Outsourced Accounting makes it possible for small businesses to have access to bookkeeping, financial reporting, and long-term financial planning assistance that they need.
There are many benefits of hiring an outsourced accountant. In this article, we will discuss the most important things for you to know about outsourced accounting and how this unique process can have a positive impact on your business.
While almost any component of running a business could potentially be outsourced, accounting processes are among the most common.
This is largely because not only are most accounting tasks rather tedious, but also, many small business owners find themselves entirely unprepared to mange their books on their own.
Outsourced accounting is also commonly referred to as fractional accounting or fractional CFO services.
Many outsourcing partners are willing to help well beyond the traditional “accounting realm”. And they will additionally help with other services such as investing, legal, and developing financial infrastructure.
The firm that makes the most sense for you will depend on many different factors. Things such as your budget, the structure of your business, and your current accounting needs will all need to be considered.
Below, we will discuss the ins and outs of the outsourced accounting industry. And we will attempt to answer some of the most common questions.
What is Outsourced Accounting?
Outsourced accounting is a broad term used to describe the act of delegating accounting tasks to a qualified firm or individual outside of your company.
Generally, the accounting process can be divided into four distinct phases:
- interpreting financial data
Each of these phases will have a major impact on whether your business is successful.
Fractional accountants come in many different forms. Some will be available on an as needed basis and will be kept on retainer–comparable to many lawyers.
Others will be hired only for specific tasks, such as preparing financials statements or preparing for tax season.
Most outsourced accounting firms offer their services a la carte, allowing you to easily create an accounting system that works for you.
Why do Businesses Outsource Their Accounting Department?
Outsourced accounting is an excellent option for business who currently have complex financial needs, but are not yet in a position to hire a full-time accountant of CFO.
For reference, the average salary of a CPA is around $62k per year.
The base salary of a qualified CFO, according to recent estimates, hovers around $300,000.
Naturally, many small businesses — whose founders are making less than this amount — are not quite yet ready to “make the leap” to hiring somebody in-house.
A recent study conducted by Deloitte, one of the world’s largest accounting firms, asked businesses why they choose to outsource their accounting tasks to someone else.
While the responses to this survey varied, there were quite a few consistent results. The top reasons for hiring an outsourced accountant include:
- Cost Cutting Tool (59 percent of respondents)
- Enables Focus on Core Business (57 percent of respondents)
- Solves Capacity Issues (47 percent of respondents)
- Enhances Service Quality (31 percent of respondents)
- Critical to Business Needs (28 percent of respondents)
Other common responses include access to intellectual capital, managing the business environment, and driving broader transformational change.
If your small business is currently expanding, you are likely facing an unprecedented series of new challenges. Outsourced accountants can help take you from where you are to where you need to be.
How Does the Outsourced Accounting Process Work?
This inner workings of the outsourced accounting process will vary by company. Usually, the process begins with a preliminary interview.
Use the interview to compare multiple different firms and discover which one is the best fit. You should carefully consider all variables such as budget, services offered, and experience.
Once you have chosen a firm, they will begin the process of helping you organize your books.
In the modern era, where a large portion of outsourced accounting takes place online, there will likely be a “client portal” that allows you to communicate and cooperatively manage your books.
After you have the proper infrastructure in place, your accountant will then be able to help you achieve your long-term goals.
Common accounting goals include:
- preparing taxes
- building financial models
As time goes on, your business will be able to make adjustments as needed.
Should My Business Hire an Outsourced Accountant?
The decisions to hire–or not hire–an outsourced accountant will naturally have a major impact on your business’ overall well-being.
In 2019, 37% of small businesses outsourced their accounting according to a Clutch survey.
The choice that makes the most sense for you will depend on the current dynamics of your business. Before making any final decisions, ask yourself the following questions:
- Am I qualified (and willing) to handle our accounting tasks on my own?
- Is it financially justifiable to hire a full-time-in-house accountant?
- Are our accounting duties currently distracting from other portions of our business?
- How can we improve our accounting processes?
If you answered “yes” to one or more of the questions listed above, then it may be in your best interest to hire an outsourced accountant.
Because most outsourced accounting firms offer scalable services, you will not necessarily need to commit all your resources up front.
Instead, you could hire the firm for a single task (such as tax prep) and then expand your services as needed.
How Do I Know Which Outsourced Accounting Firm Is Best for my Business?
In a nation with more than one million accountants, it is no surprise that there are many varieties of outsourced accounting firms to choose from.
Because of the sheer number of options available, it will be critical to choose a partner who is compatible with your business.
Throughout the preliminary interview, try to learn as much about each prospective firm as you possibly can.
Working with a firm that has experience with businesses similar to your own (size, industry, goals, etc.) will make it much more likely that you’ll get the results you are hoping for.
Additionally, you’ll want to make sure that the firm has the infrastructure in place that will actually help you.
Being able to manage and update our books online, for example, will make it much easier for you to successfully run a business.
Other factors, such as budget, communications, and scalability will also need to be considered.
Ready to Hire an Outsourced Accounting Firm?
Over the past decade, the outsourced accounting industry has been expanding remarkably. These firms make it possible for your business to handle your books and other accounting needs in a much more productive way.
Because accounting is one of the most important components of the business cycle, your choice of fractional accountants needs to be taken seriously.
Image credit: Photo by StellrWeb on Unsplash edited on Canva
Updated 3/3/20 to add additional resources and Pinterest image.
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