Accounting is deeply engrained into the core of any business. Isolating accounting from other operations often seems impossible. However, outsourcing accounting is relatively easy.
In fact, accounting is one of the most outsourced business processes. According to a Clutch survey, 37% of small businesses outsource their accounting operations.
Outsourced accounting is commonplace in business. It’s especially popular with small service businesses. Outsourcing can be a great way to grow your home services company.
The question is, would accounting be a good fit for your business? Let’s find out by taking a deep dive into the world of outsourced accounting services.
This article answers the following questions:
• What is outsourced accounting?
• What are the benefits of outsourcing accounting services?
• How does outsourcing compare to handling accounting in-house?
• How do you choose the best outsourced accounting services provider?
• Are there any risks associated with outsourcing your company’s accounting functions?
What Is Outsourced Accounting, and How Does It Work?
Outsourcing is a pretty straightforward process based on a simple idea. You hire a third-party service provider to handle your business’s accounting affairs.
There are many different ways accounting outsourcing can play out. For instance, you can fully outsource all your accounting functions. Alternatively, you can outsource select tasks and handle the rest in-house.
Here are some examples of the accounting tasks you can outsource:
• Bookkeeping. This involves preparing and organizing vital business financial records. Records should include transaction receipts and cash flow statements. If possible, you should also provide balance sheets and profit and loss statements.
• Payroll services. Does your home services business have full-time, contract, or part-time employees? If so, outsourced accounting services can manage wages and benefits.
• Customer billing and payments. A professional accounting service can take care of accounts receivable and accounts payable.
• Financial reporting and compliance. A professional accounting service ensures that your business meets the required accounting standards. These include tax, payroll, and payment processing compliance with the various regulatory bodies.
• Financial advisory, planning, and analysis. Most outsourced accountants offer financial consultancy services. There they will help you make financial decisions. They also get involved in financial planning and forecasting.
• Financial auditing. An outsourced accountant checks your financial statements for fairness and accuracy. Auditing is necessary when you suspect errors in the books. You could also need an audit if authorities question your financial reporting.
• Debt management. You can outsource debt management to a third-party accountant. It’s an effective way to get your debt situation under control.
• Taxation. Filing taxes for your home services business can be time-consuming and tiresome. Outsourced accounting services relieve you of this burden.
Keep in mind that accounting functions vary from business to business. So, the scope of the outsourced services will depend on your company’s accounting needs.
Most outsourced accountants bundle their services into a comprehensive package. You then pay a subscription-style flat monthly or annual fee for the package.
The Benefits of Outsourced Accounting for Home Services Companies
The global financial and accounting business process outsourcing market was worth $56.42 billion in 2022. And it’s only growing.
Why are so many businesses interested in accounting outsourcing?
Let’s look at what outsourcing can do for your home services company:
Cost savings is the main reason that most enterprises outsource business processes. Fifty-nine percent of businesses use outsourcing as a cost-cutting strategy.
But how? You will pay for the accounting services after all.
Well, outsourcing is nowhere near the cost of an internal accounting department. According to Indeed, hiring a single accountant will set you back an average of $61,709 per year in salary alone. If you add employee benefits and upkeep costs, that number quickly hits six figures.
In the long run, you’ll find that outsourcing costs just a fraction of that.
As a small home services business, you must be cautious about your burn rate. Labor is especially expensive.
On average, small businesses spend 20% to 35% of their gross sales on labor. Outsourcing is an easy way to minimize that expense.
Plus, you only pay for what you need. You won’t lose money on unnecessary or redundant accounting services.
How much time do you spend balancing the books, following up on invoices, or preparing taxes? Probably a lot if you do all your accounting in-house.
One survey found that small business owners spend nearly five hours preparing payroll taxes for each pay period. That’s just one of many business accounting tasks.
Even if you have a dedicated employee handling finances, that’s still time that could be better spent. The more time you spend on tasks like bookkeeping and taxes, the less time you have to grow your home services business.
So, why not outsource time-consuming tasks such as accounting? It frees you and your team to focus on more productive and meaningful jobs.
Provide Flexible Accounting Expertise and Tools
Professional talent is hard to come by, especially with the labor crisis plaguing the country.
Fortunately, outsourcing gives you instant access to accounting expertise. And you don’t get just one accountant but a team of financial experts at no extra cost. With their different talents, a single outsourced team is enough to handle your accounting needs.
Additionally, outsourced accounting providers bring cutting-edge tools and resources.
In short, outsourcing affords you accounting capabilities that would otherwise be out of reach due to practicality or economic reasons. Moreover, these capabilities seamlessly scale with your business as it grows.
Reduce Financial Risks
Accounting is a highly sensitive operation. Unfortunately, it’s also highly susceptible to errors. Missing a single digit or filling in the wrong forms can cause chaos.
There’s more to accounting than crunching numbers. Proper accounting is a window to your business’s financial landscape.
A good accounting service will help you identify your financial strengths and weaknesses. This eliminates guesswork and assumptions in your decision-making.
It makes sense to leave the financial side of your business to professionals. Look at it as a safety precaution.
Ensure Compliance with Industry Regulations
All US businesses must hold their accounting processes to a high standard. That goes for local home services companies as well.
You want your business to abide by the Generally Accepted Accounting Practices (GAAP) or the International Financial Reporting Standards (IFRS). That’s in addition to tax compliance with the IRS.
A certified accounting firm can guarantee that your business adheres to these standards.
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The Risks and Limitations of Outsourced Accounting
What are the disadvantages of outsourcing your home services company’s accounting operations? Let’s explore some common limitations and risks and how to avoid them:
Although accounting outsourcing cuts labor costs, it can lead to unexpected expenses. Some accounting firms hide charges in the fine print. These costs can really add up in the long run.
Thoroughly review the service agreement and the provider’s pricing model. Be certain you understand it to avoid incurring hidden costs. Also, ensure you’re not paying for any unnecessary services.
Outsourced accounting providers usually work remotely. They may be serving multiple businesses at any given time. So, getting ahold of them is not always guaranteed. Communication is even less dependable if there’s a language or time zone difference.
Establishing an open communications policy with an outsourced accounting provider is essential. It helps to prevent delays and miscommunications.
Outsourcing often feels like relinquishing control of part of your business. To some extent, that’s true.
The outsourced accounts will have their own way of doing things. They may not feel the need to explain their methods.
But don’t get left out of the loop. You deserve to know everything going on in your own home services business. Agree on a reasonable level of transparency and involvement.
Ironic as it is, outsourcing accounting could pose quality control issues. But this only happens when outsourcing to unproven accounting firms.
Top accounting service providers use highly skilled and experienced financial experts. And each account is checked by multiple accountants. That way, there’s very little chance of accounting errors or poor services.
Outsourced vs. In-House Accounting
How does outsourced accounting compare to in-house accounting in a home services business? The table below summarizes the answers to this question:
|Outsourced Accounting Services
|Requires personnel hiring and is paid for in monthly salaries and employee benefits.
|It does not require a hiring process, and services are paid for with relatively small subscription fees.
|Hiring, recruitment, and onboarding processes take time.
|Instant access to ready accounting experts.
|The business provides the necessary accounting tools and resources.
|The outsourced team brings its own accounting tools and resources.
|Scaling means hiring more accountants.
|Instantly scalable by changing the service package.
|Mostly available remotely.
|Subject to employee issues such as absenteeism and turnover.
|No employees to worry about.
|Complete control and visibility into accounting processes.
|Limited control and visibility into accounting processes.
|Finding a qualified and competent accountant is not always guaranteed.
|Countless reputable accounting firms are waiting to work for you.
|Accounting processes are prone to errors.
|Very low chance of error (if any).
|Does not guarantee accounting compliance with industrial or government regulations.
|The accounting firm extends its certifications and compliance to your business.
How to Choose the Right Outsourced Accounting Provider for Your Home Services Business
You must do your due diligence in selecting an outsourced accounting provider. Your choice could make all the difference between reaping the benefits of outsourcing and risking financial fraud and incompetence.
Do your research. List all the available accounting firms. Vet them one by one. Here are 10 questions you should ask each accounting provider:
Which accounting services do you offer?
Their services should align with your business’s accounting needs. Their answer should tell you if they’d be a good fit.
How flexible is your accounting service?
Outsourced accounting should be scalable and flexible to meet dynamic business needs. Ask if their services have any wiggle room.
Have you served a home services company before?
You want an accounting firm with some experience in the home services industry. Accounting processes differ widely between different business models.
Do you have any references?
Credibility and reputation are vital considerations. Find out what past customers say about the accountant’s services and conduct. Are they as good as advertised?
How big is your accounting team, and what is it like?
The firm should answer this question with a description of its staff. In addition to size, you’ll learn the team’s qualifications, skills, and common language.
What’s your security protocol?
Accounting often involves sensitive financial documents. You want assurance that such information will be secure.
What accounting software tools do you use?
The days of accounting on spreadsheets and calculators are long gone. A good accounting firm must have modern accounting systems.
Digital accounting tools enhance accounting speed, accuracy, and security. Plus, you get detailed and highly customized management reporting.
Can I call you at any time?
Check that the accounting firm is available for contact 24/7 or within your regular business hours. Find out how they like to communicate with their clients. Is it by phone, online chat, email, or social media? And do you get a dedicated contact person?
How will I know you’re doing a good job for my home services business?
Ask about success metrics. What business value should you expect from the partnership? It could be cost savings, better bookkeeping, regulatory compliance, etc.
Do you have any guarantees?
Find out if the accounting company is confident enough to stand by its word. This could be in the form of money-back guarantees. They might also offer free trial periods or quality assurance guarantees.
Check that the firm is certified to offer accounting services. They should also abide by the necessary regulations.
In many ways, outsourcing accounting is better than having an in-house accountant. It’s certainly better than crunching the numbers yourself.
It saves you precious time and tons of money. Outsourcing is also an easy way to boost your home services business. It adds powerful accounting capabilities. Plus, you never have to worry about accounting compliance or errors.
Outsourcing is a value-added compromise for small businesses wanting professional services. It removes the cost and hassle of conventional hires.
But — and this is a big “but” — you must work with the right service provider.
That’s the only catch.
Not all outsourced accounting services are equal. The trick is finding the accounting provider that aligns with your home services business.