How To Outsource Accounting And Payroll For Your Business

What is accounting outsourcing?

Accounting outsourcing is a process of giving away your accounting or all the accounting activity in your company to a dedicated accounting firm. It means that you will not be doing accounting anymore, you will only be receiving the financial statements and any answer to questions about the transactions, and the balances on your financial statements, it means that you will not have a person doing the bookkeeping or doing the data entry but it will outsourced, given away to an accountant firm.

Why do companies outsource accounting?

Because of cost, compliance, deadlines and data entry. Here in the US, is a little expensive to hire a person to do the books every day in a dedicated office, and also requires that the person in addition to the data entry, for example the combination of transactions, the posting of transactions to the books, balancing the financial statements and producing all the reports. So all these processes involve time and many times they are not, business owners don’t have the financial statements by the time that they need it.

So usually, it will be a week after the closing of the financial statements to do all the work for reconciling all accounts and posting all transactions but many times it takes a lot longer than that. Because of all these processes that involve time and cost, companies decide to outsource the bookkeeping or the accounting with an accounting firm.

What accounting functions can be outsourced?

The functions could be all of the accounting activities from the bookkeeping, the entry of accounts payable and accounts receivable, the production of the financial statements, the creation of any additional reports and the analytics of the company, every single activity can be outsourced. There are clients, for example, that prefer only to do the bookkeeping and to receive the financial statements and they deal with the rest in terms of taking decisions and doing evaluations. However, other clients they outsource the entire accounting department, meaning that they will have access to the accounts of the company, to the books, to the banks, to the credit cards and with all that information they would post to the accounting software and produce the reports. So they will review the transactions, reconcile the books and give them any financial statements but it will not be printed, it will be in a format that will be available online.

What are the advantages of outsourcing the accounting functions?

It is basically that your financial statements will always be prepared by the time of the deadline agreed with the accounting firm. This is the basic advantage, in addition to that the accounting firm is headed by a CPA, a certified public accountant, and there is the experience and the backup of the CPA that now is behind the outsource accounting. One of the major advantages is that you’re going to have a CPA or type of a CFO instead of bookkeeper or an accountant. The CPA is going to backup their work, and this is the benefit that outsourcing the accounting will offer you.

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What are the different types of outsourcing?

Usually, business owners they divide the accounting activities. Some they say that the only want to do the bookkeeping from the bank statements, so they only provide us with the bank statements and what we do is, we provide the transactions are given to us and the bank statements are given to us and we input that information in to the financial statements and into the books and we produce the financial statements at the end of each month. Then at the end of the year, we use that information to produce the tax return. That is one way to do bookkeeping, is only the transactions from the bank statements.

There is another step where not only the transactions from the bank statements are outsourced, but in addition the accounts receivable and accounts payable, for example, accounts receivable is the production of invoices for the billing of the things that the company sells or the services that the company provides, that can also be done by the company but that is a second step for the outsourcing of the accounting, so it’s not only the transactions of the bank that are reflected on the bank statement but also is the accounts payable and account receivable functions.

Finally, there is where you outsource the entire accounting department, meaning that it will not only the bookkeeping, it will not be the accounts payable and accounts receivables it will also be the accounting and the advising for the accounting function in terms of compliance, reports, deadlines and a very close link between the business owner and the CPA because now the accounting firm is headed by a CPA is in charge of doing the books of the company and that will be useful not only for the business owner taking decisions or for the filing of the tax returns and also for the banks when the company require financing and the bank will require financial statements and they will be produced by a CPA that the bank is going to require always financial statements produced by a CPA for financing. So, when the accounting is outsourced, and the accounting firm is headed by a CPA the one that is doing the outsourcing it will be very easy for the business owner to get the requirements for the financing that the bank will ask in terms of financial statements produced or signed or back up by a CPA.

When should you outsource accounting?

It all depends on the plan for growing of the company. If the company is growing, if the company needs capital that is the moment when the accounting should be outsourced. Because remember as I said in the previous question, the bank is going to require financial statements backed up by a CPA and usually companies go to the bank when they have expansion plans. They require a line of credit for more inventory because they are planning to sell more, they have a marketing plan they are going to target this specific market segment and because of that they need financing and they go to the bank and they will require financial statements backed up by a CPA or processed by a CPA. At that moment is when the accounting outsourcing should be executed.

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What is outsourced bookkeeping?

Outsourced bookkeeping is within outsourced accounting. As explained in a previous question, the bookkeeping only involves the doing of the books or the keeping of the books. They are not doing accounts receivable and accounts payable, the accountant is only doing the keeping of the books, meaning that transactions received, invoiced are given to the CPA or to the accountant and at the end of the month the financial statements are provided but there is no feedback, there is no review, there is no analysis of the financial statements, there is no advice no consulting. It’s only, plainly keeping the books, there is no feedback, that is the opposite of outsourcing accounting they include the feedback, the advice, the consultation between the owner and the CPA to improve the face of the business if the business owner is planning for growth and asking for finance into the banks.

What is payroll outsourcing?

Payroll outsourcing is another side of accounting, this is when within the accounting outsourcing or the bookkeeping outsourcing, this could be done between if bookkeeping its outsourced and then payroll is also outsourced. Meaning that bookkeeping will not be outsourced.

What is the benefit of outsourcing?

The main benefit is a peace of mind that you have your numbers at the tip of your hands to take decisions, to take new projects. In summary, is that you have someone that is a professional qualified for providing you not only the financial statements but also the insight that you need when you’re going to take decisions for the business. What portion of the business is capable of reducing costs, of increasing the activity of the company for example, the creation of a business plan, the creation of a marketing plan, the preparation of the financial statement for going to the bank and even the bank conferencing with the CPA and many times the banks require information from the financial statement, and they are more comfortable doing this. So, the benefit of outsourcing is peace of mind because this is not anymore under your control, it means that you don’t have to worry about having or not having the financial statements that is not anymore your worry, your worry now is to grow and having a plan to execute the growing of the company.

Should a small business outsource accounting?

Yes or no, it all depends on the level of sales. It also depends if the business has plans for growing. It also depends if there are multiple partners in the business and this is for small businesses. There are business that produce hundred thousands dollars a year and up to 25 million dollars a year is considered a small business. So it all depends of the numbers of partners, for example there are multiple partners it is advisable that the books are outsourced and accounting is also outsourced for the impartiality of the books. That would be the first consideration, for the impartiality for multiple partners. In the case of a business who is growing and there is the objective of keep growing and there is a plan, if there is not a plan a CPA can help you to provide, to create a business plan for the growth of the business. Perhaps even showing you areas of the business that can be improved and segments of the market that can also be conquered. If there is a close relationship between the CPA and the business owner, because remember the business owner is the only one who knows their clients and their market so if there is a very close synergy it will be very successful the CPA understanding the business model and providing with good insight for the growing of the business.

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