The Pros and Cons of Outsourcing Accounting Services for Small business

outsourcing accounting services for small business

One of the most important tasks in any small business organization is accounting and bookkeeping since they coordinate and record most of the business transactions, yet they can be very time consuming and boring to most business people, and this makes them take more of their valuable time on trivial activities that are not likely to generate much income for their businesses. It is for this reason that many small businesses establish themselves with poor and time-consuming accounting systems, thereby restricting the owner’s focus to their core business activities. For that reason, outsourcing of accounting and bookkeeping is quite appealing.

But, it is also important to consider the fact that outsourcing your accounting services is not a suitable option for every small business. The following section outlines the major advantages and disadvantages of outsourcing small business accounting services or opting to have them in-house.

Top Benefits of Outsourcing Small Business Accounting Services:

Cost Savings
Obtaining the services of an in-house accountant or bookkeeper is not cheap, given the cost of the employee’s wages and contract, medical insurance, taxes, and other emoluments, as well as training and development costs. Engaging an accounting firm that specializes in dealing with small businesses is cheaper in most aspects. The outsourced rates make it possible for small business people to acquire professional accounting services at a cheaper rate than when they have to hire a full-time accountant.

Greater Accuracy
Accounting firms are one of the service providers for small businesses and offer various accounting services. They have the knowledge and experience to handle books and balance financial statements in order and correctly. Errors are costly when the penalty is tax charges or bad business decisions; however, accounting professionals prevent them.

Improved Compliance
They also know current ongoing compliance requirements for payroll, taxes, regulatory matters, and filings at the firm. They allow you to have more time for your family and friends while at the same time do not letting you fail to meet some important deadlines as well as compliance tasks that are sometimes easily forgotten by many new business owners who do not understand the importance of accounting.

More Objective Financial Insights
Typically, as a small business owner, you may find yourself entangled in the smallest of details of running the financial aspect of the business and therefore you may not have a comprehensive and independent view of the business's financial prospects, the cash flow, the trends of profits and losses, differences between the projected and the actual budget and the list is endless. An outsourced accounting provider offers an independent professional analysis of the given data and what it all means for the plans that are to be accomplished.

Better Technology
Accounting firms use the research monies to acquire the best and most advanced accounting software, tools to boost productivity, and data protection solutions. Small businesses can obtain these best-in-class technology investments for a fraction of the cost that would be necessary for a small business to incorporate, develop, and manage its in-house accounting technology structure.

Cons Outsourcing small business accounting includes the following;

Loss of Control
For example, one risk many business owners claim is that it feels like they completely lose sight or control when accounting is fully outsourced. Lack of engagement in processes or timely access to data would put decision-making at risk of making poor decisions before issues are identified. thereby, business owners need to search for outsourcing partners with accessibility and enabled openness for teamwork.

Learning Curve
There is always a change in the transition of outsourced accounting services from in-house accounting since the provider is different, with its way of working, reporting, and time schedules. This is therefore an initial investment of time in the first few months to communicate needs, set up work processes, train on automated systems, and become familiar with the use of financial reporting and analytical tools.

Vendor Management Burden
Every outsourced process involves vendor management, and this must be time-consuming and needs attention from the business side. Business owners must pay close attention to how they supervise and appraise vendors continually. Examples of risks included poor-performing vendors that can affect the business if proper attention is not paid to them.

Reduced Morale (Partial Outsourcing)
If one part of the accounting is outsourced and the second part, such as, for example, bookkeeping or payables/receivables remains in-house, it will be demotivating for the remaining accounting employees. The perception is usually stunted career mobility or getting stuck at one level when higher-skilled accounting activities are outsourced.

Security / Confidentiality Risks
Any external partner poses a risk to the security or confidentiality of intellectual property. Despite having proper controls, reputable accounting firms invest in data security, but it must also be ensured that which cloud-based tool is being used, security system or policy related to the external accountant is appropriate.

So, to decide which option is right for you, you need to consider several factors.

The advantages of outsourcing your accounting services are very attractive, especially to a small business owner who cannot afford to employ an accountant for his or her business and also does not have the time to do the accounting himself or herself. For the simpler clients’ needs in the small business, it may only take 10-15 hours monthly on outsourced financial statement preparation, reporting, and advising. Sustenance needs could need half that time, whereas more complex needs could require 50 or more hours monthly.

There is no clear outsourcing break-even point that a business can set to determine when it is right to outsource because this greatly depends on the internal wages, the level of expertise required, variations in the workload, and the capacity and expertise of the small business owner.

Finally, it should be understood that any small business has to find the optimum solution for internal versus external accountingourcing. The mix depends on the available cash, organizational resources, strategic plans, and the owner’s approach to management. For me, the key is to pay a lot of attention to all the advantages, disadvantages, and costs of each of them to determine which combination is optimal for the highest business outcomes.

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