Should You Outsource Bookkeeping for Your Small Business

Some small businesses hesitate to outsource their bookkeeping because they don’t know where to start. Other small businesses put off outsourcing because they think it’s expensive. If you are one of those small business owners, your reservations are valid. But by looking at outsourcing more closely, you’ll understand why you need to outsource your bookkeeping and why it’s a good investment.

This article will give you a complete rundown of outsourced bookkeeping for small businesses. We’ll explain how to get started and what to consider when looking for a service provider.

What Is Outsourced Bookkeeping

Outsourced bookkeeping refers to the assigned task of recording financial activities and transactions of a company to an external service provider.

You have access to experienced and highly trained bookkeepers when you outsource this function for your small business. You can delegate day-to-day bookkeeping work (which may have been consuming significant time to complete) to your external team.

With the amount of time you regain because of outsourcing this particular task, you can focus on your primary business functions.

What Does Outsourced Bookkeeping Do for Your Small Business?

When you outsource bookkeeping for your small business, the subcontracted bookkeepers are responsible for managing your books day in and day out. Generally, they oversee all data entry activities into accounting software or ledgers. Their main tasks revolve around maintaining your business’ financial transaction records by tracking transactions and generating financial reports.

Other tasks these professionals carry out when you outsource bookkeeping and data entry services can include:

• Creating and sending invoices to customers
• Vendor maintenance for accounts payable
• Client maintenance for accounts receivable
• Collecting overdue accounts receivable
• Coding, entering, and paying bills
• Reconciling credit cards and bank accounts
• Supporting controller or chief financial officer by conducting account analysis
• Preparing client source documents for audit purposes
• Work papers for audit support and month-end closing
• Scanning and attaching documents for audit and tax support

Why You Should Outsource Your Bookkeeping?

Bookkeeping makes a good candidate for outsourcing. Small businesses that have this function overseen in-house find it one of the most cumbersome aspects of running a business. According to a report by Cision published in 2019, 40% of small companies rank tax preparation and bookkeeping as the worst part of running a business.

Benefits of Bookkeeping Outsourcing

Your small business has other critical tasks to focus on. Delegating bookkeeping to a third party provider means that you can concentrate on serving your customers and growing your business.

Resources

Growing businesses ensure that they’re at the forefront of the competition. A significant factor in being ahead of your competitors is staying abreast of the newest accounting technologies.

If your company has access to the latest resources, you can guarantee that your bookkeeping is up to date. Access to the newest technologies is one of the advantages of outsourcing your bookkeeping. Moreover, your external service provider will manage accounting infrastructure maintenance on your behalf.

Time

If you have only a low transaction volume, which is common among small businesses, hiring full time staff might not make sense. When you outsource your bookkeeping you get just the necessary amount of time dedicated to your company’s needs.

As your business expands or goes through peak seasons, your external provider requires no changes from you. Outsourced bookkeeping for startups will make all the adjustments to meet your current demands.

Lower Costs

When you’re running a small business, managing your costs is critical to your success. But you must not sacrifice quality for the sake of cost savings.

You can cut back on costs through bookkeeping outsourcing. The expenses you can save by outsourcing your bookkeeping instead of hiring someone on staff include: employee compensation, payroll taxes, paid vacations, insurance, and health benefits. You also don’t have to spend time on turnover and employee training.

Required Skills

Cheaper costs don’t necessarily mean lower quality service. You can still get access to the expert bookkeeping skills that your company needs despite cost savings.

When you outsource bookkeeping for your small business, you can hire employees who are one hundred percent dedicated to bookkeeping, undergo continuous training, stay abreast of new trends, and have reliable experience in helping other companies like yours.

Questions to Ask Your Prospective Bookkeeping Company

When you outsource your bookkeeping you must look for the right partner. To do that you need to ask the right questions. So when talking to your potential service providers, consider asking the following questions:

• What is your experience regarding accounting standards and U.S. tax legislation?
• What quality standards do you meet?
• What type of software do you use to oversee bookkeeping functions? Are you comfortable using our company’s software?
• How do you keep client data safe? What are your security measures?
• What are your general turnaround times?
• How do you collaborate? How will you keep track of our bookkeeping work?
• What engagement models do you have?

The answers to these questions will give you enough confidence to choose the right bookkeeping service. Their answers will show the ability of their back-office outsourcing services to meet your requirements and needs.

Factors That Make Up the Costs of Bookkeeping Outsourcing

The cost you incur when you outsource your bookkeeping will depend on many factors including:

• Company lifecycle and size
• Number of transactions in a month
• Number of employees
• Payroll processing procedure 
• Number of credit cards, expense accounts, and bills to pay
• Number of balance sheets to reconcile
• Number of invoices to send

In addition to repetitive bookkeeping work, your costs will also depend on how you set up and administer your policies and procedures, systems, and reporting needs when you outsource your bookkeeping.

Basic Bookkeeping vs. Full Service Accounting

During the early stages, most small businesses primarily focus of compliance: receiving payments, paying bills, checking the accuracy of the payroll, and following federal and state regulations.

Your company might at some point cross a threshold so you’ll start focusing more on the generation of accurate timely financial reports. During this point you will require more advanced bookkeeping, managerial accounting, and accrual accounting to help make informed decisions.

Therefore, the first thing you need to consider when you outsource bookkeeping for your small business is whether you need basic bookkeeping (compliances) or you’re ready to move on to full service accounting. The two require different levels of expertise and effort, and as you can imagine, the costs of full service accounting are higher.

The Bottom Line

When you outsource bookkeeping for your small business, you work with a team who manages your financial records on a daily basis. Many small businesses benefit from outsourced bookkeeping. You get expert advice and peace of mind and you can also save on expenses thereby increasing your bottom line.

If you’re ready to make your bookkeeping easier, get in touch with us now. R&D Legal Bookkeeping manages all the behind-the-scenes functions to keep your company running smoothly. Working with us means that you always have accurate and updated financial records.