Reasons to outsource accounting and bookkeeping

What does it mean to outsource accounting and bookkeeping?

Before fully getting into the benefits of outsourcing, it is important to be clear about what it means.

Outsourcing then implies that a third party takes responsibility for the accounting and administrative processes using its own staff, its own technological tools and procedures.

However, when talking about outsourcing accounting or bookkeeping, this does not imply a complete outsourcing of all processes, it is possible to outsource only a part. In a company, these processes are numerous, covering the daily recording and organization of financial transactions, the preparation and presentation of financial reports, the handling of payroll and many more. They can be categorized into two major groups: bookkeeping and accounting.

• 📚 Bookkeeping: daily recording and organization of financial transactions (purchases, sales, income, expenses, bank reconciliations, invoice management, accounts receivable and payable management, etc.).
• 📊 Accounting: preparation and presentation of financial reports (balance sheets, income statements), analysis of accounting data, tax and fiscal compliance, financial and tax advice, payroll management, among others.

Main benefits of outsourcing accounting and bookkeeping

Accounting and bookkeeping outsourcing is gaining popularity among companies, especially startups and SMEs that cannot afford to have an in-house accounting service and cannot afford to spend all their time on administrative and accounting operations. In other words, companies are increasingly looking to outsourcing in order to optimize their resources and reduce the administrative burden, but these are not the only reasons. When facing the question of “what is the reason to outsource bookkeeping?”, there are a lot of answers. Here are some of the main ones: 

✔️Saving time and internal resources

Accounting is a complicated and time-consuming task, time that could be invested in optimizing and improving the company's own activity.

✔️Reduction of operating costs

Savings are one of the main advantages of outsourcing. Hiring in-house staff to do the accounting involves a lot of expenses: salary costs, social benefits, training, infrastructure, specialized software and more. Outsourcing converts these fixed costs into variable costs, since you only pay for the services required and eliminate expenses associated with maintaining your own department.

✔️Greater focus on core business

One of the reasons in favor of outsourcing put forward by both large and small companies is not to dedicate resources to tasks that are not part of the core business. Performing tasks that are considered secondary in most cases implies allocating funds, time and training to such tasks, which can absorb a significant amount of such resources. By leaving accounting tasks in the hands of specialists, company leaders and teams can concentrate on core business activities.

✔️Access to specialized professionals

In the day-to-day running of a company, there are many accounting-related tasks that require high levels of expertise and knowledge that are often difficult to achieve with in-house staff. In contrast, accounting firms and third-party providers have up-to-date experts who can ensure professional and correct management of finances and provide expert advice in complex situations.

In addition, companies often need the services of a leading expert in a particular subject matter. 

✔️Reducing errors and improving compliance

In many instances hiring a specialized third party can yield better results than would be obtained by performing the accounting in-house and errors can be minimized. In addition, specialized services keep up to date with legal and tax changes, reducing the risk of penalties and ensuring compliance with all regulatory obligations.

✔️Scalability and flexibility in the face of business growth

Outsourcing makes it easy to adapt the volume of contracted services according to the company's needs. If the business grows or shrinks, it is easy to adjust the required resources without worrying about hiring or firing processes.

✔️Strategic advice and external vision

Outsourcing accounting not only ensures that the books are up to date and that the company complies with all regulations, but also opens the door to high-level financial advice. Experienced accountants who serve multiple companies and industries often have a broad, up-to-date view of the business environment and can identify trends, risks and opportunities that may go unnoticed by an in-house team. These professionals not only record and report financial information but can also analyze the numbers in depth and offer strategic recommendations.

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Potential challenges in accounting outsourcing 

While the advantages of outsourcing accounting and bookkeeping services are numerous, outsourcing can also present certain challenges that are important to anticipate and manage appropriately. Some of the key challenges include the following:

❗Loss of control and visibility over financial processes

The main risk is the loss of control over outsourced areas or activities. The company is delegating all the knowledge and development of these tasks to that other company, thus becoming dependent on its supplier, and will have to carry out monitoring and quality control tasks.

❗Loss of internal knowledge and increased dependency

When a process is delegated, not only is the performance of the outsourced tasks delegated, but also the knowledge itself. When a company entrusts a third party to perform a certain task, it is renouncing to develop the necessary knowledge to perform it. If the outsourcing contract is prolonged over time, the loss of knowledge becomes greater and greater, which increases the degree of dependence on the contracting company.

In addition, if all information and financial processes depend on a single supplier, an unforeseen change, such as the supplier's bankruptcy or the termination of the contract, can seriously affect the company.

❗Communication barriers and possible misunderstandings

Communication between all parties in the business value chain is very important. Communication with an outsourced team can be less fluid and lead to misunderstandings, delays in the delivery of information or fulfillment of tasks.

❗Risk of leaking sensitive information

Accounting information is critical and confidential and sharing sensitive data with a third party can raise privacy and security concerns or lead to situations that go beyond concern involving actual leaks of sensitive information.

❗Increased start-up costs

Another major risk of outsourcing is the increase in start-up costs, i.e., all the resources devoted to the search, selection, hiring and implementation of the outsourcing.

The selection costs include the resources allocated to the evaluation of the different alternatives available for the selection of the supplier, it is essential to examine experience, infrastructure, quality culture and timeliness of delivery. Negotiation and contracting costs involve meetings with the selected supplier to reach service agreements, contract definition and policy management. Implementation costs include internal employee time in transferring the organization's style, standards and culture to the supplier, as well as adaptation of the new process.

❗Inadequate quality

There is a risk that the selected vendor does not have the level of experience, expertise or commitment necessary to adequately meet the company's needs. This can lead to errors, non-compliance with regulations or delays, negatively affecting the company. 

❗Affecting the work environment

Another important risk of outsourcing accounting and bookkeeping that usually occurs when replacing an existing accounting department in the company is the impact on the work environment. When a company makes the decision to implement this strategy, the people directly related to the activity are susceptible to being fired due to the elimination of jobs that are transferred to the third party, which generates uncertainty, demotivation in the employees and a decrease in productivity, conditions that end up affecting the organizational climate.

Tips for successful outsourcing

In many cases it is much more profitable to hire an external company than to have an in-house department or workers dedicated to a task that is not related to the business activity itself and as complex as accounting. However, although there are many associated risks, as seen in the previous section, by adopting good practices and following certain recommendations these risks can be eliminated or reduced. Below are some recommendations for successful outsourcing:

• 🔍 Select the right provider: research and compare several options, check multiple references, examine credentials and evaluate the third party's experience in your industry. Also conduct interviews and, if possible, start with a trial period.
• 📝 Define clear expectations and scope: establish in the contract the services to be provided, timelines, performance indicators and communication channels. This will avoid misunderstandings and ensure smooth collaboration.
• 🛡️ Ensure security and confidentiality: sign confidentiality agreements and ensure that the supplier employs robust data protection measures. 
• 📞 Maintain regular and transparent communication: schedule regular meetings and demand clear reports. Fluid communication allows you to anticipate problems and adjust processes according to business needs.
• 🔁 Ensure knowledge transfer: ask the supplier to document accounting procedures in detail and communicate any relevant changes in regulations or processes to be followed. In addition, encourage certain employees to be trained in the essential aspects of financial management so that the company can maintain a basic level of internal knowledge, be able to correctly supervise external work and be better prepared for possible changes of supplier or reinternalization of the service.
• ✅ Evaluate and review the service periodically: perform regular evaluations of the supplier's performance and give feedback. Do not hesitate to renegotiate conditions or look for alternatives if the service does not meet your expectations.

Conclusion

Outsourcing accounting and bookkeeping has become a very attractive strategy for SMEs, startups and in general companies of all types that are looking for efficiency improvements, cost savings and greater flexibility. As seen, the benefits are numerous and although there are also risks, following good practices and recommendations it is possible to mitigate them.

One of the most important points is a good external provider and the good news is that you don't have to spend hours looking for one, you have already found it, EasyBiz is here to help you with everything you need in the accounting area, contact us.