What is outsourced accounting, though, and is it a viable solution for you?
What is outsourced accounting?
Not to be confused with bookkeeping, which mainly deals with recording transactions, accounting involves:
- Analyzing financial statements and costs of operations
- Recording expenses that weren’t recorded by the bookkeeper, which are known as adjusting entries
- Completing income tax returns and doing tax planning
- Determining the financial impact of business decisions, analyzing cash flow, and evaluating the overall financial health and profitability of a business
Put simply, outsourced accounting means hiring a third party to handle all or some of your accounting functions for you. So what are some benefits of outsourcing your accounting?
Why outsource your accounting?
Outsourced accounting services can:
- Save you time. The most obvious benefit is, of course, that it can free you up to focus on other daily responsibilities, including those that generate income directly. But finding a reputable accounting firm to lend you a hand also requires far less time than searching for, hiring, and onboarding an in-house accountant.
- Save you money. Outsourcing accounting is also more cost-effective than hiring an in-house accountant. After all, it eliminates the need to budget for office supplies, taxes, employee benefits, accounting software, and other expenses.
- Make it easier to scale. As your business grows and changes, your accounting needs will probably change as well. But it may not be possible or ideal to create a full-fledged internal accounting department. If you outsource to a flexible partner, you won’t need to.
- Reduce errors. If you’re not an accounting pro, it can be easy to make financial reporting mistakes. These can leave you overpaying in taxes or, even worse, underpaying, which can get you fined by the IRS. For many growing companies, having experts on their side is a welcome layer of protection against such issues.
Clearly, outsourced accounting has many advantages. But how does it stack up to alternative solutions?
Alternatives to outsourced accounting
As mentioned, one alternative to outsourcing is hiring a full-time employee or assembling an accounting team to handle accounting functions. But this is often a huge expense for smaller businesses and difficult to scale as businesses grow. This is why many companies look into DIY accounting systems such as QuickBooks or Xero.
These tools can be helpful for automatically importing transactions from your bank accounts and payment processors like Stripe. You can categorize them quickly as well. And they generally cost less than hiring expert bookkeepers and accountants.
However, accounting software has its downsides too. For example, the learning curve can be steep, which could cause you to input information incorrectly and yield inaccurate financial insights. Not only could such errors land you in hot water with the IRS, but they could also contribute to bad business decisions that impact your financial future.
In an effort to avoid that pitfall, many companies fall into another one. They spend hours doing tutorials, chatting with support representatives, or double-checking their numbers. And every hour spent learning or managing accounting software is an hour not spent on generating revenue directly. If your business is growing steadily or you’re already spread thin, that may be time that you don’t have.
To outsource or not to outsource?
Ultimately, the best route for you will depend on several factors. Be sure to consider all of the following.
As with any service, the cost of outsourced accounting varies by provider. The same goes for payment terms, since some charge by the hour and others by the month. Therefore, your decision will require some budgeting on your end to see what you can afford—whether it be an accounting partner or an alternative.
If you do decide to pay a third party to handle your accounting, be aware of the potential for scope creep. You’ll want to set clear expectations from the start about the scope of work, not to mention how to handle any tasks outside of that scope, especially if you’re paying hourly. An early and open discussion about this can keep you from being hit with unexpected costs down the line.
The security of your financial data
Cash flow, balance sheets, financial statements, and the like are all sensitive, confidential information. You wouldn’t want any of it to fall into the wrong hands. So understanding how an accounting partner or tool protects your financial information before you share it is essential.
Your current and future accounting needs
Do you or will you need comprehensive financial services? Or would help in just a few areas be sufficient? Your answer will reveal the right accounting solution for your company. (Ideally, you’ll want one that works now and that’s flexible enough to adapt to future business needs as well.)
Speaking of current and future needs, Bench has three convenient, flexible options worth considering.
How Bench can help
If you have a Certified Public Accountant (CPA), we can handle your monthly bookkeeping and then send your financials and tax prep info to your CPA at year-end. Clean and accurate books give your accountant less work to do and, ultimately, save you money.
If you need a bit more support, Bench also offers outsourced accounting services, including tax prep and tax filing. If your needs are even more complex (say, for example, that you need to track accounts receivable, accounts payable, or segment level bookkeeping), we offer specialized bookkeeping and advanced accounting services.
As America’s largest professional bookkeeping service for small businesses, we’re dedicated to helping you get the financial insights you need in one simple, easy-to-use-platform. And it costs less than hiring a traditional bookkeeper or accountant. Give Bench a try for free and see for yourself!