The Pros and Cons of Outsourced Accounting Services
Outsourcing critical business functions can bring tremendous results to a company, on top of saving costs. According to Small Business Outsourcing Statistics in 2019, more than-one third of small businesses had currently outsourced a business process, with more than half (52%) planning to do so by the end of that year. So, what is outsourcing?
What is Outsourcing?
Outsourcing is the practice of hiring a person or an organization outside your own to perform specific services for your company. Small business owners can outsource crucial functions such as human resources, customer support, marketing, and accounting.
Small business owners must juggle many roles and responsibilities on a daily basis. Outsourcing allows them to take certain functions of the business off their plate, so they are able to focus on the most important tasks at hand. Entrepreneurs may outsource some of their work, versus hiring in-house employees to do it, to save on costs related to salaries, overhead, and equipment.
One of the most commonly outsourced business functions is accounting. Why?
Outsourcing Accounting: Pros and Cons
In January of 2020, Bloomberg released an article on how small business owners underestimate the time it takes to process their employees’ payroll. The article cited an Intuit Quickbooks survey of 1,006 employers in the United States, which revealed that 63% misjudged the time it took to process payroll – with some spending nearly five hours each payday calculating, filing and remitting taxes. Not only did these respondents say they spent a significant amount of time on payroll, but many found the process frustrating, complicated and confusing.
Furthermore, the survey also revealed that, “38% of employers said they could spend time focusing on the business if payroll were outsourced to a third party; 35% said other tasks that require their attention could be better prioritized; 32% said they could trust that the (third-party) process could be completely accurate; and 31% said an outside payroll-processor would give them peace of mind.”
How does a small business owner know if accounting outsourcing is the best decision to maximize his or her company’s annual budget, versus hiring an in-house accountant? Here is a detailed breakdown of the pros and cons for a business owner to be aware of when considering outsourcing accounting services.
1. Save on costs
Outsourcing accounting services are generally less costly compared to hiring an in-house accountant. It allows a company to select the tasks it needs immediately at a price it can afford.
Furthermore, business owners don’t have to worry about added costs associated with hiring an employee, like overhead, benefits, insurance, and office equipment. Most small businesses have turned to global outsourcing to handle complex accounting tasks at a fraction of the cost.
2. Work with experts
On top of cost savings, outsourcing accounting services saves companies the time and effort they’d otherwise have to spend to hire and train their own in-house accounting staff. Organizations that provide accounting outsourcing services have already trained their employees to apply the latest and best practices to deliver transformative results.
These professionals have years of experience in finance, accounting, bookkeeping, and tax compliance. They also comply with the general accounting principles that govern their methods. Business owners can rest assured knowing their company’s finances are in able hands, and that they have access to professional knowledge and guidance if and when they need it.
3. Get the best value for the buck
When small business owners offload their accounting needs to an external organization, they only pay for the services they need. They can integrate payroll, taxation, and retirement benefits with other requirements like bookkeeping or generating budget reports.
Accounting service providers also utilize state-of-the-art software that ensures greater visibility of the client’s finances. The detailed reports generated by these tools help companies map out their next course of action without spending money on both talent and software.
4. Have more time for core business functions
Outsourcing accounting professionals versus hiring in-house employees frees up that money in your budget to put towards other uses and critical tools, like a professional website, social media ads or marketing campaigns. Instead of allocating money to hiring an accountant, you can use that money to hire another person to grow your sales team, which would help generate more revenue.
1.Slower turnaround time
One of the benefits of having an in-house accountant is faster turnaround of needed data. Small business owners can easily reach their accountants in the office to pull data anytime they need it.
When it comes to working with an outside expert to handle finance-related documents, it usually takes more time to hear back from them as chances are, you aren’t their only client.
2. Unexpected costs
Since the accounting services outsourced to third-party organizations are customizable, there will be costs added to them. If a company works with unreliable outsourced accounting firms, chances are the client won’t have complete visibility of the charges incurred until they receive the bill.
Before this happens, clarify the terms of the partnership, including the services used and the total amount billed to the company.
3. Less quality and operational control
Hiring an accountant gives business owners the upper hand in controlling the quality of financial reports. They also have leverage in overseeing the entire accounting process and applying the principles that are already working for the business since the beginning.
That’s not the case when the company is getting outsourced accounting services. Accounting firms have their ways of manipulating data using the tools that are most convenient for them.
4. Risk of potential security breaches
When an organization outsources accounting functions to people outside the organization, they expose their data. Financial information is the lifeblood of the business, so mishandling of confidential data may impede the company’s steady growth.
Small business owners need to assess their contractors very carefully. They should evaluate the accounting firm’s protocols in handling private financial data before hiring them for the job.
When weighing the pros and cons of accounting outsourcing, the decision-makers in every small business should analyze what the company needs at the moment while also considering long-term goals. These pros and cons of accounting outsourcing will help business owners decide where to put their money to get the maximum results.