goals, others have needs that arise as challenges to keeping up their accounting department from within. Here are the 6 key reasons why businesses are increasingly turning to outsourced accounting services:
Outsourcing connects businesses to a worldwide pool of specialized accounting talent, offering expertise, and cost effectiveness which may be unavailable within the borders of their own country.
During unpredictable national or international challenges, outsourced teams can swiftly pivot and provide instant support wherever they may be, offering solutions that keep the business running.
Businesses can delegate mundane tasks to providers, relieving teams to shift focus to strategic efforts, preventing burnout and increasing productivity through tasks that have a more hands on approach.
Outsourced accountants aren’t influenced by internal office politics or any sort of decision bias, providing clear and precise financial insights that can bolster the crucial decision making process.
Outsourcing helps small and medium businesses maintain lean and responsive operations, giving them the flexibility and scalability to adapt quickly to new market trends or shifting business needs.
Smaller businesses or startups often lack the resources to handle every accounting need through elaborate in-house teams. Outsourcing solves this through access to experienced professionals without recruitment, training, or maintaining an internal department.
There are several challenges to outsourcing accounting services. Most of these are commonplace when businesses outsource any function, but are easily overcome through collaborating with the right outsourced accounting service provider. Some of these are specific to inferior practices, while others are actual issues easily overcome.
Communication challenges can arise due to language and time zone differences, as is normal when outsourcing offshore. Most reputed accounting outsourcing companies will not cause a hindrance for time differences and language barriers through effective recruitment and collaboration. Establishing and clarifying the issue during consultation calls will break these barriers.
Outsourcing crucial functions such as accounting may lead to concerns about losing control over the processes that handle sensitive data. The majority of professional accounting outsourcing firms maintain oversight through Service Level Agreements (SLAs) and regular audits to ensure compliance and quality, so the cause for concern is usually null.
Data security is a growing threat, but not among outsourcing providers. Ensure if your outsourcing partner complies with data protection regulations (like GDPR). Business organizations must verify that the accounting service providers use secure technologies and have redundant data security measures in place, and only sign contracts when all these concerns have been addressed.
Potential hidden costs can be a daunting challenge when choosing to outsource, causing budgeting disruptions for business organizations and breaching the level of trust between both parties. Companies outsourcing their accounting tasks should seek transparency in pricing by clearly outlining every potential cost in the contract and requesting detailed invoices regularly.
On a wider scope, cultural biases and prejudices can affect collaboration between companies and their outsourcing providers. To mitigate this, businesses must Invest in cultural awareness training and encourage open dialogue to bridge gaps and align expectations between in-house respondents and outsourced accounting teams.
While most business organizations already have an in-house accounting set up prior to outsourcing, integrating outsourced functions with current systems can be challenging. The issue arises mainly due to incompatible accounting systems and regulatory standardizations. To overcome system inconsistencies, conduct compatibility assessments and engage IT support teams to facilitate a smooth transition.
One major debated fact among rising entrepreneurs is the over-reliance on a single provider for outsourcing accounting tasks. This creates vulnerabilities when the account providers aren’t able to provide consistent services due to their own challenges. Business organizations usually maintain a backup plan with secondary outsourced accounting service providers or in-house capabilities for uninterrupted continuity during disruptions.
Choosing the right accounting service provider is the most crucial task on the list, since it defines the trajectory of your business organizations. While there are countless criteria that can help entrepreneurs make informed decisions, these four directly address primary concerns.
Accounting departments vary between industries. Select outsourcing providers with proven experience in your industry and a strong reputation across verified business review platforms like Clutch. Look for client reviews and evaluate case studies that showcase their entire work process.
Accounting is dependent on various software, tools, and expertise for using them. Companies are advised to assess whether their provider uses up-to-date accounting software and tools that align with your business needs with compatibility in check. This will ensure accuracy, efficiency, and compliance with current regulations.
SLAs can vary between providers, and establishing clear SLAs prior to signing will define expectations, KPIs, work process, and timelines. Ensure the SLA from providers ticks out the who, what, when, as you proceed. This maintains accountability and ensures both parties understand their roles and responsibilities prior to contractual binding.
Since outsourcing is mostly done overseas and offshore. Cultural fit and communications can contribute to the challenges involved in professional outsourcing. Assess the cultural fit between your company and the provider prior to agreement, and establish clear and constant communication channels for regular updates, feedback, and collaborative problem solving.
For small businesses, outsourcing their accounting departments to professionals benefits them greatly. Since outsourcing can instantly arm businesses with a fully operating accounting team, startups and small businesses usually scale the best. At initial stages, it is considerably difficult for businesses to recruit, train, set up, and manage teams. Outsourcing these accounting functions can solve each of these issues, while allowing the business to commence operations on a major scale with full accounting support.
The costs for outsourcing accounting services doesn’t typically have a set cost associated with it, and this is mainly because it actually varies depending on the size of the operations, and the services selected for outsourcing. Companies seldom outsource their entire accounting department to professionals, keeping a few key functions under their control. If businesses are looking for a thorough estimate, a consultation call can help outline the costs after taking a look into the scope of the operations, and the requirements of the organization. However, the following are rough estimates of how much a few of the most outsourced accounting services may cost when listed separately.
Accounts Payable : A very basic process that can cost anything from $500 to $2,500/month depending on volume and complexity.
Accounts Receivable : Following along with Accounts Payable, this can cost anything from $500 to $2,000/month, mainly influenced by transaction volume.
Payroll Processing: When outsourced all by itself, it could cost somewhere from $50 to $100 per employee/month, based on the frequency and payroll size.
Tax Preparation and Filing: While being a function that’s used yearly it can cost $1,000 to $10,000 annually, depending on business size and jurisdiction.
Financial Reporting: This accounting function is outsourced on a needs basis costing anywhere from $1,000 to $5,000/month for standard reporting, with extra fees for specialized reports.
Bookkeeping: Being the most basic outsourced accounting function it can set companies back anywhere from $300 to $2,000/month, based on transaction volume and the frequency of reconciliation.
Compliance Management: While this function is not outsourced until needed, it can cost anywhere from $1,500 to $6,000/month, depending on the specific industry, regulations, and scope.
These are simply estimates, and should not be taken as absolute. The absolute costs are usually determined over consultation calls where the issues are discussed in more detail, bringing to light every necessity and requirement that helps gauge the actual cost.
Outsourcing accounting departments to offshore providers has several potential risks. Trustworthiness of the Provider is the primary concern, since this is sensitive data, and can be misused. While Compliance Risks may exist, confirming adherence to local and international regulations and understanding the mechanisms in place for compliance will alleviate much of it. Service Continuity is another major concern as businesses must ensure backup if the provider faces financial or operational issues through contingency plans. Additionally, Reputation Risks may arise when choosing a provider from high-scam regions such as India. A show of professional protocols and a positive reputation can mitigate distrust. Finally, having a clear Exit Strategy is a major risk to consider, since terminating contracts and transitioning to a new provider does occur in rare cases.
When outsourcing accounting services, choose a reputable provider with strong security credentials and assess their practices through case studies. Ensure they employ security measures like encryption and access controls. Limit the access of sensitive data to select accountants, and assess their compliance with data protection regulations. Lastly, communicate with your outsourcing partner to address security concerns through set protocols.
Entrepreneurs looking to outsource accounting functions to professionals need to follow protocols that secure a strong and collaborative partnership with reputed outsourcing companies. Picking an outsourcing provider is as crucial as knowing the challenges and risks involved in allowing third parties to handle sensitive data. Despite the challenges, outsourcing providers thrive and grow to serve thousands of businesses, taking full control of their accounting teams, while providing every direct and indirect benefit to arm the business for success.
SkyTech Solutions is poised to serve businesses with trained professionals for accounting outsourcing. Having delivered exceptional outsourcing services across multiple industries, the professionals on SkyTech Solutions are always prepared for a consultation call that highlights every point of success for business organizations world wide, and industry wide.
Sales organization and business process outsourcing specialist with over 15 years experience in building and running highly efficient sales and customer support organizations, and in providing board and project level consulting to the sales and service organizations of leading companies all over the globe. Developed and implemented staffing strategies and programs that improved operational.
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