Several foundational elements are at the core of your business, one of the most crucial of which is accounting. Yet, for small business owners, managing all the intricacies of financial well-being can be time-consuming and prone to error. But could outsourcing accounting for small businesses be the answer?
According to a U.S. Bank study, 82% of small businesses fail due to cash flow mismanagement. Another report by Clutch found that nearly 45% of small businesses do not have a professional bookkeeper or an accounting department, increasing their risk of financial mistakes and compliance issues.
Rising labor costs, complex tax laws, and security concerns lead small business owners to outsource accounting services as a cost-effective solution.
Continue reading as we explore everything you need to know about outsourcing accounting for small businesses—from cost savings to selecting the right provider and enhancing your financial records.
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What You Need to Know About Outsourcing Accounting: Quick Overview
Outsourced accounting solutions involve partnering with outsourced accounting firms to handle your critical accounting functions. These include bookkeeping services, financial reporting, payroll processing, and tax preparation.
Outsourcing lets businesses delegate time-consuming accounting tasks to experienced professionals, allowing them to focus on their core activities. Utilizing CFO services provides valuable financial insights and accurate statements, relieving the stress of managing an in-house team and ensuring smooth operations.
Comparison: In-House vs. Outsourced Accounting
| Feature | In-House Accounting | Outsourced Accounting |
|---|---|---|
| Cost | $60,000+/year (salary + benefits) | Starts at $300/month |
| Scalability | Limited to an internal team | It is flexible and can grow with your business |
| Compliance & Tax Preparation | You’ll need in-house expertise | Handled by external professionals |
| Technology & Integration | Your business will have to purchase and maintain software | It gives access to the latest accounting software |
| Accuracy & Risk | It does have a higher chance of human error | Ensures that you have accurate financial records |
When small businesses tap into outsourced accounting solutions, they can enjoy reduced costs, simplify their accounting processes, and gain a competitive edge through valuable financial expertise.
The True Cost of Managing Accounting In-House
Many small business owners assume that handling accounting and bookkeeping in-house is the most cost-effective approach, but reality often proves otherwise. Although handling finances in-house might appear cost-effective, it involves concealed costs, compliance challenges, and time pressures that can negatively affect your company’s profitability.
Here’s a cost comparison for easy reference:
Businesses encounter concealed costs in addition to direct expenses. The typical small business owner dedicates more than 120 hours yearly to their work. But what are they spending this time on?
Routine bookkeeping tasks consume valuable time that could be more effectively spent on essential business operations, such as sales, marketing, and strategic planning.
Considering this, it’s also important to be aware of internal fraud risks. The ACFE indicates that small businesses lose about 5% of annual revenue due to weak financial management, significantly impacting their success.
On the other hand, outsourcing bookkeeping and accounting helps to reduce these burdens while ensuring accurate financial reporting, compliance with tax laws, and long-term savings. The ability to streamline operations ultimately allows you to focus on business growth.
READ MORE: The Cost of Outsourcing Accounting Services
What Exactly Can You Outsource in Accounting?
Before outsourcing accounting, it’s a good idea to know which accounting needs and bookkeeping tasks you can (and should) outsource.
- Bookkeeping & Bank Reconciliations: Tracking financial transactions and maintaining accurate financial records.
- Payroll Processing: Managing salaries, tax deductions, and benefits.
- Tax Preparation: Ensuring compliance with tax laws and maximizing deductions
- Financial Reporting & Strategic Planning: Providing insights to guide growth.
- Accounts Payable & Receivable: Optimizing cash flow and payment schedules
- CFO Services: Offering a strategic advantage through forecasting.
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When Should Your Small Business Consider Outsourcing Accounting?
Deciding to outsource accounting isn’t always easy, but it may be worth considering if you struggle to keep up with financial tasks.
5 Signs It’s Time to Outsource:
- You’re missing tax deadlines or making frequent errors.
- You’re spending too much time on accounting tasks instead of business expansion.
- Your financial statements are inaccurate or outdated.
- You struggle with ensuring accurate financial reporting and compliance.
- Your business model is evolving, and financial complexity is increasing.
READ MORE: The Best Finance and Accounting Outsourcing Companies
The Risks of DIY Accounting & Common Pitfalls
Enlisting professional services is still necessary only for businesses without experience. However, it’s far more valuable for many with some in-house know-how than meets the eye.
Having too much confidence in your abilities could quickly turn sour, and warning signs include:
1. Inadequate Accounting Knowledge
While accounting and bookkeeping are often overlooked, it remains a time-consuming task that demands a certain level of expertise. That said, very few business owners have these much-needed qualities. This increases the chances of making costly mistakes while trying your hand at DIY accounting.
2. Missing Taxation Deadlines
Outsourced bookkeeping and accounting functions often involve tax preparation services, which can become tedious yet remain business-critical. While managing your core operations, it can be easy to neglect these duties, leaving you feeling overwhelmed and missing important deadlines.
3. Inability to Keep Accurate Financial Statements
One of, if not the, biggest challenges most small and medium-sized businesses face is the time and skills to maintain financial records. This is likely due to the fact that they simply do not do these tasks daily, and on top of that, it requires dedicated time. DIY accounting and maintaining error-free records quickly snowballs and becomes burdensome.
4. Lack of Time
The excitement of launching a new business motivates many entrepreneurs to assume extra duties to conserve as much money as possible. Time is money, and start-ups need it for effective, reliable business growth. Outsourced services focus on keeping your house in order while you attend to core business activities.
5. Unsolvable Cash Flow and Accounts Payable Damages
Every business, including yours, thrives on keeping an eye on cash flow, especially during challenging times. Tackling DIY accounting and bookkeeping can often lead to unnecessary stress, making concentrating on other essential aspects of your business challenging.
By taking the time to carefully review bank statements, vendor and supplier statements, and credit card activity, you’ll gain valuable insight into your spending habits and better understand your financial picture.
6. Complicated Accounting Software
In theory, accounting and bookkeeping software should make your life easier, and while some owners are adept at using them, others have trouble picking it up. Additionally, it’s easy to lose time as you learn and familiarize yourself with these solutions.
The truth? If you’re not tech-savvy, managing your business’s financial information online might not be for you.
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How to Choose the Right Accounting Outsourcing Partner
When you’re ready to move to outsourced accounting services, remember that it comes with its own set of unique challenges. You and your new outsourcing partner have to adapt to a new working relationship while setting (and meeting) reasonable expectations.
Choosing the right outsourcing firm and entrusting your financial well-being to a dedicated team of outsourced accountants is half the battle. Below are our tips to help you find the best fit:
- Step 1: Establish a precise scope of work
Before contacting your prospective partner, draft a clear scope-of-work document outlining your distinct business goals. Consider aspects such as your precise need and the best possible solution.
Tip: If you aim to leverage outsourcing for business growth, adopting routine assessments is crucial. This will allow you to adapt to the scope of your needs.
- Step 2: Assess the skills of potential outsourcing partners
When evaluating potential outsourced accounting firms, consider technical expertise and skill set. Other positives to look for are access to the latest technology, experience solving complex issues, and passion for your project.
- Step 3: Take into account the market reputation of any potential partner
Similarly to how your business strives for high-quality, your outsourced accounting services should deliver outstanding service quality. Their performance and communication will directly affect your business’ reputation. Thoroughly check their credentials and learn about their history before signing anything.
- Step 4: Clearly state your budget
It is critical to consider your budget when hiring outsourced bookkeeping services. Determine how much you’re willing and able to invest and communicate your financial constraints. Finalize your budget before approaching prospective partners.
- Step 5: Safeguard your data and intellectual property
When working with outsourced accounting firms, you may need to share or provide access to confidential data and proprietary intellectual property. If you do not manage this information correctly, your business could face a data breach or theft of intellectual property theft.
- Step 6: Select a flexible partner, whether domestic or international
Your selected accounting services vendor should be flexible enough to handle any urgent issues promptly and be able to pivot a project. This flexibility is incredibly important when working with international partners in different time zones.
How Outsourced Accounting Works
Luckily, outsourced accounting services typically involve an easy setup process, and after deciding on your chosen partner, it doesn’t take long to get going. Here’s a quick breakdown of what to expect.
- Consultation & Setup – Your chosen outsourced accounting firm assesses your accounting needs, from bookkeeping services to tax preparation.
- Integration & Data Transfer – Your financial data is securely migrated into leading accounting software like QuickBooks Online, ensuring seamless access.
- Ongoing Support & Reporting – A dedicated team handles payroll processing, financial reporting, and compliance, delivering accurate financial statements for informed decision-making.
Outsourcing gives small businesses a cost-effective solution that saves time, reduces errors, and provides financial clarity without the overhead of an in-house accounting department.
READ MORE: How to Outsource Accounting Services: The Definitive Guide
Frequently Asked Questions
You might still have some questions after covering much of what you need to know about outsourcing your small business accounting needs. Here are our answers to the most frequently asked.
Can I Do the Accounting for My Small Business?
Growing businesses of any size require an extreme level of accounting expertise, and while it is possible to tackle some of it yourself, reaching out for help is always a good idea. Outsourced accounting seamlessly integrates into your company, giving you a competitive advantage.
Which Accounting Method Is Best for Small Businesses?
Most small businesses benefit from cash-basis accounting, which is much simpler and more suitable for low inventory and predictable income. Accrual accounting is more complex but gives you a more accurate picture of your financial performance.
What Do Freelance Accountants Charge?
Freelance accountants usually charge $25 to $150 per hour or $300 to over $5,000 monthly, depending on their expertise and services, such as bookkeeping, tax preparation, and financial reporting. For growing businesses, outsourcing accounting can provide cost-effective options, including dedicated teams and strategic planning.
Final Thoughts
Managing finances isn’t why you started your business. Yet accurate records, cash flow management, and tax compliance are crucial for success. That’s where outsourced accounting services help.
Rather than burning the midnight oil to manage your finances or worrying about payroll, picture a specialized team of outsourced accountants taking care of everything on your behalf. Say goodbye to tax complications and overlooked deductions. Enjoy precise financial reporting that empowers you to make informed choices and confidently drive growth.
If you’re ready to make the switch, 1840 & Company can connect you with trusted accounting professionals who seamlessly integrate with your business model and provide the financial clarity you need.
READ NEXT: Why Outsource Accounting? Everything You Should Know (2025)
