Outsourcing as a whole has become a common means of rounding out an organization’s important business functions without compromising the core focus of the in-house team. Among the most frequently outsourced functions is accounting.
Organizations typically outsource accounting to fill a need for accurate and up-to-date financial reporting with the least cost and effort as possible. However, many organizations find the benefits are much more extensive.
What is Outsourced Accounting?
Rather than managing the accounting process in-house, outsourced accounting entails hiring an outsourced expert to handle the financial matters of a business. This accountant or financial team works remotely, but will often meet on-site in client offices on an as-needed basis. Since most accounting software programs are cloud- or server-based, outsourced accountants can remotely access data needed to manage your organization’s books.
The most common benefit to outsourced accounting—and for outsourcing in general—is the ability to hire someone with expert skills and knowledge to complete tasks or fill roles without the cost of hiring someone with equivalent expertise in-house.
#1 Reduced Costs
With outsourced accounting, organizations pay only for the work needed as opposed to hiring a full-time in-house employee. This typically means the annual cost of the outsourced accountant will be significantly less expensive than a salary of an equally-experienced in-house accountant. Outsourcing accounting operations also bypasses expensive employment costs such as payroll taxes and employee benefits, as well as infrastructure costs such as computer equipment, furniture, and office space.
#2 More Skill and Experience
While saving money is often a driver for ourtsourcing, another is gaining access to greater skill and experience at the same cost. Most outsourced financial experts are very experienced and bring specialized expertise developed by working with a portfolio of clients. This type of expertise can be expensive on a full-time basis, but becomes accessible and reasonably-priced through an outsourcing arrangement.
Outsourced accounting and financial management allows organizations to strategically design a team to better achieve business goals. When small- to mid-sized business keep their financial management and accounting in-house, they typically have to combine multiple part-time roles into a single role to maximize the salary of a single individual. Though this strategy is the best way to maximize a single hire, an even more relevant team can be designed if the organization fractionally executes each role with only the time needed by an expert highly proficient in each field. It also allows for procurement of individuals specialized in areas of expertise specifically pertaining to the organization’s current goals.
“Simplifying and standardizing F&A processes is a key characteristic of well-run companies, and by instilling good F&A processes these companies can achieve a variety of good outcomes—such as more information, more service and more cash. By simplifying their F&A processes, companies have found they can reduce the cycle it takes to close books, and they can develop better benchmark and baseline financial processes to help them meet regulatory requirements.”
Forbes, “The Benefits of Outsourcing Finance and Accounting”
Outsourced accountants, bookkeepers, controllers, and CFOs have extensive experience in organizing existing books and processes into a more streamlined, standardized function. Not only does this make the closing and reporting processes faster and more effective, but also means you have important information when you need it to make integral business decisions, have a decreased margin of error, and that processes are more easily scalable.
A fractional CFO is an experienced CFO who provides services for organizations in a part-time, retainer, or contract arrangement. This offers a company the experience and expertise of a high-end CFO without the in-house cost—salary, benefits, and bonuses—of a...
#4 More Scalable
The ultimate goal of most organizations is to expand and grow. Whether that includes mergers and acquisitions, adding new products, expanding into new markets, or simply selling to a larger client base, an experienced financial team ensures the growth goes smoothly. Many small businesses fall prey to the firefighting style of financial management where they don’t allocate the resources to expand their financial and accounting processes until an emergency or imminent need emerges (such as needing organized books and detailed forecasts for fundraising). Outsourcing accounting and financial management means a number of finance and accounting experts are already in the sidelines ready to seamlessly integrate into your financial team when it’s strategically most appropriate.
#5 Fraud Prevention
According to a study by the Association of Certified Fraud Examiners (ACFE) published in 2016, the most common victims of fraud are small businesses, with over 30% of fraud cases occurring in organizations with fewer than 100 employees. The median loss incurred from fraud in these small businesses was found to be around $150,000—higher than or equivalent to nearly every other size organization (but typically with a more dramatic impact due to the smaller size of the business).
“When it comes to fighting fraud, many small businesses face an uphill battle. These entities not only incur losses as large as bigger organizations, but they typically have fewer resources with which to combat this threat,” the report reads. On average, small organizations had 49.2% fewer controls in place to prevent fraud than organizations with over 100 employees.
Outsourced accounting and finance management gives small businesses access to experts in spotting and preventing fraud when the organization may otherwise not have been able to afford the expertise or resources capable of that level of security.
#6 Turnover is More Seamless
Since outsourced accounting firms typically consist of multiple experts in each role, the transition if an accountant decides to leave is usually very smooth. When the books are standardized and systems are already maintained by the outsourced accounting firm, there’s little or no additional collaboration needed from an organization to facilitate a transfer to a different accountant within the firm. It also means the transition will be handled by the outsourced accounting firm instead of an organization seeking and interviewing candidates then providing training once a candidate has been chosen.
Outsourcing accounting is becoming more and more popular among organizations interested in optimizing their business operations while reducing overhead. Outsourced accounting has become a strategic transition to elevate an organization’s financial team, streamline processes, enhance security, and to be better prepared for growth or transition.
Is outsourcing your accounting right for your company? Speak with one of our experts to discuss whether your organization would benefit from outsourced accounting services. You may also feel free to ask us a question in the comments below or by submitting a message on our contact page.