As your organization strives to use its resources as effectively as possible, you might at some point consider outsourcing the functions that fall under your accounting and financial umbrella. Here are some factors to weigh before making this important decision.
What Are the Potential Advantages of Outsourcing?
Companies often outsource work in areas that require specialized knowledge or a significant number of hours, such as payroll processing and payroll tax preparation. Outsourcing some or all accounting functions also can provide benefits — if it matches up with your organization’s needs and its budget.
Outsourced accounting services provides access to a higher level of expertise and greater resources than you could if you hired your own accountant. Outsourcing allows you to work with financial professionals of varying levels of experience and expertise tailored to the functions they’ll perform. Other benefits of outsourcing your accounting functions include:
Increased expertise, as all work is managed by a CPA
Accurate records are available on demand for tax planning, preparation and audit services
Increased internal controls through segregation of duties
Reduction in salary and benefit costs
Reduction in time spent hiring, training and retaining staff
Increased access to records and reports via Web-based accounting software
Reduction in office space needed for staff
Responsibilities of an Outsourced Accounting Provider
The following responsibilities can potentially be outsourced:
Processing payables, receivables and cash transactions
Reconciling accounts at month-end or quarter-end
Preparing financial statements, budgets and forecasts
Assisting with tax and grant reporting requirements
Adequately communicating financial matters to your board
But you don’t have to outsource all of these functions. Depending on your needs and budget, you can outsource only the ones that make sense for your organization. You also may benefit from occasionally using other firm experts — investment advisers, HR and IT support, and valuation specialists, as necessary.
Some CPA firms offer outsourced CFO services, while others work closely with small firms that provide general accounting services. And there are now cloud-based services that can perform some of the more repetitive tasks such as order entry, vendor invoice processing and bill payment.
Many businesses turn to outsourcing accounting functions at times of significant personnel transition or workload increases. For the company that can’t afford the day-to-day expertise of a Director of Finance or CFO, outsourcing certain financial oversight functions, such as review of account reconciliations and reporting financial results to funders and the board, may enhance its system of internal controls.
When considering outsourcing any accounting function, consider working with a senior level professional who’ll become familiar with your operations. This will help provide continuity of service as well as a resource to your senior management and board of directors. This manager or partner you’ll work directly with also will supervise junior firm members, providing an added layer of oversight.
What About the Cost of Outsourcing?
Depending on your organization’s size and complexity, the cost of outsourcing accounting functions might equal or even exceed what you’d pay an experienced accountant internally — or it may cost less. With an outside firm, you pay only for the amount and level of services you require. With an on-staff accountant, he or she may spend some time doing work that someone at a lower pay level could handle equally well. Your costs of outsourcing may be partially offset due to a reduction in audit and tax preparation fees. The professional attention to accounting details you receive during the year normally will resolve most of the accounting questions that arise in an audit or tax preparation.
What Are Other Considerations?
A common concern is that there won’t be a CFO or business manager whose office you can walk into unannounced whenever a financial question arises. Meetings with the CPA firm will need to be planned and scheduled, although it’s possible to arrange for your outsourced accountant to be on-site on a regular basis. It is important for everyone at your organization and the CPA firm to understand availability expectations.
You also need to determine how financial data will flow. For example, will your company send information to the accounting firm, or will firm personnel come on-site to perform accounting services? Will your accounting software be available on a remote basis? If the firm is unfamiliar with your accounting processes and procedures, it may need to perform some tasks on-site, at least initially.
Finally, you must be prepared for some commitment of time during the transition. There will be a learning curve as the CPA firm familiarizes itself with your policies, procedures and systems.
The Final Word
Even with an outside firm handling your accounting functions, you won’t be able to absolve yourself of financial decision making. Remember, while an external firm can assist and advise you on financial matters, those charged with governance at your firm (typically the board of directors) must continue to have the last word on making significant financial decisions.