Should You Outsource Accounting?

The decision to outsource a specific business process, whether accounting, manufacturing, human resources (HR), or information technology (IT), depends on the nature of the business and how it creates value.

For example, while IT is among the business functions most often outsourced, some companies get competitive advantage from their own in-house technology; others believe the way they manage people and recruit hires is crucial to their success and would never outsource HR.

Accounting outsourcing is among the touchiest outsourcing decisions. Only rarely is the finance and accounting function truly core to how a business creates value. The main point of outsourcing is to offload functions that are not your company’s specialty, giving you more time to focus on fundamentals – and hopefully save money along the way.

Yet handing over the company’s confidential financial information to a third party can feel like a step too far for many business owners. After all, turning control of any function over to an outside entity can be a business risk.

Businesses should consider carefully the following pros and cons of outsourcing a financial management task, including accounts payable, before deciding to contract out those business operations.

Four Advantages of Accounting Outsourcing

Outsourcing can provide many benefits, from cost savings and operational efficiencies to a greater competitive advantage. But like all business decisions, it requires thoughtful planning and consideration.

Here are some benefits of accounting and accounts payable outsourcing:

1. Improved Focus

Consider the primary and secondary strengths of your business. What percentage of your and your employees’ time is focused on tasks that do not fall into these categories? If that percentage is high, you might want to look into outsourcing. Outsourcing non-core tasks or processes can allow staff to concentrate on core responsibilities and fundamentals of the business. Unless you run an accounting firm, the accounting function is probably not a core strength. 

2. Cost Savings

What are the costs of doing accounting tasks in-house? Be sure to include costs such as office space and payroll for accounting staff. Don’t forget about the cost of employee time needed to stay up to date on changes in reporting requirements, plus oversight of accounting staff. When you outsource accounting services, you only pay for what you need, instead of maintaining in-house staff. This can allow you to avoid staff turnover problems and associated recruiting or training costs. When outsourcing accounting, all that becomes the external company’s problem, not yours. This reduces overall operating cost, which can release capital for investment in other areas of the business.

"The main point of outsourcing is to offload functions that are not your company’s specialty, giving you more time to focus on fundamentals – and hopefully save money along the way."

3. Expertise and Skills

An accounting firm specializes in just that – accounting. Its staff is likely more suited to completing accounting and accounts payable work quickly and correctly. An accounting firm is more likely to support you with the latest tools and technology as well. You will also have access to experts who can guide you through changing regulations and reporting requirements. With the accountant compiling the data, you can spend more time interpreting it.

4. Business Intelligence

This is often overlooked when considering the benefits of accounting outsourcing. Business intelligence (BI) is a technology-driven practice of analyzing the company’s historical data to identify trends and develop key performance indicators (KPIs) you can use to manage the business better. By monitoring KPIs, managers can make more informed business decisions. Having an accounting team that is BI-driven and proactive can provide you with a competitive advantage, identifying areas for savings, evaluating investment opportunities, and delivering better reporting.

Accounting Outsourcing Issues to Consider

It's important to consider some potential issues for organizations new to outsourcing:

1. Control

Many small-business owners are intimately involved in their company’s accounting function, making it difficult to transfer control of financial records to a third party. But remember, if accounting is not your company’s core strength, then there are companies that can do it better. What’s important is that you have trust in the firm you choose. Once trust is established, you can regain a sense of control by documenting the parameters of the agreement in writing. Include agreed-upon responsibilities, policies, and procedures, as well as expectations around deliverables, timely communication, and service levels. You can feel more in control if you know what to expect.

2. Relationship Management

Even after finding an accountant with a strong track record, checking their credentials and customer references, and entrusting your accounting to them, it's important to actively manage the relationship. Good relationship management calls for regular communication and flexibility. Are the agreed-upon service levels realistic? Do procedures need to be updated to improve efficiency? The services can be reviewed in monthly or quarterly vendor meetings.

3. Hidden Costs

With better access to BI data, you may begin to wonder how you ever made a decision without automated cash-flow dashboards at your fingertips. In fact, with access to in-depth analysis and forecasting reports, you may actually enjoy interpreting your company’s accounting data. The next logical step is to request customizations as new insights bring up additional questions. Just make sure you understand what that will cost. Are the report formats flexible or set in stone? Can you change them yourself? You want to make sure your contract is not too rigid to support changing needs.

The Bottom Line

Time is valuable to business owners and their teams. It’s important to focus that time and energy where it’s needed most. Obviously, the accounting function is mandatory and critical to a company’s success. But there are companies that can handle accounting in a more economical and efficient way – allowing you to spend more time on the things that matter most to your business.

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