When To Outsource Accounting: Key Considerations for Small Businesses

Managing accounting internally can become a daunting task for small businesses. As your business grows, the complexity of financial management increases, demanding more valuable time, resources, and specialized expertise.

This can lead to inefficiencies, errors, and compliance issues that can hinder your business’s progress and lead to other negative consequences. Outsourced accounting is a solution that offers professional support to streamline your financial operations.

But how do you know if outsourcing accounting is the right move for your business?

This article explores the key considerations for small businesses when deciding whether to outsource accounting functions, highlighting the scenarios when outsourcing is advantageous versus those in which in-house accounting might be preferable. It also provides guidance on evaluating your current accounting needs to make the right about outsourcing.

The Trend of Outsourcing Accounting

In recent years, the trend of outsourcing accounting and bookkeeping functions has gained significant momentum among small businesses. In fact, accounting is one of the most commonly required skills for outsourced business processes.

The increasing complexity of financial regulations and the need for compliance have further fueled this shift. Small businesses are turning to outsourced accounting firms to navigate these complexities, ensuring they remain compliant while minimizing the risk of costly errors.

There is no sign that this trend is slowing down, with a 40% increase in global spend on outsourced accounting within the past five years and a 20% increase in interest. With so many businesses already outsourcing these functions, it’s clear that outsourcing is becoming an increasingly popular solution.

When To Outsource Your Accounting Functions

Accounting outsourcing can be a strategic move for your business, but it’s essential to recognize the right circumstances to take the leap. Here are some scenarios in which outsourcing to a specialized external provider can be highly beneficial:

Your business is growing quickly

If your business is experiencing rapid growth, the complexity and volume of financial transactions can quickly become overwhelming. Outsourcing accounting can help you manage this growth efficiently without the need to hire and train additional in-house staff.

You lack in-house expertise

When your in-house team lacks the specialized expertise required for certain accounting tasks, such as tax preparation, financial analysis, or compliance with complex regulations, outsourcing can provide access to skilled finance professionals who can handle these functions competently.

You want to manage accounting costs

Outsourcing can be a cost-effective accounting solution, especially for small businesses that cannot afford to maintain a full-fledged internal accounting department. By outsourcing, you can convert fixed expenses into variable costs, paying only for the accounting services you need when you need them.

Furthermore, you can hire accountants from locations known for their highly competitive rates, such as Latin America.

You need to focus on core business activities

If accounting tasks are taking up too much of your time and diverting your attention from your core functions, it might be time to outsource. This allows you to focus on what you do best—growing and managing your business.

You have seasonal workload fluctuations

If you experience seasonal peaks and troughs in your workload, you can likely benefit from outsourcing. During peak times, an external provider can handle the increased accounting workload. Furthermore, you won’t have to pay for idle staff in slower periods.

You want access to advanced technologies

If your business has limited resources to invest in the latest accounting software and technology, outsourcing can provide access to cutting-edge tools and platforms that increase operational efficiency in financial management.

You need support with compliance and risk management

Keeping up with constantly changing financial regulations can be challenging. Outsourcing to a firm that specializes in compliance can help ensure that your business remains compliant with all relevant laws and regulations, reducing the risk of expensive errors and penalties.

You need more scalability

As your business grows, your accounting needs will evolve. Outsourcing provides the flexibility to scale accounting services up or down based on your current needs without the hassle of hiring or laying off employees.

By recognizing these scenarios, you can make an informed decision about when to outsource your accounting functions, ensuring your business remains efficient, compliant, and focused on its main objectives.

When Not To Outsource Your Accounting Functions

While outsourcing accounting offers many potential benefits, it is not a one-size-fits-all solution. Here are some situations in which keeping your accounting in-house might be the more prudent choice:

You must maintain a high level of control

If your business requires a high level of control over financial operations and data, outsourcing may not be the best option. In-house accounting allows for direct oversight and immediate access to financial information, ensuring that you have full control over your financial processes.

You can’t share proprietary or sensitive information

Some organizations dealing with highly sensitive or proprietary financial information might prefer to keep accounting functions internal to maintain confidentiality. This is especially important in industries where data security is paramount and any breach could have severe repercussions.

You already have a strong internal accounting team

If you already have a strong, capable internal team of accounting experts, it might make sense to continue leveraging their expertise. An established team familiar with your financial operations can often provide more tailored and immediate support compared with an external provider.

Your needs don’t justify the cost of outsourcing

While outsourcing can be cost effective for many companies, there are scenarios in which it might be more economical to keep accounting functions in-house. If the cost of outsourcing exceeds the benefits, or if you can manage accounting tasks efficiently with your existing internal resources, it may be better not to outsource.

For example, if you only need to manage very basic accounting tasks, you may still be able to get by with affordable accounting software or a part-time in-house accountant.

You require immediate, in-person communication

Internal accounting allows for direct and immediate communication with your financial team. If your business values face-to-face interactions and real-time discussions about finances, keeping accounting functions internal might be preferable.

Outsourcing doesn’t align with your long-term strategy

If you have a long-term strategy that involves building and maintaining a robust internal team, outsourcing might not align with these goals. Developing in-house expertise can be a strategic investment in the future growth and stability of the company.

How To Evaluate Your Current Accounting Needs

Assessing your current accounting needs is crucial for making an informed decision about whether to maintain internal accounting functions or recruit external accounting talent. Here’s a process to guide you through evaluating your accounting needs:

1. Assess your current accounting processes

First, review your existing accounting systems and workflows. Identify any inefficiencies, bottlenecks, or areas where errors frequently occur.

2. Identify core accounting functions

Next, list all the essential accounting tasks your business requires, such as bookkeeping, payroll, tax preparation, and handling financial reports. Determine which of these functions are critical to your daily operations and long-term goals.

3. Evaluate in-house expertise

Assess the skills and qualifications of your current accounting team. Make note of any gaps in expertise or areas where additional training or support is needed.

Consider whether your team can handle complex financial tasks like compliance with changing regulations or financial analysis.

4. Analyze workload and capacity

Examine your internal team’s workload and determine if they are overburdened or underutilized. Look at seasonal fluctuations in workload to see if there are peak times when you require additional accounting support.

5. Review financial performance

Analyze your financial statements and performance metrics to identify any areas of concern. Find out whether your current accounting processes are providing you with accurate and timely financial information for decision-making.

6. Consider technological needs

Evaluate whether your current accounting technology is up to date and meeting your needs. How do the systems you use affect your accounting processes? Identify any new accounting tools or software that could enhance efficiency and accuracy.

7. Assess compliance and risk management

Review your compliance with financial regulations and identify any areas where you may be at risk. Determine if your current processes adequately manage financial risks and ensure regulatory compliance.

8. Gather feedback from stakeholders

Solicit input from key stakeholders, including management, employees, and external auditors. Use their feedback to identify any additional needs or areas for improvement in your accounting processes.

9. Set goals and priorities

Define clear goals for your accounting functions, such as improving accuracy, reducing costs, or enhancing compliance. Prioritize these goals based on their importance to your business’s overall strategy and objectives.

By following this process, you can gain a comprehensive understanding of your current accounting needs and decide how to address them, whether through in-house improvements or outsourcing options.

Final Thoughts

Although there are many reasons to outsource your accounting tasks, it’s still critical to consider the factors we’ve covered to make certain that it’s the right direction for you.

Remember, outsourced accounting is not just a lifeline for overwhelmed businesses; it’s a strategic initiative that can elevate your financial management to new horizons. With a clear vision, an effective approach, and the right outsourcing partner, you can drive your organization toward a future of financial clarity and business growth.

If you’re eager to start hiring skilled external accounting professionals, see our list of some of the top finance and accounting outsourcing providers.

Frequently Asked Questions

What accounting functions can you outsource?

You can outsource various accounting activities, including:

• Bookkeeping
• Payroll processing
• Financial reporting
• Tax preparation
• Accounts payable
• Accounts receivable
• Auditing
• Chief financial officer (CFO) services

Outsourcing these functions enables you to take advantage of specialized expertise while focusing on core activities.

What accounting roles can you outsource?

You can outsource a wide range of accounting roles, including:

• Bookkeepers
• Payroll specialists
• Accounts payable/receivable clerks
• Financial analysts
• Tax accountants
• Internal auditors
• CFOs

What is the process for outsourcing accounting?

Outsourcing accounting involves several steps:

1. Assess your needs: Identify which finance functions you need to outsource.
2. Research providers: Look for firms with knowledge in your industry.
3. Evaluate options: Compare services, costs, and reviews.
4. Determine compatibility: Ensure the provider’s values and practices align with your business.
5. Form an agreement: Draft a clear contract outlining the scope of outsourced accounting services, costs, and expectations.
6. Onboard: Integrate the provider into your business operations and establish communication channels.

You can learn about each of these steps in detail in our guide to hiring outsourced accountants.