Outsource Your Accounting? Pros, Cons, and Costs for Small Businesses

Wed | December 2023

Are you thinking about outsourcing your accounting? Many companies see this as a good strategy because it can save money and give access to experts. But there are also challenges.

In this article, we explain what accounting outsourcing is, its pros and cons, and how to decide if it's right for your business. We also help you figure out if it fits your budget. Let's start by defining what accounting outsourcing for small businesses is.

What is Outsourced Accounting?

Accounting outsourcing is when a company hires a third party to handle its accounting and financial functions. Outsourced accountants handle various tasks, such as bookkeeping and payroll. They also manage financial reporting, taxes, and other account-related services.

The topic may seem complex, but it's quite simple. Think of it as letting experts handle your finances. This simple move can transform your business, offering the following:

• Cost savings: Save 30-50% on costs compared to doing accounting in-house. This will free up resources for growth.

• Time reclaimed: 10+ hours per week to focus on what matters – your core business and customers.

• Expertise on tap: Get the specialized knowledge you need, like tax optimization and strategic financial planning.

• Confident decisions: Say goodbye to uncertainty using reliable and timely financial reports.

• Less stress, more peace: Delegate the bookkeeping burden and enjoy a lighter work load.

While outsourcing your accounting can offer several benefits, it's a good idea to scrutinize all the possible costs and benefits before making a final decision. Consider these key points:

• Compare costs: Look beyond fees – factor in software, setup, and hidden charges.

• Find the right fit: Choose an agency that aligns with your values and needs. Ask about experience, technology, and communication.

• Embrace the cloud: Use secure cloud-based systems. They allow for real-time data access and improved collaboration.

Does outsourcing your accounting sound like the solution you were looking for? Could be! But before you decide, we will discuss the main pros and cons of this path to financial freedom in the following sections.

Advantages of Outsourcing Your Accounting

Outsourcing accounting presents a compelling solution for many businesses, especially those with limited budgets. Studies by the AICPA and Clutch show that small businesses can save 15-30% on accounting costs by outsourcing. The Chartered Institute of Management Accountants also found that outsourcing can save businesses up to 50% on accounting costs.

Beyond cost savings, outsourcing grants access to specialized expertise. Imagine a construction company grappling with complex project accounting. Outsourcing this task to a team with dedicated construction software knowledge frees them to focus on building. In contrast, a small restaurant can outsource routine bookkeeping tasks like daily transactions and report generation, gaining valuable time and expertise.

Transparency and control are further enhanced by cloud-based solutions employed by most outsourcing services. These systems provide real-time access to data, enabling informed decision-making through advanced analytics.

Furthermore, outsourcing offers remarkable flexibility. A seasonal business can handle peak periods without permanent staff, and a tech startup can scale its accounting needs quickly by outsourcing specific tasks like accounts payable or receivable management.

As Warren Buffett aptly stated:

"Outsource anything that doesn't contribute to your core business."

Outsourcing accounting isn't about relinquishing control; it's about empowering yourself to focus on the heart and soul of your business. Explore the diverse landscape of outsourced accounting solutions and discover the perfect fit to fuel your growth and success.

Potential Downsides of Accounting Outsourcing

Outsourcing accounting can be tempting, but before you hand over the keys to your finances, consider this: 67% of businesses were hit by data breaches in 2023, according to the Ponemon Institute. Sharing sensitive financial data with a third party adds a layer of risk, so choosing a secure agency is crucial. Look for certifications like SOC2 or ISO 27001, and prioritize clear communication about their data protection measures.

Time zone differences, cultural gaps, and language barriers can also create communication headaches. Delayed access to crucial financial information can lead to missed deadlines and costly penalties. To avoid these pitfalls, seek an agency with proven data security, effective communication methods, and experience in your industry and region.

To summarize, you must weigh the advantages against the risks when outsourcing accounting. You can create a successful and secure outsourcing partnership by getting expert advice and actively dealing with these concerns.

Don't let these risks stop you from exploring the benefits of outsourcing! You can create a successful and secure outsourcing partnership by getting expert advice and actively dealing with these concerns.

Cost Analysis of Outsourcing Accounting Services

Let's talk about the actual cost before you outsource your accounting. Don't just focus on the initial price. The cost includes your time, potential future savings, and overall financial situation. 

First, break down the costs of your current setup. How much do you spend on salaries, benefits, payroll taxes, and training for your accounting team? Don't forget hidden costs like office space and equipment. Next, compare that to the fees of a good outsourcing service. It's not just about the monthly retainer. Ask about setup costs, additional fees, and potential hidden charges. 

But it's not just about the price tag. It would help to find someone you can trust with your financial health. Service quality, reliability, and expertise are equally important. Look for an agency with a strong track record, relevant experience in your industry, and the necessary certifications. Finding the right balance is crucial. You don't want to sacrifice quality for a cheap deal, but you want to spend only a little on unnecessary features. Be honest about your budget and prioritize what truly matters to your business.

Outsourcing can save you a lot of money in the long run. You'll no longer have to worry about training costs, benefits, or finding extra office space. A good agency can also streamline your processes, improve efficiency, and give you more time to focus on growing your business.

Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.