Accurate financial records are critical to operating a successful business. However, many organizations struggle to find and retain experienced accountants and bookkeepers in today’s labor market. Outsourcing these functions can be a practical solution to temporarily alleviate this pain point while you recruit an internal candidate — or, over the long run, if you don’t want to hire a full-time employee. Here are some ways this option can benefit your company and its bottom line.
Reduced overhead costs
By outsourcing your accounting function, you can avoid paying staffing-related expenses, including salaries, benefits, employment taxes, unemployment benefits and training. You also avoid the high cost (and potential frustration) associated with recruiting and managing staff.
When properly executed, outsourcing can lower your accounting costs while maintaining quality. Of course, you still must pay outsourcing firms, but their fees are usually much lower than employing full-time staff. However, expected cost savings can be eroded by add-on services or inefficient coordination between external providers and your staff. So it’s important to define the scope, deliverables and pricing up front.
More flexibility
Many businesses have fluctuating accounting needs during the year. For instance, they might be busier at year-end and tax time or when pursuing a major capital investment project, such as a merger or public offering. Outsourcing lets you pay only for the level of support you need, when you need it.
In effect, you can convert fixed staffing costs into variable outsourcing fees. With outsourcing, you can dial your level of service up or down on demand. And you don’t have to worry about keeping full-time accounting staff busy in slow times to prevent layoffs — or scrambling to bring on new hires or pay overtime when the workload is heavier.
Enhanced decision-making and efficiency
External accountants who work with multiple clients across industries usually obtain a higher level of business intelligence than those who have worked solely for one company. Outsourcing firms have qualified team members with expertise across the entire spectrum of accounting roles — from bookkeeper to CFO — as well as specialized niche knowledge for you to tap into as needed. You can leverage their knowledge and skills to make better, more timely business decisions.
Plus, outsourcing firms can usually answer your questions and provide analytics faster than in-house staff with fewer resources. That said, relying on an external provider may reduce visibility into your financial operations if communications aren’t consistent and well-structured.
Additionally, outsourcing frees up time for your management team to focus on growing the business through marketing, operations, networking and relationship building. You can reassign office staff with extra bandwidth to areas that need more attention, such as procurement or customer service. This can translate to better service, increased customer satisfaction and higher profits. Moreover, you won’t have to worry about critical accounting employees calling in sick, using paid time off, quitting or otherwise leaving a gap.
Minimized risk exposure
In-house accountants often find it difficult to stay on top of the latest tax, accounting and regulatory requirements. Inadvertent mistakes can leave your company vulnerable to legal judgments, penalties, fines and unwelcome media attention. Outsourcing firms, on the other hand, closely monitor compliance issues and promptly respond to regulatory developments by training staff and adjusting their processes and procedures.
Outsourcing can also be an effective way to minimize the risk of fraud by company insiders. External accountants typically aren’t in a position to profit from financial misstatement. And they may be more likely than employees to immediately flag objectively suspicious activity and have fewer opportunities to collude with others to commit fraud.
Updated technology
Outsourcing provides ready access to sophisticated, updated accounting and tax software and other technology, such as artificial intelligence (AI) systems. Smaller organizations frequently lag behind their larger competitors in adopting such tools, which can be cost-prohibitive until they’ve been on the market for a while. Reliance on outdated systems could put you at a disadvantage. Outsourcing firms can spread the costs of early adoption across multiple clients, so you needn’t wait for prices to drop.
In addition, external providers typically install software security updates and patches to prevent data breaches. That said, sharing financial data with a third party introduces confidentiality considerations, making it critical to evaluate a provider’s data protection controls and protocols.
Rethinking your accounting function
Outsourcing your accounting function can deliver cost and operational efficiencies and expand your access to financial skills and tools. But this approach requires thoughtful implementation. By selecting the right partner, clearly defining expectations and maintaining strong communication with internal staff, businesses can optimize the potential benefits.
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