When it comes to a business’s financials, much depends on the type of business and the needs and motivation of the business owner(s). Accounting is essential to all small businesses. 

Many small businesses that pay little or no attention to their accounting ultimately fail, which is the last thing we want. 

Outsourcing accounting can help a small business keep track of its financials while minimizing the cost and time invested in bookkeeping.

What Does It Mean to Outsource Accounting?

All businesses, regardless of their specific functions, strive to satisfy the needs of their customers and the owner by making a profit. Bookkeeping and accounting are the scoreboards that show how well a business is accomplishing these goals.

The decision to outsource a business’s accounting will vary depending on the type and complexity of the business. Evaluating the following four factors can help the business owner decide if outsourcing is in their best interest.

4 Reasons for Outsourcing

  1. Maximum efficiency
  2. Accurate bookkeeping
  3. Access to reports 
  4. Small Business Financial Management

1. Maximizing Efficiency

All small businesses need some method of record-keeping to satisfy the requirements of state and federal taxing authorities (such as the IRS). This may be as simple as keeping a checkbook, using a spreadsheet, or using accounting software such as QuickBooks

However, these methods, primarily bookkeeping software, can be needlessly challenging and time-consuming for business owners. Is bookkeeping the best use of a business owner’s time?

Most small businesses can’t afford to hire a full-time bookkeeper or accountant. Outsourcing this function can save time. It’s also a cost-effective way to delegate duties so owners can focus on other essential aspects of running their business.

2. Accurate Bookkeeping

Bookkeeping is nothing more than ensuring that a business’s numbers are correct, but the specific process needs to be done promptly. 

If the owner is going to make sound financial decisions, accurate numbers must be available. Outsourcing the bookkeeping function to a professional Certified Public Accountant helps ensure access to these numbers.

The more complex the business, the more necessary bookkeeping services become. Companies with any kind of inventory need accurate information to ensure their pricing will cover items’ costs and their overhead. 

Companies that extend credit to customers need to know who is paying, who is not, and how long it takes to get paid. Large companies can afford accounting departments that take care of these things, but outsourcing makes more sense for smaller, growing companies.

3. Financial Information and Reports

Accounting takes the bookkeeping information and puts it into formats that satisfy both internal and external users of the company’s financial information.

External users include lenders, investigators, and regulatory agencies. For larger companies with publicly traded stocks, these agencies often require financial statements prepared by a CPA following Generally Accepted Accounting Principles (GAAP). 

Most companies requiring these statements have internal accounting departments.

The IRS or state taxing agencies will be the more likely external user for small businesses. All businesses must file a tax return, and a proper set of books is required to complete a return fairly and accurately. 

Outsourcing the bookkeeping and accounting helps simplify this process.

Internal users are the owners and managers of the business. The information from the bookkeeping system can help them make sound business decisions. Small businesses need a cost-effective way to access this information. Outsourcing to a professional can provide that.

4. Small Business Financial Management

The final reason to outsource accounting functions is to perform small business financial management.

With the help of a professional such as a CPA who specializes in small businesses, the following questions can be answered:

  • Is the business maximizing profits?
  • Is the business managing cash flow?
  • Is the business legally minimizing its taxes and meeting all tax obligations?
  • Is the business budgeting appropriately?
  • Is the business adapting to supply and demand?
  • Is the business financially solvent?
  • Is the business looking to the future?

Should You Outsource Accounting?

The more mature the business, the more likely the above questions will be relevant. It is always a good idea to prepare, even in the early stages of a business, to create a system that will help in the financial process. 

Until a business can afford a full-time accounting department, outsourcing the accounting function can help it fulfill its purpose and succeed.