What is accounting outsourcing?
Outsourcing refers to a business practise where businesses hire a third-party contractor to perform administrative, accounting, and other back-office operations. Similarly, a company delegates its accounting requirements to a third-part vendor by outsourcing its accounting needs.
Outsourcing accounting services perform all of the roles and responsibilities that an in-house accountant would. Outsourced accountants have the following roles and responsibilities- invoicing, accounts payable, accounts receivable, payroll processing, filing taxes, recording transactions, and preparing annual/monthly financial statements.
Benefits of accounting outsourcing
● Cost-effective– Outsourcing accounting services are more cost-effective than hiring an in-house accountant. When you use outsourced accounting services, you are only liable to pay for the services you used. Whereas if you have an in-house accountant, you have to pay them a monthly salary, pay for their insurance, invest in infrastructure, etc.
● Focus on primary business operations– By delegating accounting functions to an expert outsourcing firm, you allow yourself to focus on other business operations that require your attention.
● Increased profitability and productivity– Outsourcing allows you to save money on many business functions. This money can be redirected to the core business operations, which can increase the business’s productivity and increase the profit margin.
● Unbiased and Fraud-less reporting– Unlike in-house accountants, outsourced accountants are not personally and emotionally invested in the business and its operations. Therefore, this results in unbiased and fraud-less reporting.
● Software and technology– Accounting software and technologies are an expensive investment for a small business. Plus, they cannot always update and keep up with new technologies. However, outsourced accounting services keep up-to-date with the latest accounting technology and software.
Common accounting outsourcing myths
Myth #1: Accounting outsourcing is not for small businesses and only for large companies.
One of the biggest accounting outsourcing myths is that accounting outsourcing is for large businesses and companies only. At the same time, large companies indeed outsource their accounting functions because of their transaction volume. However, small businesses also benefit from outsourcing their accounting functions because that is the more cost-effective option.
Small businesses don’t opt for in-house accountants because, a lot of times, accounting is not their business’s primary function. This allows them to save money on insurance, employee taxes, infrastructure, etc.
Myth #2 Availing of accounting outsourcing services can be expensive.
Hiring and training an in-house accountant can be more expensive for some businesses because they have to invest in accounting technology and software, invest in infrastructure, pay insurance and employee benefits, and pay employee taxes.
For a small business incurring all of these costs can be more expensive than availing of accounting outsourcing services. This is because the business only needs to pay for the services provided to them and not salaries.
Small businesses would have to pay in-house accountants monthly salaries and benefits, whereas by outsourcing their accounting requirements, they have to pay for the work done. This allows businesses to save money and focus on core business activities.
Myth #3 Accounting outsourcing can make you lose control of your company.
A common myth regarding outsourcing your company’s accounting functions is that it can lead you to lose control over your company’s operations. This is, however, far from the truth. Accounting outsourcing is possible due to cloud-based technology. The outsourced accountant can access your company’s financial data as you record it in cloud software.
While it is true that as a manager, you won’t be able to inspect and review the progress of the work, however, you have access to financial documents with which you can inspect the financial standing of your business. Plus, in many cases, by outsourcing your accounting function, you can focus more on the business’s core operations and increase productivity.
Myth #4 Accounting outsourcing is not safe as it risks the security of confidential data.
You must look into how an accounting outsourcing company protects your employees’ and your customers’ private data from any breach. It is only natural for a proprietor to feel conscious about the confidentiality and security of private data.
However, it is a common misconception that you risk the confidentiality of important private data by outsourcing your business’s accounting functions. This is because most established accounting outsourcing companies take data security very seriously and have put numerous safeguards to protect it from any data breach.
Moreover, it has been observed in the past that accounting outsourcing results in more fraud-less and unbiased reporting. This is because a third-party vendor like outsourcing services has no personal and emotional vested interest in the business.
Myth #5 Accounting outsourcing is for short-term accounting only.
It is a common misconception that outsourcing accounting services are for short-term accounting only. Accounting outsourcing services can be used for a specific period or any duration, depending upon your accounting requirements.
Myth #6 Accounting doesn’t require a professional, and you can do it yourself.
To save money, many proprietors take on the duty of accounting in a business. But unlike bookkeeping, accounting is more than just recording transactions and requires knowledge of state guidelines and accounting principles.
Plus, accounting is a tedious and time-consuming activity. Therefore, the proprietor won’t be able to tend to the actual business operations. That is why small businesses outsource their accounting functions to save both money and time. Also, accountants working for outsourcing accounting firms are well-qualified to perform serious accounting functions like preparing payroll, financial statements, and file taxes.
Accounting is a very important function of the business. One of the reasons it’s so tedious and time-consuming is that it informs decision making, depicts the business’s financial position, and is vital if you wish to open your business to public investment.