Deciding how to outsource accounting services and financial management isn’t done without some hesitation. Yet, with an increase of nearly 40% in global spending and a 20% surge in interest over the last five years, outsourcing your accounting efforts might be the right move.
Why, though?
Simply put, maintaining your accounting services in-house can be overwhelming, from compliance risks to complex tax laws and time-consuming manual labor. Outsourcing has become a game-changer as companies look for cost savings, efficiency, and financial expertise.
That said, outsourced accounting services aren’t all the same, and you’ll rarely find a one-size-fits-all solution. The key is understanding which model best fits your needs, budget, and growth strategy. So, keep reading as we dive into everything your business should know about outsourcing accounting functions.
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Outsourcing Accounting Services: Quick Overview
Before discussing the different ways you could approach outsourced accounting, there are two significant considerations to remember.
Why Do Businesses Outsource Finance and Accounting Functions?
The first and most important question to answer is why companies outsource their accounting operations. Beyond being a cost-effective solution, outsourcing is emerging as a strategic move with several top-tier benefits.
Here’s an easy breakdown of each:
- Cost Savings: Maintaining an in-house accounting team can be expensive due to costs like salaries, benefits, office space, and software. By outsourcing, businesses can reduce expenses, paying solely for their required services.
- Access to Expertise: Outsourced accounting firms specialize in staying current with accounting and tax regulations, which are continuously evolving. They ensure businesses remain compliant while providing expert financial guidance.
- Compliance & Risk Management: Tax errors and poor financial management can be crucial factors that result in significant fines and legal complications. By partnering with outsourced accounting firms, businesses can remain compliant with local and international tax regulations, minimizing the risk of mistakes.
- Scalability & Flexibility: Similarly to how businesses’ needs and wants grow and change, so do their accounting needs, especially during tax season, audits, or periods of rapid growth. Outsourcing allows businesses to scale services up or down as needed.
- Focus on Core Business Functions: Accounting is essential, but accounting tasks don’t generate revenue. Spending too much time on financial operations takes precious hours away from other core business initiatives. Outsourcing frees up valuable time for companies to focus on business growth.
- Access to Advanced Technology: Industry-leading accounting service providers use advanced tools like AI-driven analytics, cloud-based accounting software, and automation to improve accuracy, efficiency, and financial reporting.
- Support for Global Expansion: Businesses operating across multiple continents, managing multi-currency transactions, or adhering to cross-border compliance manage complex daily operations. Outsourcing providers with global expertise make navigating these challenges easier.
Which Accounting Services Can Be Outsourced?
Once you’ve cemented why your business should consider outsourcing accounting services, the next step revolves around choosing which services to outsource. Here’s the thing, though: outsourcing your accounting isn’t an all-or-nothing solution.
You can choose to outsource a few tasks or your entire financial system – it all depends on your unique business needs. Keeping that in mind, here are some commonly outsourced functions you could (and should) consider:
- Bookkeeping Services & Financial Record-keeping
- Payroll Processing
- Tax Preparation & Compliance
- Accounts Payable & Accounts Receivable
- Financial Reporting & Analysis
- Audit Support & Risk Management
- CFO Services & Financial Advisory
While outsourcing is a guaranteed time-saver, clearly, it’s not the only reason businesses choose to do so. Beyond seemingly delegating tasks to an outsourced accounting provider, it’s much more about ensuring accuracy, improving financial health, and reducing stress. Of course, all of these factors only come into play once you’ve chosen the right accounting partner and processes to be outsourced.
7 Ways to Outsource Accounting Services
A successful outsourcing partnership is at the core of your outsourcing strategy. It shares characteristics regardless of destination or firm. But that’s not to say that every such relationship is an exact copy, with businesses having different needs.
While some might need a full-service provider, others only need occasional outside support.
Let’s unpack the seven best alternatives to a traditional in-house accounting department.
1. Full-Service Accounting Firms
Full-service accounting firms provide end-to-end management if your business needs an all-inclusive solution that covers various financial elements. This includes everything from simple bookkeeping tasks to accurate financial reporting and handling sensitive financial data.
Typically, this is the best option for small to mid-sized businesses that need comprehensive financial planning and oversight without building an in-house team.
| Advantages | Drawbacks |
|---|---|
| Utilize one provider for all your accounting needs. | It is typically more expensive than other outsourcing solutions. |
| Efficiently ensures compliance with tax laws and financial regulations. | It is not the ideal option for businesses with minimal accounting needs. |
| Provides access to expert financial strategists and advisors. | Has less flexibility as firms may require fixed contracts or long-term commitments. |
2. Offshore Accounting Services
One of the most significant reasons companies opt for outsourcing is to leverage lower costs with expert financial analysis and strategy. Operating in regions where labor costs remain low without sacrificing industry expertise, offshore accounting services in countries such as the Philippines, India, or Eastern Europe are quickly gaining popularity.
Offshore accounting services are generally better suited for businesses seeking to reduce costs on routine financial tasks while maintaining high-quality service.
| Advantages | Drawbacks |
|---|---|
| Offers significantly lower costs compared to domestic partners. | Time zone differences could slow communication channels and decision-making. |
| Provides access to experienced accountants and tax professionals. | Potential language or cultural barriers. |
| Features easy scalability and can be adjusted according to need. | Data security risks may cause concern if working with lesser-trusted partners. |
3. Freelance Accountants & CPAs
What about businesses that don’t need full-time outsourced accountants? Well, in cases like this, the solution is to enlist the assistance of freelance accountants or independent CPAs. While an effective way to approach your outsourced accounting, this also considers any cash flow restraints by allowing businesses to work on a pay-as-you-go system.
Startups and small businesses reap numerous benefits from this method through paid-for specialized knowledge periodically rather than through an ongoing relationship.
| Advantages | Drawbacks |
|---|---|
| Exceptionally cost-effective by only paying for services when needed. | Availability may be limited, especially during peak tax season. |
| Offers flexibility in hiring for short-term projects or ongoing tasks. | May not provide ongoing financial guidance or after-service support. |
| Provides access to specialized expertise for specific financial matters. | Companies might need multiple freelancers to cover different accounting areas. |
4. Cloud-Based & AI-Powered Accounting Processes
Courtesy of advancements in automation and AI (artificial intelligence), business owners can now also manage various accounting tasks using software such as QuickBooks, Xero, or FreshBooks. These digital solutions easily handle bookkeeping services, invoicing, tracking, and timely financial reporting, needing minimal human input.
Utilizing technology-driven solutions, such as cloud-based and AI-powered accounting services, is ideal for companies that want to automate routine processes.
| Advantages | Drawbacks |
|---|---|
| Relatively affordable compared to hiring human accountants. | May still require manual entry for certain transactions. |
| Offers real-time tracking on any device. | Without human oversight, the software may miss complex financial nuances. |
| Automates repetitive tasks, reducing errors and inconsistencies. | Limited in high-level financial reporting, strategy, tax planning, and compliance. |
5. Business Process Outsourcing (BPO) Providers
Whereas some businesses choose a few accounting services to outsource or enlist periodic help from freelancers, larger companies outsource their entire accounting department. This is typically done as part of a larger Business Process Outsourcing strategy where a third-party provider handles multiple back-office functions (HR, IT, finance).
This approach yields the best results for mid-to-large enterprises that need a turnkey solution for their financial operations.
| Advantages | Drawbacks |
|---|---|
| Delivers comprehensive support for accounting and related business decisions. | Requires extensive vetting to ensure service quality. |
| Easily scalable to match business projections. | Potential risk of losing operational control over critical financial functions. |
| Offers strong compliance expertise and financial accuracy. | May involve long-term contracts that reduce flexibility. |
6. Staff Augmentation
Staff augmentation is the perfect solution for businesses looking to retain control of their accounting team without the hassle of managing full-time hires. This alternative allows companies to hire skilled professionals through a remote staffing firm. These employees then work as part of the internal company team but are employed by an external outsourcing partner.
Ideally, this option is the go-to for businesses that want a hands-on approach but still want the benefits and flexibility of outsourcing.
| Advantages | Drawbacks |
|---|---|
| Provides more control over daily financial operations. | Requires management oversight to integrate remote staff into workflows. |
| Allows access to specialized accounting talent. | Potential security concerns, as remote accountants need secure access. |
| Can scale up or down based on business needs. | Higher costs than offshore outsourcing. |
7. Hybrid Approach
Finally, there’s the hybrid (or customized) alternative. This method focuses more on blending various elements from each of the above possibilities. By combining key operations, such as using an in-house CFO for strategy, a BPO provider for payroll, and AI software for financial statements, companies can maintain control over vital financial areas while still outsourcing routine tasks.
The hybrid solution best suits businesses that want a tailored outsourcing model that balances in-house oversight with external support.
| Advantages | Drawbacks |
|---|---|
| Exceptionally flexible, allowing for the outsourcing of more tasks while maintaining control. | Requires accurate coordination between multiple providers for different needs. |
| Efficiently optimizes costs by using different providers. | May lead to data integration issues if systems don’t communicate well. |
| Allows for easy scaling based on growth and budget. | Can become costly if not managed efficiently. |
How to Choose the Right Accounting Outsourcing Partner
Outsourced accounting services are only effective when you’ve chosen the right outsourcing partner. Making the wrong choice could quickly lead to several issues, such as compliance and security risks. Luckily, there are various steps to take to ensure that you foster a successful relationship, which includes:
- Identify your unique accounting needs: Before you start looking for outsourcing partners, you should have a clear vision of your distinct business needs.
- Check credentials and experience: Unfortunately, not all accountants are created equal. Credible providers should have certifications, industry experience, and a strong track record.
- Assess technology and security measures: As the industry becomes more digital, your chosen provider should use secure, cloud-based platforms with strong cybersecurity measures.
- Look for effective communication and availability: Preferred outsourced accountants need to be responsive and available when you need them.
- Compare pricing and cost structures: Outsourcing should save money, but pricing models vary widely. Some providers charge by the hour, while others offer fixed monthly plans.
- Check compliance with local and international regulations: If your business operates in multiple countries, you’ll need accounting services that understand cross-border financial systems.
- Read client reviews and ask for references: Trustworthy providers should have satisfied clients who would readily and publicly vouch for their reliability.
- Test services with a trial period: If you’re unsure of a provider, start with a small test project or trial period before you commit to anything long-term.
Potential Challenges & How to Overcome Them
While outsourcing accounting functions can be a brilliant move, it does come with challenges, just like any other business decision. All hope isn’t lost, though, as there are dozens of ways to avoid or minimize most of these issues. Let’s unpack some of the most common hurdles you might face.
Data Security & Privacy Risks
Sharing sensitive financial data with an external provider can feel risky. With daily threats like cyber-attacks and data breaches, your business must take every precaution.
Choose a provider with strong cybersecurity measures such as encryption, multi-factor authentication, and access controls. Ensure they comply with data protection laws and sign a confidentiality agreement to protect your data.
Communication Barriers & Time Zone Differences
Outsourced accounting service providers could operate in different countries with unique languages, cultures, and time zones. These distinct attributes could lead to misunderstandings and delays.
Set clear communication guidelines, including response time expectations, to overcome these pitfalls. Other possibilities include using collaboration tools like Slack, Microsoft Teams, or Zoom and always attempting to schedule overlapping work hours.
Lack of Industry-Specific Knowledge
When using outsourced accounting services, remember that they may not be familiar with your specific financial needs, which could lead to compliance issues or inaccurate reporting.
To avoid this, choose providers with industry experience, ideally supported by case studies or references. Additionally, supply a detailed onboarding guide outlining your financial needs and key performance indicators.
Potential Integration Issues with Current Systems
Not all accounting firms use the same software or systems as your business, which could create workflow disruptions and inefficiencies with financial statements.
Ensure your chosen provider utilizes compatible accounting software like QuickBooks, Xero, or NetSuite. Also, consider discussing data migration plans before starting your partnership and conducting a test run before fully transitioning.
Hidden Costs and Unexpected Fees
As cost-effective as outsourcing accounting can be, some providers advertise low rates but charge extra for essential services such as tax filing, payroll services, or financial reports.
While situations like this could be crippling, ways to avoid it include asking for a detailed pricing breakdown before signing any contracts. Remember to clarify what is and is not included in your package, and stick to any fixed budgets.
Reduced Control Over Financial Operations
When outsourcing, your business has to trust someone else with its sensitive data and intricate accounting systems. This can lead to business owners feeling as if they’re losing necessary control over their finances.
However, simple steps, such as setting up regular check-ins, either weekly or monthly, and customized reports of financial activities, are easy solutions. That said, it’s best to maintain in-house oversight through a financial manager or CFO.
Reliability & Quality Issues
Unfortunately, not all outsourcing providers deliver on their promises. Some might miss deadlines, produce inaccurate reports, or lack the expertise they claim to have.
Avoid these hurdles by properly vetting prospective providers and checking their reviews, testimonials, and case studies. Additionally, start with a small test project or insist on a trial period, and always establish an explicit, concise service level agreement (SLA).
Frequently Asked Questions
While we’ve covered various key considerations about outsourcing your business’ accounting, there might still be a few unanswered questions. Below are answers to the most commonly asked ones.
What Is the Process of Outsourcing Accounting?
The accounting outsourcing process refers to the general route businesses should ideally take along their outsourcing journey. Typically, it involves five steps:
- Identifying your key drivers for outsourcing
- Choosing the right outsourcing partner for your firm
- Deciding on the right model to use
- Engaging your in-house team in your strategy
- Clearly define and prepare an outsourcing implementation plan
How Do I Outsource My Bookkeeping?
Outsourcing bookkeeping is another valuable strategic approach for specific financial tasks. It is also easily achievable. Steps to follow include defining your unique needs, choosing a reputable provider (freelancer, firm, or software), ensuring the security of their systems, and setting up clear communication channels.
Is Outsourcing Accounting Cost-Effective for Small Businesses?
Yes, outsourcing accounting and bookkeeping services is a cost-effective option for small businesses as it lowers payroll expenses, removes the need for in-house expertise, and offers access to professional financial advice at a reduced cost.
Final Thoughts
Deciding to outsource your accounting can save you time, reduce expenses, and provide access to expert financial solutions—but this is only true if you select the right partner.
Whether you choose a full-service firm, an offshore provider, a freelancer, or software, ensuring that your choice aligns with your specific needs is crucial. Remember to prioritize security, compliance, and communication to avoid common pitfalls, and thoroughly vet potential providers before committing.
Ready to streamline your accounting? Let 1840 & Company connect you with top-tier remote accountants and bookkeepers worldwide. Schedule a call today!
