Maximize Business Growth: The Benefits of Outsourced Accounting

Do you run a business and find yourself stressed with all the accounting work? You are not alone. As businesses grow, accounting tasks tend to pile up. From bookkeeping to financial statements, taxes to payroll – it can all become overwhelming. This is where outsourced accounting comes in handy.

Outsourced accounting services involve hiring an outside professional accountant or firm to handle your bookkeeping needs remotely.

They perform tasks like data entry, payable/receivable, and bank reconciliations from an off-site location. By outsourcing mundane accounting tasks, you can focus on your core business functions. This gives you time to deal with sales, marketing, customer service, and other important tasks.

Outsourced accounting adds scalability to your business. If you face high work volumes seasonally, you don’t need permanent extra staff. Your outsourced accounting partner can quickly assign more resources to handle spikes. 

Similarly, as your business grows or tackles new projects, you need not hire another accounting employee. Your outsourced accounting provider can take on expanded work seamlessly. So, in this post, we will learn everything about outsourced accounting, its benefits, factors affecting the price of outsourcing, and much more. So, let’s get started: 

What is Outsourced Accounting and Bookkeeping?

Outsourcing accounting and bookkeeping means when a company hires another company or person from outside to do their accounting work for them. Instead of having an accountant as their employee, they send all their invoices, bills, bank statements, and other financial records to another accountant who is not working inside their company.

This outside accountant will use their skills and knowledge to do things like record all the financial transactions in the company’s accounting software or books.

They will collect the bills and see how much money is coming in and going out. With all the records they receive, they will figure out profits and losses for the company. They also prepare tax documents that need to be filed with the government every year.

By outsourcing accounting work, companies benefit because they do not need to hire and pay a full-time accountant. Accounting firms offer bookkeeping and accounting as a service, so any small business can afford it without needing to employ someone. 

The outside accountants have experience dealing with many different companies, so they learn faster ways to do the work. They can focus only on the accounting and allow the company to focus on their main business, like making or selling products.

Benefits of Outsourced Accounting

Accounting is an essential part of any business. However, maintaining accounting in-house is not always cost-effective or time-efficient for companies. Outsourcing accounting to an external provider can be greatly beneficial:

Cost Savings

Outsourcing accounting allows businesses to reduce operating costs significantly. By outsourcing, companies do not have to spend money on hiring full-time accounting staff, equipping an in-house accounting department, or purchasing accounting software. 

For example, a medium-sized firm with ten employees previously maintained an accounting team of 3 people. By outsourcing to a third-party provider, they could reduce payroll expenses and other accounting overheads.

Access to Experts

Outsourced accounting firms employ specialists with expertise in different areas like bookkeeping, payroll management, tax filing, and financial reporting. Such experts keep themselves updated with changing accounting standards and compliances. 

As they handle accounts of multiple clients daily, they gain extensive experience, which a small in-house team may lack.

Consequently, outsourcing ensures access to experienced professionals equipped with the latest skills and knowledge. For instance, a startup that outsources to a firm with certified public accountants and bookkeepers can benefit from their technical skills.

Scalability

A third-party accounting firm can easily scale up or down its services as per the changing needs of the client. As client businesses grow or downsize, the accounting provider can adjust the quantum and type of services delivered to match requirements. 

However, modulating an in-house accounting team as to changing needs involves complex factors like hiring, training, and layoffs. For example, a company that witnesses seasonal fluctuations in revenue can scale accounting services month-on-month through outsourcing.

Focus on Core Business

Outsourcing frees up internal resources to concentrate on core functions and growth initiatives rather than non-core compliances. Valuable management time and effort are saved from the mundane tasks of accounting. 

Companies can then channel attention towards tasks like product development, customer acquisition and strategic planning that directly impact revenues. For instance, a manufacturer saves time spent on financial audits by outsourcing accounting and instead focuses on R&D and new product launches.

Improved compliance

Maintaining compliance with accounting policies and taxation laws can be a challenge, especially for SMEs that do not have dedicated compliance teams. However, outsourced accounting firms employ professionals who carefully track changes in relevant acts and regulations. 

They use the latest accounting tools and software to ensure client financials and reports adhere to compliance protocols. For example, an outsourcing partner that files monthly GST returns on behalf of multiple businesses will have a thorough knowledge of new GST norms and deadlines. 

They can provide updates to clients regarding compliance changes in a timely manner. Outsourcing reduces the scope for non-compliance penalties and audits that can prove detrimental to smaller companies.

Reliability

With accounting outsourced to experienced third parties, client businesses can be confident their financial operations will continue seamlessly. Accounting firms have robust business continuity plans as well as backup infrastructure in place.

They can easily handle temporary leave or employee turnover without affecting services. On the other hand, over-reliance on a small in-house team raises concerns about continuity during contingencies. 

Accounting outsourcing providers also use cloud-based accounting software, enabling remote access and ensuring work can be performed from any location.

For example, during the pandemic-induced lockdowns, many companies could rely on their outsourcing partners to process payrolls and financial reports remotely without disruptions.

How Much Does it Cost to Your Outsource Accounting and Bookkeeping

Below, we will see how much it typically costs to outsource Accounting and Bookkeeping:

Outsourcing bookkeeping services

• Part-time/project-based bookkeeping: For smaller tasks or periodic projects, many bookkeeping firms offer hourly or flat project-based rates starting at $25-50/hr. This is suitable if you only need help temporarily.
• Virtual bookkeeping assistant: You can hire a dedicated part-time virtual bookkeeper to handle regular bookkeeping tasks for 8-20 hours per week. Rates usually start at $500-1,000/month for basic services.
• Full-service outsourced bookkeeping: Large bookkeeping firms offer fully outsourced bookkeeping solutions, taking over all your bookkeeping functions completely for a monthly fee. Comprehensive packages start at $1,000-3,000/month, depending on complexity.
• Bookkeeping software: Many firms offer bookkeeping software with add-on service packages, including setup, training, and monthly bookkeeping maintenance from $150-500/month. This allows you to manage books in-house with support.

Outsourcing bookkeeping allows businesses to focus on their strengths instead of getting bogged down by paperwork.

Hiring expert bookkeepers ensures compliance and accuracy while saving time and money in the long run. However, carefully evaluate options to find the right balance of features and price for your specific business needs.

What Factors Affect the Price Of Outsourcing?

Below, we will look at some of the key factors that impact the price of outsourcing services. Understanding how these factors can help companies choose outsourcing strategies and partners wisely:

Labor Costs in Other Countries

The most immediate factor affecting outsourcing prices is differences in wage levels between the outsourcing provider’s country and the client company’s home country. Locations with lower costs of living, like India or the Philippines, offer significant savings on labor costs. 

However, wage inflation in these emerging markets is gradually decreasing the price gap. Currency fluctuations can also impact relative labor costs from year to year. Outsourcing to regions with the lowest possible labor rates remains the most affordable option in general.

Type of Work Being Outsourced

The type of work being outsourced also influences its price tag. Routine work requiring basic skills, such as data entry or customer service, can be outsourced very cost-effectively compared to more complex projects like software development or engineering design.

Knowledge-based tasks demand higher-skilled labourers and specialists who command higher wage rates. Additionally, outsourcing strategic versus tactical duties yields different cost structures.

Provider Company Experience and Expertise

More experienced outsourcing companies with proven track records tend to charge higher prices for their services compared to lesser-known providers. This is because experienced firms offer intangible benefits like lower project risks and a higher success rate and can take on more complex projects competently. 

They also invest more in areas like quality certifications and security, reflecting in premium pricing. However, niche expert providers can charge a premium for their domain-specific delivery capabilities.

Contract Value and Project Scale

There is usually an inverse relationship between the contract value/project scale and the outsourcing price per unit. Outsourcing larger volumes allows companies to negotiate volume-based discounts from providers. 

It also makes the upfront costs of setting up offshore operations or teams more affordable per task. Smaller, one-time outsourcing contracts rarely yield cost savings compared to recurring, multi-year engagements of substantial scope. Economies of scale clearly lower prices in outsourcing.

Industry Sectors

The industry sector being served also impacts outsourcing costs. IT services (like software development or coding) tend to be priced higher since these are knowledge-intensive fields with specialized skills. Healthcare services also demand regulated compliance, pushing up prices. 

On the other hand, outsourcing routine back-office functions or customer support yields more affordable rates.

Manufacturing outsourcing prices vary by the complexity of products as well as proximity to major consumer markets. Resource-intensive sectors usually have higher energy and raw material expenses incorporated into outsourcing contracts.

Government Regulations

Laws and regulations in the outsourcing provider’s country or free trade agreements with client nations influence outsourcing rates. Countries with strict labour laws ensuring higher minimum wages and benefits will naturally charge more for comparable work. 

Immigration policies indirectly affect costs as well – the ease of transferring skilled foreigners helps lower wages while also widening the talent pool.

Favorable tax regimes and subsidies can reduce the total cost of operations for outsourcing companies. However, protectionism increases prices through tariffs or other entry barriers for foreign companies.

Currency Exchange Rates

As many outsourcing destinations have developing economies, currency fluctuations are another factor impacting pricing. A weaker currency in the provider’s nation against the client’s makes their services relatively cheaper. 

However, long-term contracts are usually indexed to prevent pricing volatility – for example, agreements may have built-in buffers to limit the impact of currency swings beyond a certain band. Prevailing forex rates at the time of contract negotiations also set the baseline prices during the lifetime of that agreement. Deals involving multiple currencies add hedging costs as well.

How Does Outsourced Accounting Work?

Below, we will discuss Key tasks handled in outsourced accounting services and how the process of outsourced accounting works:

Key tasks handled in outsourced accounting

• Bookkeeping: This includes activities like data entry of business transactions, bank reconciliations, accounts receivable/payable, etc. It forms the foundation of any accounting system.
• Financial reporting: Preparation of crucial financial reports like income statements, balance sheets, and cash flow statements on a monthly, quarterly, or annual basis.
• Payroll management: Processing payroll of employees, which includes salary disbursement, tax deposits, and filing of returns.
• Compliance and tax filing: Filing of various tax returns like income tax, sales tax, and property tax and ensuring compliance with accounting standards and tax regulations.
• Accounting advisory: Guiding businesses on accounting best practices and advising on financial decisions after understanding the business operations.

The key steps in the outsourced accounting process are:

• A business chooses and hires an outsourced accounting service provider based on its requirements, budget, and services offered.
• The accounting provider will understand the business processes, nature of transactions, and accounting needs in an initial discovery session.
• The business shares all relevant financial documents, bank statements, invoices, etc, with the accounting provider through online portals or other virtual modes.
• The accounting provider takes care of all accounting functions like bookkeeping, report generation, tax filings, etc, by accessing the client’s accounting software or maintaining separate books.
• The client reviews reports and filings prepared by the accounting provider and provides feedback for improvements.
• Both parties closely coordinate on an ongoing basis for any business or accounting changes as the operations evolve.

What to consider while choosing an outsourced accounting firm

Below, we will discuss the key factors to consider while selecting an outsourced accounting firm:

Reputation and Experience

When handling your business finances, it is important to choose an accounting firm with a good market reputation and experience in your industry. Check online reviews from past and current clients to understand their experience working with the firm. 

Also, look at how long they have been in business and the types and sizes of clients they have serviced over the years.

Consulting existing clients about the quality and timeliness of services can help evaluate if the firm is competent to manage your accounting requirements. A reputed firm with substantial experience will have better processes and expertise to ensure compliance and minimize risks.

Service Offerings

Different businesses may have varying accounting needs depending on their size, operations, and compliance requirements. Make sure the firm offers the complete range of services required by your business, like bookkeeping, financial reporting, tax filing, payroll processing, auditing, etc. 

Ask about additional services like budgeting and forecasting, financial analysis, consulting on process improvement, etc., that help gain strategic insights.

Check if they have experience serving businesses in your industry that come with industry-specific considerations like inventory management, job costing, etc. A full-service firm simplifies coordination but chooses one with services tailored to your operation.

Technology and Infrastructure

In today’s digital world, accounting processes are largely dependent on technology for efficiency and accuracy. Find out about the systems, software, and security protocols the firm uses to manage accounts and file returns electronically. Are they cloud-based for easy remote access? 

Will they be audit-ready with documented controls? What backup and data security measures do they have in place? Their infrastructure must scale with your growing needs.

Opt for a firm that adopts the latest technology to eliminate manual errors and deliver real-time information and insights. This also ensures business continuity during unexpected situations.

Fees and Billing Structure

Accounting requires significant effort and expertise. However, costs also matter as it impacts business finances. Ask for complete fee details upfront – hourly rates, monthly or annual retainers, additional charges, etc.

Clarify if rates may increase periodically. Enquire about additional costs for services like consulting, compliance, or legal support if needed. 

Compare fee structures – per service, per client, or as a package. Check minimum work commitments, if any. Opt for clear, transparent policies to avoid bill shocks later. Negotiate based on your budget and needs. Favour firms with flexible packages that scale with business growth over time.

Professional Qualifications and Expertise

Accountants require specialist skill sets to ensure regulatory compliance. Check the qualifications, continuing education, and licenses/certifications of those handling your work. Look for qualifications like CPA or ACCA and experience in your local business regulations, tax codes, etc. 

Staff expertise plays a major role in financial controls and quality of guidance. Consultants for areas like tax planning should have relevant certifications. Firms must have adequate staffing to meet current and future volumes.

Clarify response times for queries and reviews to avoid delays. Good qualifications and specialization help leverage expertise and minimize risks.

Communication and Collaboration

Managing accounting remotely requires high collaboration between teams. Ask about client interaction models – periodic reviews, portal access, meetings, on-call support, etc.

Check if there are dedicated client managers as single points of contact. Enquire about client communication protocols and timelines for report submission. 

Timely sharing of updates and clarifying queries smoothly is important. Request client testimonials to understand responsiveness.

Opt for firms with strong collaboration tools to maintain coordination and ensure no delays or errors in crucial compliance tasks. Choose partners committed to keeping you informed with a proactive approach.

Industry Credentials and Compliance

Certain industries have additional mandated compliances, e.g., audits for listed companies. Check if the firm has the requisite credentials and expertise in your business domain. Enquire about experience working with regulatory bodies, handling audits, and ensuring all statutory filings are complete and on time. 

Ask for client references in your industry, if any. Firms must have expertise in the latest legal regulations, too. Opt for those who understand your unique compliance needs and proactively keep you compliant to minimize risks from financial or legal penalties. Their industry knowledge adds value beyond basic accounting tasks.

Wrapping Up

Outsourcing accounting work to an external firm allows business owners to focus on their core business activities while having their books handled professionally by accounting experts.

By handing over mundane accounting tasks like data entry, accounts payable, financial reporting, and bookkeeping, business owners rid themselves of these routine chores that take up valuable time.

This allows them to concentrate more on other pressing matters of their business, like generating sales, acquiring new clients, expanding operations, and more.

In a nutshell, outsourced accounting services are beneficial for most companies as it allows them to focus on their core business functions while having their books handled by expert accounting professionals.

This frees up entrepreneurs to dedicate more time to strategic initiatives that can help take their company to the next level. By using the skills of accounting firms, businesses can be confident that their finances are in good hands and that compliances are all taken care of. This ultimately helps them operate smoothly and make data-backed choices for steady business growth.

Frequently Asked Questions (FAQs)

Q.1: Why do we need outsourced accounting?

Ans 1: For your company, outsourcing your accounting department might have several advantages. Among other benefits, you’ll be able to expand your accounting procedures to meet your business demands, save money, and gain access to experts.

Q.2: Should I outsource my accounting?

Ans 2: You can increase revenue and optimize business processes by outsourcing the accounting function. Even so, some companies are reluctant to give up control over such a significant part of their operations. There are some advantages to outsourcing, including lower costs and better financial reporting.

Q.3: What is Outsourced Accounting?

Ans 3: The concept of outsourced accounting is easy to understand. You outsource the management of your company’s finances to a third-party organization rather than hiring an accounting staff.

Payroll, accounts receivable, and financial reporting are among the operations that businesses might outsource to get the benefits of accounting outsourcing.

Q.4: Can accounting be outsourced?

Ans 4: Maintaining an internal accounting department can often be more expensive than outsourcing accounting services. It removes the requirement for full-time accounting staff employment and training, benefits provision, and infrastructure and software purchases.