Posted by Shivali Anand
November 17, 2021 | 4-minute read (715 words)
As a startup founder or business owner, you may attempt to handle every task yourself, but did you realize that multitasking can reduce productivity? According to research from the American Psychological Association, even short brain blocks caused by repeatedly switching among activities can cost people over 40% of their productive time.
Wouldn't it be great if you could spend more time focusing on building your business and less time on administrative tasks? Many organizations outsource all their finance and accounting needs to a professional accounting outsourcing service. This provides companies with advantages such as cost savings, access to cutting-edge technology, security and confidentiality, along with other benefits.
Check out the key benefits and drawbacks of outsourcing accounting to decide whether it makes sense for your business.
The benefits:
Substantial cost savings
– Outsourcing helps you save money on overhead costs by eliminating the need to pay for salaries plus benefits like retirement, vacation time and health insurance. Furthermore, you will not be required to invest money in accounting software or equipment.
Expertise on hand
– Accounting errors can have devastating consequences for a business, including penalties, cash flow problems and even an IRS investigation. When you outsource accounting responsibilities, you get access to a team of highly skilled and trained experts that employ cutting-edge technology and processes to guarantee your data is correct and safe. Outsourced accounting can also reduce how many people you need to recruit and assume responsibility for identifying the most and least successful product lines, creating future growth plans and the like.
Improved internal control
– A 2020 report from the Association of Certified Fraud Examiners finds that firms with fewer than 100 workers have a median fraud loss of $150,000, the highest among all business size cohorts. This is because most small firms lack access to a controller or CFO who can detect unusual activity in transactional and billing data. Because you'll have a dedicated staff of accounting specialists checking your books and transaction reports, outsourcing accounting helps you limit the risk of fraud. It also reduces the possibility of your books being tampered with.
Improved data security
– Outsourcing accounting businesses are keenly aware of data security concerns, and they often employ sophisticated, impenetrable and costly security measures. This addresses the challenges that arise because of data breaches and security breaches.
Flexibility and scalability
– By working with a finance and accounting outsourcing provider, you get a solution tailored to your needs. Depending on your requirements, you can easily add or delete financial and accounting operations.
Access to cutting-edge technology
– A finance and accounting outsourcing business invests in cutting-edge technology and software to remain competitive. Unless finance is a core function for your business, this type of investment doesn’t make sense. Working with an outsourcing partner enables you to take advantage of the latest tech at no additional expense.
Around-the-clock service
– You can work 24/7 if you so choose when you outsource accounting. You may be confident that all crucial tasks will be completed as scheduled and on time.
Protection in hard times
– As economic conditions change, firms may adjust their workforces, which can be time-consuming and resource-intensive. However, because the outsourcing provider manages staffing, you can quickly scale up or down.
Confidentiality and security
– Outsourcing partners ensure your data remains secure and confidential, since finance and accounting are their core functions. For your own peace of mind, you might request that they sign a nondisclosure agreement.
Potential drawbacks:
Less control
– It could be simpler to speak with an in-house accountant when you have questions. This may not be true, though, with an outsourced team handling accounting, because you don’t directly control how matters are taken care of. This issue can be mitigated by establishing policies and processes early in the partnership.
Unexpected costs
– When working with an outsourced accounting company, there may be hidden fees, in the form of costs not spelled out in your original contract. To prevent this, inquire about any potential hidden or additional costs and agree on the price of the service upfront.
Hiring the wrong company
– When outsourcing a job function, there's always a possibility that things won't go as planned, and in the case of finance and accounting, that mistakes will be made. Avoid this by soliciting references and calling them for feedback.
