Coming up on a year into the COVID-19 pandemic, many businesses are deciding that remote work actually works for them. Some departments don’t require a physical presence in the office and, in some cases, could be even outsourced.
According to the U.S. Small Business Association, accounting is one of the most commonly outsourced departments. Small business owners often don’t have the time — or desire — to learn the skills and processes necessary to manage a compliant accounting program. But is the outsourcing approach right for your company?
Here are some factors to consider before you outsource some or all of your accounting work.
Outsourcing: negative or net positive?
Outsourcing has negative connotations, so let’s acknowledge that immediately. Hiring an external company or contractors became a popular business strategy in the 1980s as a way to save money. Outsourcing is criticized because sometimes it leads to job losses, but it can also create efficiencies and save money. With those savings, business owners can reinvest in the business, expand operations and even increase hiring in other departments to compensate.
Benefits of outsourcing accounting
The potential advantages of outsourcing accounting include the following:
Time-savings: As a business grows, so does the number of departments. Business owners can’t be skilled in law, human resources and accounting, yet they need to manage all these departments. Outsourcing can return valuable time to business owners, so they can focus on what they do best: growing the business.
Cost-effectiveness: Outsourcing is an affordable way for small companies to gain access to specialized skills. Most firms offer a range of price options, which may vary based on the amount of hours or types of accounting services needed. Business owners can scale up or down their arrangements based on their current accounting needs. Fixed-price arrangements also make it easy for clients to plan and budget.
Pre-vetted talent: From advertising for applicants to checking references, hiring employees can be an expensive and time-intensive effort. And if a new hire isn’t a good fit with the company, you must repeat the process again until you find the right person. When you work with an external firm, you gain access to a larger talent pool — one you don’t need to find, hire or train yourself.
Access to specialized expertise and a larger talent pool: Institutional knowledge is important, but so are fresh ideas. Your in-house accountants may have limited skillsets or knowledge compared to contractors who support multiple clients. With outsourcing, you get exposure to a wider knowledge base and expertise honed across multiple assignments and industries.
Security: Despite what you might think, outsourcing can actually lower your risk of theft or embezzlement. An external accounting firm typically has more checks and balances and stricter security measures in place than an in-house team, especially if there are only one or two accounting people on staff. Your accounting team has access to company bank information, financial statements and personnel records. In the wrong hands, that can spell disaster.
To start outsourcing, set expectations
If you decide to outsource accounting, begin by evaluating the skills and expertise that will be of most use to your business. Look for a partner with a proven record in those areas.
You need to build a trusting and productive relationship with your partner. Start by setting clear expectations for your team and the external accounting firm. Nobody should be left saying, “I thought you were doing that.”
Some companies, like Wipfli, issue formal engagement letters to outline the scope of work, the expected costs and who’s responsible for what. A professional partner will send follow up messages after meetings to make sure everyone is aligned and will take extra steps to keep the lines of communication clear.
Also look for an outsourcing partner that will be transparent about costs. Whether you choose an hourly or fixed-rate agreement, pricing options should be easy to understand and hold no surprises.
If both teams are clear about their needs, strengths and expectations upfront, everyone can benefit from the relationship.
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