Outsourcing accounting for your small business: Complete guide
Managing a company’s accounting needs can get the best of even the most attentive small business owners. Tasks like bookkeeping, financial reporting, and payroll taxes often become overwhelming, leading to stress and inefficiency.
Outsourcing is an ideal solution for many of these tasks. It boosts efficiency by letting experts handle your financial management while you focus on core business decisions.
Let’s demystify the benefits of outsourcing accounting for small businesses, the challenges involved, and the best practices to help your business thrive while you achieve financial clarity.
What is outsourced accounting, and how does it work?
Outsourced accounting involves hiring an external firm to manage your financial records and tasks. Instead of maintaining an in-house accountant, you collaborate with a professional team specializing in accounting functions like bookkeeping and tax preparation.
Here’s how it works:
Data sharing: You provide your financial data securely to the firm.
Remote management: The firm handles payroll taxes and financial reporting, often using cloud-based tools.
Tailored support: Services are customized to meet your accounting needs, ensuring flexibility and scalability.
Unlike in-house accounting, outsourcing reduces overhead while providing access to expert guidance and improved redundancy. In-house teams can leave business owners vulnerable when a key employee leaves the office or departs the company.
With an outsourced team, you leverage a group of experts, ensuring continuity, maintaining accurate financial statements, and streamlining business processes—all while freeing up time to focus on growth.
Common accounting services small businesses outsource
Many small businesses choose to outsource specific accounting functions. Here are the most common services and their benefits.
Bookkeeping
Bookkeeping is a fundamental component of effective financial management:
What it covers: Bookkeeping involves recording daily transactions, categorizing expenses, and reconciling accounts to ensure accurate and up-to-date financial records.
Why outsource: Outsourcing bookkeeping guarantees accuracy and saves time.
Payroll processing
Payroll tasks ensure that employees are paid in a timely manner, maintaining their satisfaction and your legal compliance:
What it covers: Payroll processing includes calculating wages, deducting taxes, and ensuring compliance with labor laws.
Why outsource: You avoid costly mistakes and ensure employees are paid accurately and on time.
Tax preparation and filing
Tax compliance is critical for avoiding penalties and optimizing deductions:
What it covers: This includes preparing and filing business taxes, identifying deductions, and ensuring compliance with federal, state, and local regulations.
Why outsource: Professional accounting firms simplify tax preparation, ensure accuracy, and help your business stay compliant while determining how to achieve the most significant cost savings.
Financial reporting
Gain clarity on your business’s financial health with professional reporting:
What it covers: Financial reporting encompasses creating balance sheets, income statements, and cash flow reports to assess your business’s financial health.
Why outsource: Outsourcing delivers clear, comprehensive reports tailored to your needs.
Auditing
Audits ensure your business adheres to laws and regulations, with the documentation to prove it:
What it covers: Auditing involves examining financial records to ensure accuracy and compliance with regulations.
Why outsource: A professional audit builds trust with investors and stakeholders.
Accounts receivable and payable
Smooth cash flow is critical for any business’s success—and it requires proper management of accounts receivable (AR) and accounts payable (AP):
What it covers: This service includes managing invoices, tracking payments, and ensuring timely collections.
Why outsource: Effective AR and AP management better ensures smooth cash flow, reduces errors, and provides a more accurate understanding of your precise financial situation.
Budget planning and forecasting
Plan for growth and navigate uncertainties with confidence:
What it covers: Budget planning involves developing comprehensive budgets and creating financial forecasts to predict future trends.
Why outsource: Outsourcing budget planning ensures expert guidance in financial forecasting.
Benefits of outsourcing accounting for small businesses
Outsourcing your accounting offers several key benefits that can transform how you manage your business’s finances. You can save time and money by leveraging these outsourced accounting benefits while still accessing and scaling expertise to meet your needs.
Cost savings
Outsourcing accounting helps reduce overhead costs, making it an effective solution for small businesses looking to:
Reduce expenses: Save on hiring, training, and retaining in-house staff.
Boost income: Some small businesses leveraging external financial advice have reported a double-digit percentage revenue increase.
Efficient resource allocation: Redirect savings to core business activities and growth opportunities.
Time savings
Outsourcing frees up valuable time, allowing business owners to focus on strategic priorities. A tax preparation partner provides:
Administrative relief: Spend less time on repetitive tasks like bookkeeping and payroll.
Streamlined operations: Rely on experts to handle time-consuming accounting functions efficiently.
Growth focus: Concentrate on driving growth and improving business processes.
Access to expertise
Gain the insights and support of seasoned accounting professionals, including:
Industry knowledge: Work with experts who understand your sector’s unique needs.
Advanced tools: Leverage the latest technology without additional investment.
Tailored solutions: Benefit from customized advice and services that align with your business goals.
Scalability
Outsourced accounting adapts to your business’s evolving needs via:
Flexible services: Adjust support levels based on seasonal or growth demands. Shift up during busy periods or settle back down during slower times.
Future-proofing: Ensure your accounting infrastructure grows with your business, reducing stress and inefficiencies.
Challenges with outsourcing accounting
While outsourcing offers many advantages, it’s important to recognize the accounting challenges for small businesses. By understanding these challenges and preparing for potential obstacles, you’ll empower your business to thrive:
Loss of control: Outsourcing can raise concerns about maintaining oversight of financial processes and ensuring everything aligns with your expectations. You may worry about losing control over critical financial data and decision-making. Preventing this challenge requires establishing transparent workflows, communicating expectations upfront, and requesting regular updates to stay informed.
Communication barriers: If communication is ineffective, collaboration with external providers may lead to misunderstandings or delays, disrupting workflows or resulting in missed deadlines. Ensure your tax preparation partner prioritizes you and replies promptly, especially during the busy tax season. Use collaborative tools and schedule regular meetings to maintain open and clear communication channels.
Security and privacy concerns: Sharing sensitive financial records with third parties can feel risky, particularly in regulated industries where financial data breaches or compliance issues could arise and result in severe consequences. Partner with providers that use robust security protocols, earn compliance certifications, and follow Generally Accepted Accounting Principles (GAAP) and other applicable standards.
Building trust: Establishing confidence in a new external partner takes time and effort, and trusting someone outside your organization to manage critical tasks can be challenging. Review their track record and request testimonials or references to gain more confidence in their expertise and reliability. You might also consider starting with a trial period.
Best practices for successfully outsourcing your accounting
Outsourcing accounting can revolutionize the way your business handles financial management. To ensure success, focus on strategies that promote clear communication, define goals, and foster trust with your provider.
Here are some of the best outsourced accounting tips.
Establish clear objectives and expectations
Defining goals and expectations is vital to a successful partnership. Clarity ensures mutual understanding and sets the foundation for trust and collaboration.
Be sure to:
Define goals: Specify the tasks and accounting functions you want to outsource, from bookkeeping to financial reporting.
Communicate clearly: Provide your provider with a detailed scope of work, including deadlines and performance metrics.
Communicate regularly
Maintaining open communication channels fosters collaboration and prevents misunderstandings. Strong communication builds a customer-centric, relationship-driven partnership.
To achieve it:
Schedule check-ins: Hold regular meetings to review progress, address concerns, and refine workflows.
Use collaborative tools: Leverage technology to share updates, track tasks, and keep communication seamless.
Monitor performance and provide feedback
Consistent monitoring ensures quality and allows for continuous improvement. Feedback is a key driver of success in any outsourcing partnership, particularly when partners:
Track progress: Use agreed-upon performance metrics to assess your provider’s effectiveness.
Offer constructive feedback: Share insights to help refine processes and improve outcomes.
Maintain compliance with regulatory requirements
Ensuring compliance protects your business and instills confidence in your financial management practices. Partnering with a trusted provider minimizes risks and best ensures you:
Adhere to standards: Confirm that your provider complies with industry regulations, such as ASC 606 or IFRS 15, as appropriate.
Stay updated: Keep informed about tax laws and financial policy changes to maintain compliance.
How to choose the right outsourced accounting partner
Picking the right accountant can be a game-changer for your business’s financial health. To maximize the benefits of professional guidance when choosing an accountant, follow these steps.
1. Determine your accounting needs
Start by identifying the tasks you want to outsource and ensuring they align with your business goals. Then, evaluate your budget to determine the level of expertise you can afford while still receiving high-quality support.
2. Research potential providers
Look for firms with proven industry experience to meet your specific accounting needs. Read reviews and ask for recommendations from peers to ensure you’re partnering with a reliable provider.
3. Evaluate providers’ experience and credentials
Examine the provider’s certifications and track record to confirm their credibility. Assess their familiarity with your business’s unique needs to ensure they can deliver customized and effective solutions.
4. Consider technology and software compatibility
Ensure the provider uses tools that integrate seamlessly with your current systems, minimizing disruptions. Ask about their approach to technology upgrades and ongoing training to ensure they’re staying ahead in the industry.
5. Review security measures
Confirm that the provider follows strict data protection protocols to safeguard your sensitive information. Verify their compliance with regulations and industry standards to protect your business.
6. Assess cost structure
Understand the provider’s pricing model, including any additional fees. Compare these costs against your budget and evaluate the potential ROI to ensure the partnership is financially beneficial.
Ready to outsource your accounting?
Outsourcing accounting for small business needs can transform operations by reducing costs and saving time. A trusted partner will deliver all the benefits of hiring an accountant and ensure critical financial tasks are handled expertly.
Archer Lewis offers small business accounting services tailored to your unique needs. Let us handle the numbers while you focus on what you do best. Explore how Archer Lewis can help with your small business accounting.