Outsourced Accounting Services: What To Know Before Contracting

Outsourced accounting services enable businesses to streamline their accounting processes without the expense of hiring an in-house team or individual.

Businesses can tap into higher levels of specialization while saving company resources. However, partnering with the wrong third-party service can lead to communication issues and a loss of control over company finances.

In this article, we explore what outsourced accounting is, its pros and cons, and show you what to look for when choosing a partner.

Key Takeaways

  • Outsourced accounting is when a business delegates its financial tasks to an external individual or accounting firm, as opposed to hiring in-house.
  • Pros of outsourced accounting include cost and time savings, higher levels of specialization, and easier business scaling. Potential cons include loss of control, quality concerns, and communication struggles.
  • You should consider outsourcing your accounting if your business is scaling, your own expertise feels insufficient, or hiring an in-house team isn’t financially or operationally feasible.
  • Choose a partner with a good reputation and experience, plus services that match your needs, timely communication, and up-to-date accounting software.

What Is Outsourced Accounting?

Outsourced accounting is when a business hires an external individual or firm to complete its financial tasks. This gives the business access to a high level of accounting expertise and resources, without the burden of hiring an in-house team.

Outsourced Accounting Services

Outsourced accounting covers a wide range of services. They can be extremely basic, with a narrow focus, such as:

  • Bookkeeping: Recording and categorizing financial transactions
  • Running payroll: Paying employee salaries on a regular basis
  • Tracking invoices: Matching invoices with expenses and following up with clients to ensure timely payments

They can also be very sophisticated, with a big-picture focus:

  • Preparing taxes: Filling out complex forms and taking advantage of deductions and credits
  • Creating forecast reports: Analyzing past data and accurately predicting future costs
  • Preparing financial statements: Assembling the income statement, balance sheet, and more for review by company stakeholders
  • Developing an overall financial strategy: Identifying financial goals and creating a long-term plan for how to reach them

Pros and Cons of Outsourcing Your Accounting

For some companies, outsourcing doesn’t make sense. For others, it’s hugely beneficial, saving time and significantly cutting costs. Like any business decision, upsides and downsides need to be analyzed before you can make a final decision.

Pros of Outsourced Accounting

  • Cost efficiency: Outsourcing your accounting is often much cheaper than hiring an in-house team, as business owners can pay only for the accounting services they need. In-house accountants are usually compensated with high salaries and end-of-year bonuses, regardless of how much work they complete, not to mention onboarding and training costs.
  • Expertise and specialization: If you’re currently scraping by managing your business’ finances on your own, you could soon run into trouble. Issues concerning tax compliance, reporting standards, and long-term financial planning are much better handled by qualified accountants.
  • Scalability: Outsourced accounting is ideal for fast-growing startups. As a business grows, its financial needs grow as well. By outsourcing to an external firm, smart business owners can ignore many of the hiring and training struggles their competitors will be dealing with.
  • Focus on core business: Business owners have many daily tasks, such as managing company operations and engaging with clients. Outsourcing allows them to focus on these core activities without extra financial distractions.

Cons of Outsourced Accounting

  • Loss of control: Some business owners and managers like to be aware of every detail regarding company operations. Therefore, using third-party services can cause uneasiness, as they won’t have nearly as much control over company finances.
  • Quality concerns: Depending on how much research you do, you could end up outsourcing to a firm or individual with sub-par services, which means your business could suffer from tax penalties or overspending due to bad budgeting.
  • Communication challenges: Outsourcing accounting generally means the accounting team will be located off-site. There’s a definite possibility of delays, misunderstandings, and inability to execute time-sensitive tasks. If the accounting partner is located in a different time zone, communication becomes even harder.

Should I Outsource My Accounting?

If you run a lean startup, basic software is often all you need. But as your business grows, things get a lot more complicated and you require the best accounting software. You may need to file your taxes in multiple states or even convert international sales and expenses to different currencies. Outsourced accounting begins to look more enticing as these complexities grow.

Outsourcing your accounting is a good option if:

  • Your business is scaling: If you’re planning on opening new store locations, expanding your client base, or adding new services to your repertoire, outsourcing your accounting is a good move. Your accounting partner will be able to handle the increased load with ease, and you won’t need to spend any time reading resumes and vetting new hires.
  • Expertise is lacking: You should outsource accounting if you’re starting to feel underqualified as a stand-in accountant. Technology-related startups and similar businesses often have very specific accounting needs, like detailed financial modeling and investment fundraising. The right accounting partner will already be experienced in these areas.
  • Business volume fluctuates: If you own a seasonal business like a landscaping company, outsourced accounting can reap some large cost savings. Instead of paying the year-round salaries of an in-house accounting team, you can pay an external accounting provider on a per-service basis, depending on your current demand levels.
  • Cost vs benefit aligns: Get a rough cost estimate from an ideal accounting partner and compare that to the cost of hiring your own team or doing everything yourself. But don’t just consider monetary costs—also take into account the time savings that come with outsourcing. If the benefits outweigh the costs, the decision becomes simple.

If none of the above applies to your current situation, you’d be better off keeping your accounting in-house for the time being and outsourcing when your business situation changes.

What To Look For When Choosing a Partner

If you’re not careful, outsourced accounting can go awry fast. The wrong partner can cause headaches by charging hidden costs or even leaking financial data to hackers. To make sure this doesn’t happen to you, consider the following:

  • Reputation and experience: The best way to judge whether an accounting partner can benefit your business is if they’ve benefited similar businesses in the past. Look for partners that are forthcoming with past clients, and even consider contacting the clients yourself to ask them about their experience.
  • Service range: Make sure your accounting partner offers services that match what you’re looking for. If you only need your taxes prepared, outsource to a firm or individual that specializes in that field. If you need broader outsourced accounting services, like strategic long-term financial planning, go with a firm or individual that advertises that.
  • Communication and availability: Accounting is a time-sensitive task. Month-end reports and tax forms often need to be prepared on short notice. Prioritize accounting partners that emphasize the importance of communication and are okay with being contacted 24/7.
  • Up-to-date technology: On a more general note, lean towards accounting partners that use modern software. In 2024, you should be able to fully integrate your systems with those of your accounting partner. This will allow you to monitor their work in real time as they categorize transactions and assemble reports.

Conclusion

Outsourced accounting is the delegation of accounting tasks to a specialized third-party firm or individual.

If you’re finding consistent errors on your financial statements, your business is scaling rapidly, or you’re worried about the consequences of non-compliance, consider outsourcing your accounting.

If you choose a partner with a good reputation and services that cater to your needs, you’ll save money and time, allowing you to focus on the core responsibilities of being a business owner.

For more information on why a competent accounting team is essential, read our article on the importance of accurate financial reporting.

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Robbie Mizzone
Editor

Robbie holds a BSc in Accounting and Finance from Centenary University, New Jersey. He's worked for banks and private companies alike, including Kering (Gucci, Balenciaga), focusing on financial reporting, account reconciliation, and complex accrual analysis. An avid explorer and jack of all trades, Robbie's garnered experience in luxury hospitality, carpentry and construction, and is now backpacking solo around the world.