Why You Need Outsourced Accounting Services
As a business owner, you might find yourself handling each and every aspect of your business.
It is your business, right?
And delegating doesn’t necessarily come naturally to the “do it yourself” entrepreneur.
That’s understandable. After all, you’ve built your business from the ground up, exactly how you envisioned.
But there’s an aspect of every business that should be the same:
There are a set of accounting rules and regulations that every business MUST abide by and are called Generally Accepted Accounting Principles (also known as U.S. GAAP).
The reason these rules exist is to ensure that all businesses owned and operated in the United States can be compared apples to apples.
What exactly does that mean?
Well, let’s say you go to apply for a bank loan. More than likely, the bank will look at your balance sheet or profit and loss statements to gauge how lendable your business is.
Each bank will have their own set of metrics or criteria for lending money.
Since your company would not be the only company seeking bank loans, there are other companies doing the same thing and banks will look at their financial reports too.
The only way the banks can fairly decide who to lend money to is if:
- They apply the same vetting process to each business AND
- Each business’ financial information is comparable across the board
And because of U.S. GAAP, they can be.
But what does this mean for you?
Because your accounting should follow a set of rules, essentially anyone with the expertise of such rules should be able to perform this task.
Meaning you don’t need to do your bookkeeping!
And you can feel confident that they are done legally the correct way.
So you might consider hiring an accountant and that sounds good.
But let’s face it.
Hiring an accountant is costly.
Because of the complex nature of accounting, a qualified accountant would cost you at least $50,000 per year in salary and benefits.
And that’s simply not necessary.
Instead, what more and more small businesses are doing is using outsourced accounting services and the reasons are clear.
As with almost anything that is outsourced, outsourced accounting services is just plain cheaper. A full time, in-house Certified Public Accountant will easily cost anywhere between $70,000 to well over six figures, not including benefits.
While uncertified accountants or bookkeepers earn considerably less, you’re looking at paying somewhere between $40,000 – $60,000 per year. That’s costly for the average small business.
As mentioned previously, outsourcing allows you to save on fringe benefit costs that come with an employee, such as:
- Health insurance
- Paid time off
- Sick days
- Worker’s compensation
You Only Pay for the Services You Need
When you use outsourced accounting services, you only pay for the specific services you need. As opposed to a full-time employee, who you overpay to do the same tasks.
Lower Office Expenses
There are also office expenses associated with hiring that are non-existent with outsourcing.
With outsourced accounting services, you don’t have expenses related to computer equipment and supplies, office space or accounting software. These expenses easily add up to thousands of dollars.
Instead, why not use that money to fund and grow your business.
Saves You Time
Outsourced accounting services not only save you money but it also saves you time.
Maybe you don’t have an in-house bookkeeper or accountant and opt to DIY your books. According to a statistic compiled by SCORE, a nonprofit organization, 40% of business owners spend more than 80 hours per year on accounting and taxes.
That’s at least 2 weeks out of the year spent solely on your accounting while your company is left to fend for itself.
This is not an option for a growing business. Your time is better spent focusing on your core competencies and not your daily accounting.
With outsourced accounting services, your time is freed up to do what you do best. All of your energy can be geared towards creating, selling, developing, and improving the products and services that generate direct value for your business.
No one knows your business more than you do.
Which makes sense. You had a concept, a plan, an execution, and then your business was born.
You watched it grow, adapt, change, and develop to what it is today. You know everything about what it is doing and why.
The same is true for accountants.
Accountants have studied, learned, and worked through all aspects of accounting. They deal with numbers, day in and day out.
All they do is accounting!
What this means for your business is that if you are doing your own books, you are likely wasting your valuable time. You’re probably taking considerably longer to do your accounting than an actual accountant would, with more mistakes.
With a DIY approach, you are spending too much time away from your business, doing a task you’re not best suited for. Unless you are a CPA, there’s no doubt that an accountant can do your accounting faster and more accurate than you.
Also, consider inaccurate or incomplete accounting is costly. Incorrectly doing your taxes or improperly classifying transactions can trigger IRS audits where penalties and fees are assessed.
Don’t make this costly mistake!
Utilizing outsourced accounting services allows your business to run more efficiently.
You’ll have more time to do what you best. And you allow for the accountant to do what he or she knows best.
Access to an Accounting Team
Two heads are better than one. And three heads are better than two.
You get the idea.
When you do your own books or even hire a bookkeeper, you’re utilizing the skills of just 1 individual.
When you use outsourced accounting services, you have a team of accountants in your corner. This makes catching errors easier, which would otherwise cost you in the long run.
If you have a complex accounting issue, you can feel more confident that an outsourced accounting service has more experts on their team that can help you through your issue.
With a hired individual, you run the risk of this person running into problems he or she cannot solve. Resulting in you having to allocate even more resources towards accounting.
On the other hand, you can pay a fraction of the cost of one in-house accountant for a team of accountants. Outsourced accounting services offer you more combined knowledge and experience than that of one accountant.
Lower Fraud Risk
Fraud is all too common among large and small businesses.
Fortunately for large businesses, they have more resources to allocate towards fraud prevention and detection.
For small businesses, however, a little creativity has to be employed to prevent/detect fraud.
One way is by having outsourced accounting services. Here’s how.
Have you ever heard of separation of duties? It’s an internal control technique that helps owners and managers prevent fraud within an organization.
By having an outsourced accounting firm, you have more than one set of eyes reviewing your reports and transactions.
Fraud is never 100% preventable but the chances of it occurring with outsourced accounting services, is largely reduced.
Peace of Mind
You’re in business to provide the best product or service, with a high level of quality. In every industry, there is a certain level of standard that must be met.
Well, the same is true for accounting.
In fact, the accounting industry has some of the strictest rules and laws. Partly because financial authorities and/or the public rely on the financial information of businesses to make financial decisions.
Generally, outsourced accounting services hold their firm to a higher standard, than say an individual, in-house bookkeeper.
There are certain requirements that outsourced accounting firms must follow to stay in business. Apart of that is maintaining ethical and practical standards, internally and externally.
You can rest assured that an outsourced accounting services firm knows not only the in-depth technical aspects of your accounting but are also using the best practices to perform the tasks associated.
When to Know You Are Ready to Outsource Your Accounting
Not every business is ready to outsource the task of its accounting.
While every business is different, there are a few triggering events that may signify your business is ready for outsourced accounting services.
1. Significant Growth. Are your sales doubling every year? Or is your client list becoming so long, you don’t know how to manage all of the work? It might be time to outsource.
For alot of business owners, “significant” growth can be identified as no longer being able to handle every aspect of the business. Including accounting.
2. “X” Amount in Sales. Again because every business is different, it’s hard to put an exact figure to when outsourced accounting services are needed.
As a general rule of thumb, reaching $500,000 in sales is a great time to consider outsourcing.
By this point, you’re probably incurring 5 figures of expenses monthly and need help organizing it all.
3. Employing an Individual. When you decide to hire your first employee, the reason is that you need help. And if you need help in one area of your business, it is worth thinking about if you need help with your accounting.
4. Accepting Investor Capital. Outside investors want to know that they made a good financial decision when deciding to invest in your business.
Of course, they want your business to be profitable and thrive, but they want to see that on paper. They want to know that your financials are complete and accurate and any inkling otherwise may sway them to sell their investment.
An outsourced accounting firm provides the best service in providing the reports you and your investors count on.
5. Need Accounting Solutions. Maybe you need a better way for billing your customers or receiving payments. Perhaps the accounting software you use is so outdated that it no longer serves you best. An outsourced accounting firm can help.
Not only do they know the top industry technology solutions, but most of them also provide the technology at no additional cost to you.
Allowing you access to the best accounting solutions that streamline your business.
Considerations When Choosing an Accounting Firm
So you made the decision to outsource your accounting. Great!
There are a few things to consider when choosing an accounting firm.
1. Fees. Choose a firm with fees you are comfortable with. As a general rule of thumb, most companies spend 1% – 3% of their sales on accounting.
2. Certification. There is a legal difference between a bookkeeper and Certified Public Accountant (CPA). Consider the needs of your company. There are specific tasks that only CPAs can perform.
3. Expertise in Your Industry. Some firms have more experience in certain industries than others. Try to find an accounting firm that has experience with your specific industry.
4. Availability. Some outsourced accounting services firms have a limited amount of “consultation” time included in their fee. Some may offer 1 hour or unlimited hours of consultation per month. As a business owner, decide how involved you want to be in your accounting and choose a firm that aligns with that.
5. Service Level. Do you need payroll? Tax prep? Bookkeeping?
There is more than one level of service in accounting and not all firms provide all services. If you don’t want to deal with multiple firms, find a firm that does it all. That’s easier for you and your accounting firm while also cost-effective.
Choosing to outsource your accounting is a great step towards propelling your business forward.
You’re either choosing to be more cost efficient by opting to outsource (rather than hire in-house) or you’re choosing to free up your time to grow your business.
Either way, your company’s accounting is not optional. It is required by law to maintain accurate and complete financial records. And doing so, allows you to implement profitable decisions.
At LYFE Accounting, we strive to help our clients experience exponential growth, by being their complete financial solution. We offer services from bookkeeping and tax to CFO and investment services.
If you’re ready to take your business to the next level financially, contact the CPAs and accountants at LYFE Accounting today!