The Pros And Cons Of Outsourced Accounting For Your Business
August 26, 2022
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Businesses today have more options than ever regarding accounting and bookkeeping. One option that is gaining popularity is outsourced accounting.
In this arrangement, businesses hire an outside firm to handle their accounting and bookkeeping needs.
This approach has pros and cons, and businesses should consider them before deciding for good. This blog post will explore some of the crucial considerations.
Why Do Businesses Outsource Accounting?
There are several reasons why businesses might choose to outsource bookkeeping services.
Here are some of the most common:
1. Shows Professionalism
In today’s business world, first impressions matter. Having a professional accounting firm handle your finances shows potential clients and partners that you mean business.
2. Utilizes Specialization
Accounting is a complex and ever-changing field. Take lease accounting for example. A lot of businesses and even accounting firms like to outsource their lease accounting by using bespoke lease accounting software. Lease accounting can be quite complicated, especially after the new ASC 842 guidelines were introduced. It comes with it’s own terminology too. Take lessor for example. A lessor is an entity (your business, for example) that is allowing another party to use an asset in exchange for something, usually a cash payment over an agreed term. If you’re giving equipment or machinery on this basis, your a lessor. If you’re renting the equipment, you’re a lessee. Lease accounting is a prime example of how accounting specializations can be gained outside of your organization.
If you process your own lease accounting, things can get complicated pretty quickly. Whereas if you use lease accounting software or speak to an accountant you’ll be able to confidently account for your leases, under ASC 842, correctly.
3. Accounting Is Time-consuming
Accounting and bookkeeping can take up too much time better spent on other aspects of running the business. Using a quality accounting app (like one of these) can make a huge difference in terms of efficiency.
Outsourcing accounting allows businesses to free up time and resources to focus on other areas of their business.
4. To Comply With Government Regulations
Businesses are required to comply with several government regulations. That can be daunting, but accounting professionals can help ensure that your business complies.
What Are The Pros Of Outsourced Accounting Services?
Many businesses find that outsourced accounting provides several advantages, including:
1. Lower Costs
The most significant advantage of outsourced accounting is that it can save businesses money. With outsourcing, they don’t have to pay the overhead costs associated with maintaining an in-house accounting department, accountant salaries, benefits, and office space.
2. Increased Efficiency
Another advantage of outsourced accounting is that it can help businesses increase efficiency and productivity.
Outsourced bookkeeping services can take care of routine accounting tasks, such as invoicing and bill pay, letting businesses focus on more important things.
Moreover, accounting firms often have the latest accounting technology and tools, which can help businesses save time and streamline their accounting processes.
3. Improved Decision-making
Outsourced accounting can also provide insights that can help businesses make better decisions.
Accounting firms offer analysis and advice on various financial matters, such as cash flow management, tax planning, and budgeting.
This advice can help businesses make informed decisions that improve their bottom line.
4. Reduced Risk of Fraud
Professionals handling the company’s books make it much harder for employees to commit fraud or embezzle money from the business.
Additionally, by using an external accounting firm, businesses can be sure that their financial information gets handled securely and confidentially.
5. Accuracy and Compliance
Outsourcing accounting helps businesses ensure that their financial statements are accurate and compliant with all applicable laws and regulations.
A business that outsources accounting can be confident that its financial statements are accurate and compliant with all applicable laws and regulations.
Furthermore, these accountants usually have years of experience dealing with the business’ accounting software.
As a result, they can provide accurate financial reports that comply with all the relevant laws and regulations. That can save the business time and money otherwise spent on ensuring compliance.
6. Personalized Approach
Accounting firms typically work with a smaller number of clients, which allows them to get to know each client and their specific needs and goals.
As a result, businesses can receive customized advice and recommendations tailored to their unique situation. In addition, outsourced accounting firms often have extensive experience working with companies in various industries.
This experience gives them a deep understanding of businesses’ challenges and opportunities. As a result, a company can be confident that they are receiving the most relevant and up-to-date advice.
7. Peace of Mind
Many business owners find that outsourcing their accounting needs provides them peace of mind. For a deeper dive into the benefits and features, check out these comprehensive Outsourced Accounting Services that cater to diverse business needs..
What Are The Cons Of Outsourced Accounting Services?
While there are many advantages to outsourced accounting, there are also some disadvantages that businesses should be aware of, including:
1. Lack of Control
One of the main disadvantages of outsourced accounting is that businesses may lose some control over their finances.
When businesses contract with an accounting firm, they entrust the firm with crucial financial information.
When another company is responsible for financial decision-making, businesses may find it challenging to track where their money is going and how it gets spent.
Also, businesses may have less input into accounting decisions when they outsource accounting.
2. Potential for Miscommunication
Another disadvantage of outsourced accounting is the potential for miscommunication between businesses and accounting firms.
When businesses outsource accounting, they may not have the same level of communication with their accounting firm as they would with in-house accounting staff.
That can lead to misunderstandings and errors. It can be frustrating if a business has questions or concerns about its account.
3. Lack of Flexibility
Flexibility is yet another disadvantage of outsourced accounting. Businesses contracting with accounting firms may have less flexibility regarding accounting decisions and processes.
For example, a business may have to conform to the accounting firm’s accounting software and procedures. That can be difficult for companies used to doing things their way.
4. Hidden Costs
While outsourced accounting can save businesses money on overhead costs, there may be other hidden costs that companies should be aware of.
For instance, accounting firms may charge extra for consulting services, financial analysis, and tax planning.
Moreover, the accountants hired to do the work may not be familiar with the business’s unique accounting system. As a result, they may need to spend extra time becoming familiar with the system, which can cost the firm more money in the long run.
In addition, if the outsourced accountants make mistakes, the business may be responsible for any resulting financial losses.
Wrapping Up
Outsourcing accounting can have many advantages for businesses, including reduced fraud risk, increased accuracy and compliance, and lower overhead costs.
However, there are also some disadvantages, such as a lack of control, the potential for miscommunication, and a lack of flexibility. Therefore, businesses should weigh the pros and cons of outsourced accounting before deciding.
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