Should you outsource accounting in your business?
Running a small business is hard, admirable work. You have clients to help, employees to support and a vision to nurture and manifest.
Most small business owners love these meaningful parts of their work.
And the more time you can spend deep thinking, strategizing and navigating the twists and turns of business, the more you feel alive.
However, there are some aspects of building a business that might make you feel a little less alive. For many, this is the administrative work of accounting.
Why Do Small Business Owners Outsource Accounting?
As businesses grow and more clients sign-on, so do the bookkeeping duties, tax complexities and potential benefits of financial advisory.
For a lot of small businesses, there are common signs that accounting work is getting too complex to do alone. Things like:
- Reached a million in revenue
- Accepting capital from outside investors
- Employ around 10+ people
- Starting to grow like crazy
- You want to make data-driven financial decisions
At this point in the entrepreneurial journey, a lot of owners decide to get some help, either in the form of an in-house accountant or an outside partner. Which should you choose?
In this post, we’ll help you decide and share some common misconceptions and benefits of outsourced accounting.
3 Problems With Hiring an In-House Accountant
Conventional thought states that hiring an in-house accountant is the accepted first move.
But times are changing, and there are some obvious problems with hiring an in-house accountant if you are a smaller business looking to grow.
1. High Costs
Deloitte’s 2018 Outsourcing Study found that 59% of business owners decided to outsource because it reduced costs.
That’s definitely true in accounting, where the average salary for hiring an in-house accountant ranges from $50,000/yr to $70,000/yr, depending on factors such as experience and city.
That’s a lot when an accounting firm usually costs about $500-$2500 a month.
Also, whenever you hire an employee, you take on a whole bunch of other costs such as benefits, compensation insurance, payroll taxes, office supplies and more.
And when your company grows you are going to need to give the accountant some assistance – AKA more staff.
As you can see, the costs of hiring an in-house accountant are high.
2. What if They Leave?
Losing an in-house accountant can cause months of pain for you as a business owner. Not to mention, mistakes are often made when someone is leaving your organization (e.g. during their last two weeks).
Often, when your accountant leaves, you are left scrambling to pick up the accounting work and meet the deadlines.
And if your business has been growing, it’s also been changing. Sometimes in places you cannot always see, like the systems, processes and nuances of handling your finances.
Quite often when an in-house accountant leaves, the systems and technologies will be new to you, since they have been managing it their own way for some time now.
So even if the accounting work wasn’t so challenging before you hired help, now it’s going to be a lot more difficult. Leaving you with less time to focus on the critical functions of your role.
Not to mention, you’re going to have to find a new accountant and train them on your standard operating procedures – sometimes a long process.
3. Restricted Talent Pool
Cal Newport, Georgetown Computer Science Professor, writes in his book “Deep Work” that the coming age will belong to those who are masters of their skills/craft.
That’s because companies are no longer restricted to their local talent pools, thanks to the upgrades in collaboration and communication technology.
When outsourcing, you can hire the best and brightest accountants from around the state.
You can also make sure that they are the best fit for your company. Meaning they specialize in helping businesses in your industry achieve certain goals, whether that’s receiving a great valuation or securing VC funding.
An in-house accountant might live close by and have some relevant experience, but that doesn’t mean they are the best fit for your business.
Benefits of Outsourcing Accounting?
Outsourcing accounting allows you to employ the expertise of an entire firm to handle the time-consuming accounting work. Plus, you get a trusted advisor for your financial decision making.
Here are some other benefits of outsourcing your accounting.
1. More Time For Your High-Value Work
When you outsource, you won’t be staying up until 11 P.M. managing invoices anymore. And you’re not fully relying on software. An accounting solution allows you to blend the right technology with the human touch of an experienced accountant.
Instead, you’ll burn the midnight oil crafting your next big business move, or hanging with your family, friends or a good book.
You can also spend more time doing work that only you as the owner can do: altering your messaging, improving your product or signing a huge client.
2. Access to Intellectual Capital
While an in-house accountant can become isolated from the accounting world, a team in a firm is surrounded by other accountants. They are more likely to stay up to date on new trends and changes in accounting in your market sector.
This is especially crucial in these COVID times when the government continues updating policies and enacting new relief packages for small businesses.
It can be hard to decipher how to take advantage of these packages, so it’s best to have a team of accountants helping you locate and pull the right levers that can help you save money.
3. Receive an Advisor
A lot of accounting firms offer CFO services. Their experts help you answer crucial questions like these:
- Am I pricing too high?
- Which clients are the most profitable?
- Am I overpaying on my taxes?
- Where should I put my money for maximum growth?
Considering hiring your own CFO for your startup? Then get ready to spend around $130,000 a year on salary alone.
And if you’re okay spending that, that’s great too. It’s just critical to put your money to use.
Your CFO should be doing high-level work that helps your company become more profitable, not dealing with bookkeeping tasks.
4. Better Security
Annually, organizations on average lose 5% of their revenue to fraud. And small businesses are actually the most susceptible to fraud.
That’s because of the lack of internal systems and too much delegation of accounting work can sometimes lead to errors. So, it’s important to have a group of experts handling your finances.
The right firm will have processes in place to eliminate the risk of being out of compliance with tax laws and regulations. That way, you can remove those worries from your mind and open up space for your next big idea.
Common Hesitations
Loss of Control
Owners fear they might lose some control, and that is true in a sense. They won’t be able to manage exactly how tasks are done, but that’ll save them time and mental energy.
Also, they won’t lose the more important oversight, the one over financial data.
If you pick a firm with cloud-based accounting software, you are able to see all of your data points in real-time so you can make data-backed decisions.
Hidden Costs
People hate getting ripped off by a new vendor, and rightfully so. Business is built on trust, not deception.
If you spend time choosing the right accounting firm with a proven track record of success and a list of happy clients, you can be sure you aren’t going to get duped.
Security Risks
It can be daunting to hand over your financial information to an outside firm.
To make sure you don’t open yourself up to risk, you need to do your due diligence on the firm you choose and make sure they have the right processes, policies and technologies in place.
Find the Right Partner For Your Specific Needs
As you can see, a lot of the potential downfalls of outsourced accounting are mitigated or removed entirely if you partner with the right firm.
When choosing the right firm for your business, you have to think about the firm’s industry specialization, technology and tax/advisory experience with companies like yours.
Choosing correctly is critical. It’s not a process to rush.
So, if you are considering outsourcing and want to learn how to select the perfect accounting partner for your company’s needs, we’d love to have a Discovery Call. Just fill out the form on this page, and an expert will be in touch!