CareerOutsourcing Bookkeeping: Pros, Cons, and Best Practices For Businesses

Outsourcing Bookkeeping: Pros, Cons, and Best Practices For Businesses

Small business owners handle various duties in addition to their everyday operations, including administrative work, HR tasks, and marketing efforts.

Managing finances and bookkeeping is critical because it affects the company’s financial well-being and decision-making.

However, these tasks can be time-consuming, often distracting from daily operations and long-term strategic planning.

Turning to contractors for outsourcing has emerged as a popular solution to these challenges.

At least 37% of small businesses currently outsource their accounting and bookkeeping responsibilities to external specialists, while more than 52% intend to adopt or increase their use of outsourcing strategies in the future.

If your company is considering this approach, it’s important to understand the pros and cons of outsourcing small business bookkeeping services and learn the best practices to help you maximize these services’ benefits.

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The Pros of Outsourcing Bookkeeping

Outsourcing bookkeeping is a rising trend, especially among small and medium businesses (SMBs) seeking to optimize their resources and focus on growth.

Here are some key benefits you can expect from entrusting your records management to an external specialist:

Cost Savings

Cost savings is one of the primary and immediately noticeable benefits of outsourcing. Hiring a full-time in-house accountant for record-keeping can cost from $3,200 to $5,800 per month.

Subscribing to an external service is a more cost-effective alternative. Online services range from $15/month for basic packages to over $100/month for the most comprehensive plans.

In addition to saving money on labor costs, an outsourced bookkeeper has access to their own hardware and software solutions, eliminating the need to purchase equipment.

They may also have additional qualifications, such as CPA certifications, reducing the need to invest in training.

Access To Expertise

Besides saving money on training, remote accounting and bookkeeping services provide your organization with immediate access to a fully trained, qualified individual.

The service providers employing them are responsible for training and keeping their employees up-to-date with the latest practices and developments in the accounting industry.

An outsourced bookkeeper is already knowledgeable in everything they need to manage your books and help your firm comply with the latest laws and regulations.

You can also rely on an external accounting specialist to provide you with fiscal advisory services and actionable insights.

Their skills allow them to manage the company’s budgets, improve forecasting, and guide your overall growth strategies. 

Instant Scalability

When you have an internal accounting department, expanding your company’s records management involves buying additional equipment, hiring staff, and covering training costs. 

Adapting to a fast-changing economic environment can be challenging, especially if you need to downsize operations. During downturn periods, you may have to sell off equipment or dismiss qualified staff to cut costs.

Your company can easily scale its record-keeping operations up or down using external services based on current economic conditions.

You can adjust the level of services you require as necessary, aligning your monthly expenses accordingly.

For example, if your firm operates on a seasonal basis, instant scalability gives you the flexibility to adapt to peak periods and avoid overspending during the low season.

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The Cons Of Outsourcing Bookkeeping

Although outsourced services can bring numerous advantages to your small company, depending on them can also come with some potential disadvantages. Here are some of the downsides of outsourcing:

Loss of Control

While delegating your organization’s financial records to an external entity can lead to cost savings, it can also diminish your control. You may have a different direct oversight than in-house accountants typically offer.

Although most outsourced services are flexible and customizable, they may not always align perfectly with your firm’s processes and internal workflows.

Security and Confidentiality Risks

Just like any other outsourced service, relying on an external organization to handle your records carries a certain level of data security risk.

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Your organization’s confidentiality practices and security protocols can vary compared to the service provider’s, leading to security gaps or vulnerabilities.

This may pose a risk of exposing your company’s financial or employee data to unauthorized parties.

Communication Challenges

When companies outsource their services, they often communicate with their clients through remote channels like email, instant messaging, or video conferencing.

While this approach allows for more flexibility compared to in-person meetings, it can also cause misunderstandings or prevent the sharing of critical information.

Time zone differences, language barriers, and information silos are common culprits.

Best Practices For Outsourcing Bookkeeping

If you’re thinking about subscribing to an external accounting service, there are some best practices you should know.

Choose The Right Partner

These practices can help you avoid potential issues and ensure you get the most out of your plan.

Choose The Right Partner

When selecting a service provider, ensure they have the skills, qualifications, technology, and security to handle your records safely and competently. Criteria to look for include:

  • Good reputation. Ensure the service is reliable, trustworthy, and a good fit for your firm. Look for client testimonials from organizations similar in size to yours and check online ratings detailing how their services helped other companies.
  • Secure and up-to-date. They should use the latest security technologies and protocols to protect your data from breaches or theft. Examples include DigiCert certifications, strong encryption (128-bit SSL or better), and privacy program licensing such as TRUSTe.
  • Expertise with your needs. An organization’s record-keeping needs depend on the sector or industry it operates in. Check whether your service provider has the skills and experience handling the books for companies in the same industry as your own.
    For example, if you run a construction firm, your service should be adaptable to industry-specific record-keeping, such as job costing, project-based billing, and construction industry tax liability.
  • Real-time communications. Your external accountant or bookkeeper should be available on real-time communication channels like Slack or MS Teams. These applications combine text-based messages with audio and video-conferencing for clear, efficient communication. 

Establishing Clear Expectations

When contacting a potential partner to outsource records management, set clear expectations and define roles and responsibilities.

Also, detail the work and services you require, specifying the exact tasks you intend to delegate.

This approach helps ensure they understand how your firm operates and how they can help improve record-keeping efficiency.

You can also establish other requirements, such as whether they need to meet monthly or quarterly reporting or key performance indicators (KPIs).

Since each organization has its own objectives, it’s important to provide detailed explanations early in the process.

Regular Communication and Reporting

After establishing a partnership, communicate as frequently and transparently as possible through the agreed-upon channels.

In addition to ensuring they meet your expectations, encourage open discussions regularly so you and key staff members are always in the loop. 

For instance, if your employees mainly use Slack for communication, ensure that your outsourced accountant or bookkeeper can access the relevant channels and easily communicate with the necessary contacts to carry out their responsibilities.

Find A Qualified Outsourced Bookkeeper For Your Business

Choosing an outsourced bookkeeping plan is an efficient way to tap into the expertise of a qualified bookkeeping or accounting specialist.

You can customize the plan and its options to align with your needs, industry requirements, and budget.

By implementing an outsourced bookkeeping plan, you can focus on growing your business and investing in its future.

To explore your options, look for reputable service providers online, review their pricing plans, and book a consultation to learn more about how they can help you.

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