In today’s economy, many businesses are looking for ways to streamline their processes and refocus resources to areas that have a direct impact on company growth. Often, this involves taking a close look at your operations for areas that can be outsourced to gain access to a greater variety of skill sets as well as save on expenses.
Many businesses have found that outsourcing their accounting functions can bring a variety of benefits, including:
- Cost reductions: When a business employs an accounting team, they must pay for office space, benefits, time off, and taxes in addition to the salary of each person. By outsourcing, you typically pay only for the time they spend on your work.
- Greater access to expanded expertise: Most businesses need access to a bookkeeper, financial accountant, controller, and CFO at various times each month, yet many don’t have the budget to have a person at each level on staff. Outsourcing allows you to get the expertise you need without committing to full-time hires.
- Tested processes and better tools: Often even the best internal resources “don’t know what they don’t know.” Experienced outsourced teams learn from each engagement to develop streamlined processes and evaluate available technology. The learning curve is shorter, and you benefit from the knowledge gained from their previous work.
- Scale with ease: Accounting needs ebb and flow depending on the growth trajectory of a company, as well as many outside factors like recessions or unexpected global pandemics. Outsourcing gives you flexibility to scale your accounting team to meet your business’ needs quickly, so you don’t have to worry about hiring or laying off employees.
For those that have started outsourcing some or all your accounting functions – or are considering making that move soon – there are some best practices to consider.
Discuss expectations up front and make your needs clear.
Like the beginning of any relationship, it is important to express what you need and establish the role each of you will play. It is not uncommon to have a couple of initial meetings to talk big picture goals, then drill down into the specifics of what you want your outsourced accounting team to do and the reporting you want them to provide. In some cases, it is simply the routine bookkeeping and monthly accounting work. In others, it is the full breadth of services from data entry to CFO-level support. Or something that starts at one level and evolves into more. Whatever your needs are, share what you want from the relationship so your provider can put together the right plan and team to meet your needs now and going forward.
Clearly establish responsibilities and communication preferences.
Your goals and those of your outsourced accounting team are the same: to ensure you have clean, timely financials, that you understand what they mean, and are armed with the information you need at any time to make informed decisions. Yet determining who will be responsible for every level of that information chain can be different for each company. If someone will handle your invoicing internally, but you want to outsource your bookkeeping and controller work, make sure that is clearly stated up front, or as your needs change. Do you prefer to set up regular meetings to go over your financials, or have them sent to you so you can review in advance and ask questions via email or a portal? The options are countless, and none are right or wrong. It is just important to establish roles, responsibilities, and communication methods up front and reiterate them as needs change.
Take the time needed to set up your system correctly.
As you are setting up an outsourced accounting relationship, regardless of whether it is for a new company or an existing one, communication is vital to its success. While outsourced accounting providers have learned from previous engagements and have well established best practices, it still takes time and patience to get everything moving forward smoothly. Transferring your books to a new secure cloud solution, setting up tiered logins for all the people who need access, learning a new system, and getting to know your team takes time. But the benefits of doing it right from the beginning far outweigh the effort required.
Continue to review your financials on a routine basis.
Outsourcing your accounting tasks can free up a tremendous amount of time for your internal staff and company leadership. It does not, however, mean you don’t need to continue to review your financials on a regular basis. Your outsourced team will create and share your monthly reports with you, including your balance sheet, income statement, cash flow report, aging payables and receivables, and potentially others too. It is important to review these reports so you understand how your company is performing, if you are running tight on cash, if you are getting paid as quickly as you should, and if adjustments need to be made.
Review KPIs and understand what they mean.
In addition to analyzing your company’s financial statements, it is smart to also set up and analyze some key performance indicators as well. Your outsourced team can likely recommend the ones that are most important for your type and age of business. For example, newer businesses often review things like customer acquisition cost, monthly recurring revenue, and gross burn rate. Other KPIs to consider are gross margin, net profit margin, and lead-to-client conversion rate. Depending on your business, some will be more important than others, but talk to your outsourced team about setting up a dashboard so you can look at these KPIs whenever you want.
The benefits of outsourcing all or part of your accounting functions can be enormous, but it is important to communicate your needs at the beginning and throughout the relationship. That way all team members will have what they need to do their best possible job, you will have enhanced insight into your company’s performance and financial position, and everyone will be working toward the same goal: success!