Outsourced Accounting: The Small Business Owner’s Guide

Handling the books in-house can overwhelm small business owners quickly. Yet finance done right is the backbone of a thriving company. Outsourced accounting provides affordable expertise to take this burden off your shoulders. This detailed guide covers everything you need to know about outsourcing your accounting successfully.

What is Outsourced Accounting?

Outsourced accounting refers to delegating key financial functions of your small business to an external specialized firm. Instead of a full-time in-house accountant, you leverage an outside team.

Typical tasks outsourced include:

• Bookkeeping
• Payroll
• Accounts receivable/payable
• Financial statements
• Tax preparation
• Reporting/dashboarding

There are a few common outsourcing models:

Full Outsourcing

Under a full outsourcing model, you empower your provider to manage your small business’ entire accounting function from A to Z. This includes everything from core bookkeeping and payroll, to financial statements, tax paperwork, dashboard reporting, accounts payable/receivable and anything else finance-related. While you hand over the reins of control, you get dedicated support that covers all bases with experienced accounting specialists. This prevents any gaps that can surface when piecing together a patchwork of insider and outsider providers. It also delivers complete flexibility since all your accounting needs are covered externally.

However, full outsourcing does result in decreased internal visibility across key financial data if you rely solely on periodic reporting versus real-time system access. For business owners who prefer keeping a close pulse on numbers or have compliance needs requiring access, full outsourcing can feel like losing touch. Those more concerned with time savings and top-notch precision over control may find the trade off worthwhile.

Partial Outsourcing

This middle ground alternative involves keeping selective high-sensitivity accounting tasks in-house while outsourcing the remainder. For example, you may choose to maintain core bookkeeping functions internally where real-time visibility is key, while outsourcing payroll, taxes and reporting. This allows you to retain more control over sensitive functions that are critical to run the business daily, while leveraging external scale and expertise for more periodic support needs.

Partial outsourcing does enable the cost and efficiency benefits of outsourcing without losing touch with mission-critical numbers. However, it requires more work stitching together internal and external providers seamlessly. The blended model also means you need some in-house accounting staff which reduces cost savings compared to full outsourcing.

Onshore vs Offshore Outsourcing

Onshore partners offer the benefit of local cultural/language familiarity, easier in-person meetings when needed, and the comfort of domestic accountability. Offshore teams promise lower price points coupled with around-the-clock support thanks to global talent pooling.

Most small businesses based in the U.S. or Canada start with onshore outsourcing for a familiar transition, then may incorporate offshore talent selectively over time for overnight processing of batch workloads. Blending onshore program management with offshore volume processing can provide the best of both worlds.

5 Benefits of Outsourcing Your Accounting

1. Cost Savings

Outsourcing converts what is usually a fixed cost of having an in-house accountant into a flexible variable expense that scales up and down based on your changing needs. Rather than paying employee salary, benefits, payroll taxes regardless of workload each month, you only pay your outsourced partner for the specific tasks and volume of work actually completed that month. During slower periods or growth phases when accounting needs decrease or spike, your costs automatically adjust accordingly. This pay-as-you-go model is much easier for cash flow management rather than budgeting for fixed costs in leaner months or short-staffed seasons.

2. Advanced Expertise & Correct Standards Application

Accounting firms that specialize in outsourced services stay on the cutting edge of their field in terms of qualifications, continuing education, and correct application of latest compliance rules or changes. You benefit from precision record-keeping, financial statement preparation, tax filing, and reporting from these experienced professionals. They act as an extension of your team to ensure standards are followed precisely. This prevents costly errors that often come with handling complex accounting needs in-house without deep expertise.

3. Improved Efficiency

By leveraging an established accounting provider, you bypass the lengthy learning curve that comes with adopting new financial software, workflows, reporting needs or payroll systems. Experienced outsourcing teams already have expert proficiency in the latest accounting technologies and processes. They know how to streamline tasks for maximum throughput and productivity. This efficient machine immediately benefits your bottom line rather than slowly ramping up a new in-house accountant.

4. More Focus on Core Business

Business owners often get stuck in the weeds handling day-to-day bookkeeping tasks or financial reporting needs. This administrative work consumes hours every week that can be spent more effectively on sales calls, client meetings, new product development or other initiatives more central to core operations and strategic growth. Outsourced accounting lets you hand over these financial chores to trusted external experts. You free up pivotal time to focus your energy on the priorities that really move the revenue needle rather than back-office accounting must-dos.

5. Increased Flexibility

As a small business evolves, accounting needs ebb and flow. Supporting payroll, reporting, tax changes or special projects in-house requires constantly hiring and firing full-time accountants to keep up. Outsourced accounting offers far more flexibility to scale these services up and down precisely when needed. Ramping up takes just a call – no job posts or interviewing required which causes costly gaps. The elastic nature of outsourced accounting matches the fluid realities of a growing small business much better than static in-house resourcing.

When Does Outsourced Accounting Make Sense?

While most small businesses can benefit from outsourcing parts of their accounting function, it offers maximum impact if:

You’re a lean startup still finding your financial footing:

For entrepreneurs just getting started, every dollar counts. Most can’t justify a full-time in-house accountant on staff or don’t need that capacity year-round early on. Outsourced accounting allows startups to cost-effectively scale financial support up and down as they build momentum. Easy to start small then expand later. New companies also lack historical data and processes so benefit greatly from outside expertise setting things up right.

You don’t have a full-time accountant on staff currently:

If no one on payroll is dedicated to finance already, outsourcing provides immediate accounting help without having to first fund and hire an expensive full-time resource. There are also no redundant salary costs to save against if you have no existing roles. This makes it very straightforward to get support in place through an outside firm and realize cost takeout from the get-go.

You want to reduce overhead expenses:

Outsourcing provides fixed costs savings compared to full-time hires by transforming accounting into a flexible variable expense. For companies facing margin pressure or needing to trim expenses during tighter times, outsourced accounting presents a chance to cut overhead in a strategic way. The workload-based pricing scales costs well to needs without impacting business support.

You need more focus on core operations and strategy:

Founders and managers often waste precious hours weekly stuck doing or overseeing accounting tasks instead of more mission-critical operations. Outsourcing alleviates this burden so leaders can shift more attention to developing new products, marketing campaigns, client initiatives and other priorities more central to growth and competitiveness. Freeing up bandwidth here pays huge dividends.

You are rapidly growing or downsizing:

Accounting needs fluctuate greatly during growth spurts or periods of reduced operations. Outsourced models provide flexible capacity and specialized expertise to scale up or down precisely when required to meet changing demands. The elastic nature of outsourced accounting matches the fluid realities of an evolving small business much better than static in-house resourcing.

6 Tips for Selecting an Accounting Provider

With so many firms offering outsourced accounting, vetting potential partners carefully is crucial:

Check Credentials & Experience

Scrutinize the education background, certifications, and years in field handling small business clients for all staff that may access your accounts. Opt for firms with CPAs and MBAs that demonstrate deep expertise. Ask for client references and confirm years of experience align to your niche and size.

Align Services to Needs

Assess all capabilities and monthly service bundles offered to match your specific situation. Whether you need daily transaction entries, payroll runs, customized reporting, or advisory services will determine which firms suit you. Compare service lists to pinpoint providers that can be a one-stop-shop versus needing multiple vendors.

Examine Processes & Technology

Understand how smooth their workflows are to avoid delays or frustration. Also research what modern accounting software and efficiency tools they utilize to save you time while ensuring accuracy. Cloud-based platforms that facilitate real-time visibility and collaboration are ideal.

Vet Data Security Measures

Have frank discussions around encryption methods used, access controls, data backup systems, and protections against cyber attacks before deciding. As accounting firms house extremely sensitive information, water-tight security precautions are an absolute must even for small vendors.

Validate Communication Practices

Look into guaranteed response times when queries arise, standard methods of contact, scheduled meetings and customized reporting offered. The right provider relationship involves transparency, proactivity and tailored communications that suit your preferences.

Understand Pricing Models & Contracts

Watch for any lock-in periods, early termination policies, included vs open-ended extra fees, and the ability to scale up or down flexibility as your needs evolve. Hidden charges or rigid contracts can make parting ways tough if you are unhappy.

How to Start Outsourced Accounting the Right Way

Follow best practices when launching an outsourced accounting engagement:

Detail Internal Needs, Priorities & Gaps

Take stock of current challenges your finance team faces around skills gaps, limited time, or goals not yet achieved. Document where precisely gaps exist in financial functions and be honest about capabilities that can be handled in-house cost-effectively versus what should move out to specialists. Pinpointing needs aids provider matching.

Research Specialized Providers

With a clear picture of requirements, research firms with demonstrated small business accounting expertise that align to them. Look for capabilities matching your pain points and positive credibility signals like online reviews. Create a shortlist of top contending options for further comparison.

Compare Service Bundles & Quotes

Dig into the particular service bundles the shortlisted providers offer to assess fit. Then get detailed pricing estimates from each firm for your specific needs. Understand what tasks are covered under fixed or usage-based fees versus open-ended additional charges to budget accurately.

Interview Finalists In-Depth

Have in-depth discussions with the final 2-3 vendors around their workflows, technologies leveraged, data protection methods, communication practices and satisfaction levels reported by current clients. This builds trust in capabilities. Prepare questions in advance covering your particular concerns.

Select Best-Fit Provider

With all information gathered from the shortlisted firms, compare across factors like service alignment, pricing, and capability confidence to decide on the provider that hits all marks. They should match requirements closely, fall within budget, and leave you fully confident in their specialized skills.

Onboard Carefully

Clearly set expectations upfront on exact accounting tasks or functions being outsourced, any training needs your team has, customized reporting needs, communication touchpoints preferences and a transition plan. Document responsibilities so nothing falls between cracks.

Actively Manage Relationship

Schedule regular reviews of essential reports or metrics, meetings to address questions, and open feedback channels. Continuously add or remove outsourced tasks over time as your internal finance staffing or strategic financial goals evolve.

Outsourcing Models: Retainer vs On-Demand

Retainer Model

• Pay fixed monthly fee for defined scope of essential services
• Add-ons if needed at extra cost
•  ore predictable, stable

On-Demand Model

• Pay only for actual accounting tasks done each month
• Hourly billing rates, no minimums
• Completely flexible but costs fluctuate

Hybrid Model

• Mix of small retainer fee + hourly billing above base
• Balance flexibility with some cost certainty
• Choose approach fitting your budget and variability tolerance.

What Impacts Outsourced Accounting Pricing?

• Scope & complexity of services
• Provider location (onshore/offshore)
• Level of expertise & experience
• Use of software automation
• Minimum monthly commitments

Understand what’s included and extra (advisory time, tax prep, overflow work). Define key aspects upfront to prevent surprise charges.

Conclusion

Outsourcing accounting expertly fills common small business financial gaps. The right external partner becomes an invaluable asset – ready to scale without the overhead of a full-time resource. They handle the financial heavy lifting so you can get back to the work you love.

If exploring outsourced accounting for your small business, first start by detailing your current needs, pain points and priorities. Research specialized local providers that seem to fit your requirements. Vet a few firms closely through calls and proposal comparisons. Move forward with the best aligned, most confidence-inspiring partner.

FAQS