Outsourcing Your Bookkeeping
Bookkeeping is an essential activity for any business, but it can also be tedious and time-consuming. With the responsibilities of running a business, it’s understandable why many owners choose to outsource their bookkeeping needs.
However, outsourcing an important business function like bookkeeping is a big decision that includes careful evaluation of the potential benefits and drawbacks. In this blog post guide we will discuss and examine both sides of outsourcing bookkeeping so you can determine if it might be the right choice for your company.
Potential Pros of Outsourcing Bookkeeping
1. Saving Money
One of the biggest appeals of outsourcing bookkeeping is the potential cost savings. When you hire an in-house bookkeeper, you have to pay their entire salary and benefits package plus payroll taxes. This requires a significant financial investment, especially if you want to hire a certified and experienced bookkeeper.
On the other hand, outsourced bookkeeping allows you to pay only for the exact services you need instead of funding the entire salary of an employee. This gives you more flexibility with cash flow and overhead costs each month.
Some bookkeeping firms also charge by the job or hour rather than a fixed monthly fee. This “pay as you go” structure also promotes potential savings for business owners. As your financial needs change, like during slower sales months, you scale back on bookkeeping costs.
2. Access to Expertise
Proper bookkeeping requires staying up to date with the latest rules, regulations, and best practices in your industry. Certified bookkeepers invest hundreds of hours in specialized training and education to develop their skills.
Unless you plan to make this same investment with an in-house bookkeeper, outsourcing connects you to highly qualified financial experts. Outsourced bookkeepers also understand tax codes and other government compliances to keep your business running smoothly.
Outsourced bookkeeping firms also frequently have several certified bookkeepers on staff working together. This range of expertise ensures your books are properly maintained from multiple angles to prevent errors. The collaborative effort also enables these firms to take on specialized client projects if necessary. An outsourced team essentially gives you an entire accounting department rather than a single in-house bookkeeper.
3. Improved Use of Internal Resources
Proper bookkeeping requires focus, organization, and attention to detail. While an administrative employee could theoretically handle the responsibility, bookkeeping is better left to trained financial specialists. Outsourcing the task utilizes external resources to handle complicated financial tracking so your existing staff can better focus on core operations.
Bookkeeping can also require several hours per week to maintain depending on your industry and transaction volume. Freeing up this time allows managers and assistants to focus more wholly on primary business functions like customer service, transactions, and product delivery.
Essentially, outsourcing bookkeeping increases productivity across operational teams who no longer split responsibility between financial record keeping and core tasks.
Potential Cons of Outsourcing Bookkeeping
1. Lack of Direct Control
One disadvantage of outsourcing bookkeeping is handing responsibility for essential financial tasks over to an external team. No matter how reliable and transparent the outsourced firm, you inherently sacrifice some control over records by utilizing third-party services.
To mitigate this, many bookkeeping firms provide clients with logins to access financial data and reports at any time. Video conferencing with outsourced teams to get updates and ask questions also provides more confidence in an outsourced firm’s processes.
However, you still may lack the intimacy and familiarity possible with an in-house bookkeeper fully integrated into company operations.
2. Outsourcers Cannot Replace Key Finance Roles
While incredibly useful for maintaining the day-to-day financials, an outsourced bookkeeping team cannot fully replace essential strategic finance roles within your business. You still need financial leaders and executives analyzing cash flow, costs, capital investments, and other monetary decisions driving the company vision.
Strategic financial analysis requires complete integration with company operations that outsourced bookkeepers supporting various clients cannot provide.
Before deciding to fully outsource your bookkeeping needs, make sure you already have fiscal management and leadership within c-suite roles. An outsourced bookkeeper provides immense value as a support function but likely cannot offer high-level financial strategy.
3. Potential Compliance Issues
Industry regulations exist to protect consumers and promote fair business practices. However, these regulations also come with ample opportunities for compliance violations and errors. Violating compliance standards can result in anything from monetary penalties to full business closure depending on the severity of the offense.
Maintaining properly balanced books significantly reduces compliance risks, as nearly all industry regulators require detailed financial record keeping. However, as a third party, outsourced bookkeepers may lack complete familiarity with the nuances of your regulatory environment. Be sure any outsourced financial support fully understands your industry compliance standards and their role in adhering to them.
Additionally, make sure outsourced firms carry adequate errors and omissions insurance to cover any mistakes. Hold scheduled meetings to communicate any changes in regulations or standards so bookkeepers can adjust their processes.
4. Challenges Communicating and Collaborating
Smooth communication and collaboration typically require working in the same location. Outsourced teams operate remotely, sometimes even overseas, adding challenges interacting efficiently across time zones and languages. Make sure to clearly establish preferred contact methods and responsive expectations from the start of your partnership.
You can further improve communication flow by requesting the outsourced bookkeepers mirror your in-house team’s typical working hours as closely as possible.
Consolidating questions or updates to scheduled meetings instead of one-off emails also helps reduce fragmented communications. Setting these expectations early prevents collaboration challenges before they damage productivity or reporting accuracy.
5. Privacy and Data Security Concerns
Financial data sits among the most sensitive information for any business. Records contain identifiable data about customers alongside proprietary performance metrics and capital investments. Suffering a breach of financial records can damage consumer trust, competitive standing, and legal compliance.
When utilizing outsourced bookkeeping, ensure the firm has enterprise-level cyber security and encryption. Ask detailed questions regarding team access levels and data protection standards. Investigate contingency protocols as well for responding to potential cyber attacks or internal data leaks swiftly.
As a rule of thumb, never provide outsourced teams access to more financial information than precisely what they need to fulfill bookkeeping duties. Avoid sharing other sensitive records like customer profiles or product formulations unrelated to financial transactions and reporting. Limiting access mitigates risks of exposed information even among bookkeepers adhering to strict security standards.
Conclusion
The intricacies of balancing financial books while also running daily business keep most owners and managers incredibly busy. Outsourcing bookkeeping enables you to focus on your true passions – developing products and serving customers. However, handing responsibility for precious financial data to external partners involves evaluating potential drawbacks too.
From communication barriers to data security vulnerabilities, outsourcing bookkeeping poses risks to consider alongside the benefits of expertise and overhead reductions.
Weigh both pros and cons carefully within the context of your specific business model and industry to determine if outsourcing provides the right support structure. Combining diligent partner vetting with protocols managing access and interactions lays the foundation to maximize advantages while protecting critical information.
