Different types of accounting outsourcing services offered
Accounting outsourcing firms typically offer services relating to financial management and accounting. Although the exact services may differ from firm to firm, here are a list and description of the general services one can expect by employing an accounting firm.
- Bookkeeping- This outsourcing service will cover areas related to bookkeeping such as manual journal entries, invoicing, general accounting, financial reconciliation, daily sales and cash receipts, accounts payable and receivable, project accounting, customer order processing, ageing analysis, and virtual accountants.
- Tax Returns- This outsourcing service will assist in the preparation and filing of taxes. Accounting outsourcing firms typically offer advice and potential ways to save money when filing taxes.
- Financial Reporting- Outsourcing services usually provide AP reports, financial statements, inventory reports, customized reports, accounts receivables reports, general ledger reports, bank reconciliation reports, and payroll and check registers.
- Payroll processing- Firms will handle tasks such as completing year-end W-2 forms, time cards/sheets, attendance records, leave forms, reports and deadlines, employee earnings statements, prepare notifications of tax liabilities and deposits as well as prepare and pay all Federal, State, and local payroll taxes.
How accounting outsourcing minimizes risk for companies
Companies often use accounting outsourcing in order to minimize a firm’s risk. First off, by the company shifting accounting functions to an outside firm, they are also shifting risk. The outsourcing firm now has the responsibility to deliver results instead of the hiring company.
Secondly, outsourcing firms are less likely to make mistakes and miss deadlines because they have a reputation to uphold. Their reputation enables them to hire new clients and maintain their relationships with their current ones. Therefore, successful outsourcing firms will produce high quality and satisfying work in order to maintain their market presence.
Lastly, accounting outsourcing firm are better equipped and prepared to catch any errors. Most outsourcing firms build in multiple levels of review in the process in order to catch simple or major mistakes. Many in-house operations cannot afford the manpower and time to conduct the same review process.
Why businesses choose to outsource accounting services
Accounting outsourcing is in increasing demand as many companies seek to maximize profits and minimize operating costs. Many companies have decided to outsource for the following reasons:
- Cost savings- Accounting outsourcing has enabled companies to save money because they do not have to hire, train, and support additional employees and do not have to purchase software and materials for the employees to use. Additionally, outsourcing firms maintain experienced, educated professionals who have the ability to save organizations money on taxes and other accounting services. Some outsourcing firms claim that organizations can save up to 40-50 % on specific services that are outsourced to firms.
- Focus on core business- Accounting and subsequent services are usually considered a secondary role that consumes company’s resources and time. Through outsourcing these services, companies can focus on the core businesses that drive their company and revenue streams. Furthermore, the legal liability that comes with accounting services is also transferred over to the outsourcing firm.
- Accurate and professional work- Outsourcing firms produce high-quality work that may be difficult to replicate through in-house accounting. Typical firms are up to date on ideal industry practices, skill sets, and technology. Additionally, firms can provide fair, unbiased, and transparent financial disclosures of financial reports. Another advantage ofhigh-quality work is the minimization of penalties and opportunity for tax deductions.
- Access to resources: Outsourcing firms have accounting resources that the average company does not have access to because the firms are built around the accounting service and thus invest in a wide range of resources. These resources often include: value added workflow systems, utilization of state-of-the-art technology, modern models of management, innovative models of delivery, and ability to reengineer accounting processes.
- Competitive advantage- Companies are seeing the competitive advantage in outsourcing accounting services. Primarily, a competitive advantage is seen in the ability of companies to provide more resources to developing new ideas and services that make up the core business. Furthermore, it allows companies to focus resources on other areas such as customer relations.
Accounting outsourcing problems/risks and how to mitigate them
As with all forms of outsourcing, there are certain risks involved with handing work over to an outside firm. The risks are especially high when dealing with financial reporting and accounting for a company. However, there are ways to mitigate and navigate around the potential risks that are evident.
The first major risk that companies foresee in accounting outsourcing is the release of confidential financial information for the organization. This information is often strictly confidential and has the potential to harm the organization if used in the wrong way or released to the public. However, there are strict privacy regulations in the U.S. that protect company’s financial information. In addition, hiring organizations can choose outsourcing firms that only allow accountants to see raw information, which is prohibited from being downloaded or printed. The information is password protected, and all the data remains in the U.S. It is recommended that companies identify what functions can be safely outsourced and then have a lawyer allocate risk between the hiring organization and the outsourcing firm.
Secondly, most hiring companies are concerned with choosing the correct amount of work to outsource. Often, companies either underestimate or overestimate their accounting and financial outsourcing needs. Companies should clearly define their scope of services and work with the outsourcing company to decide how much to outsource. The outsourcing firm will be able to consult companies on what is their contracted responsibility and what functions the customer still needs to conduct on their own. It is important for hiring companies not to outsource upper executive positions such as CFO or comptroller. These positions will be able to accurately manage the workload among the partnership.
Thirdly, hiring companies often worry about software compatibility between the firm and their organization. Hiring companies consider if they have to change operating procedures in order to accommodate the firm. However, most firms will work with the hiring organization to use technology that is already used or that can cheaply and easily be incorporated. Nonetheless, companies may have to upgrade their software once the transactions become large and complex.
How to transition the workload
Once an organization decides to outsource, they must deal with transition costs and responsibilities to the outsourcing firm. The learning curve involved depends on the time it takes to make the transition and the criticality of the outsourced functions. Three factors should be considered when making the transition:
- Timing– the average time it takes to transition bookkeeping and other accounting responsibilities for a medium-size company is 3-4 weeks. Depending on the workload it may take as little as 2 weeks or up to a year.
- Transition planning– Hiring companies should fill out questionnaires and documents in order to inform the outsourcing firm of business expenses. They should also provide a “toolkit” that outlays the daily functions of the current accounting services.
- Restructuring- As responsibilities of employees are handed off to the outsourcing firm, the company must decide what to do with the employees. Companies must decide if they should be re-assigned or let go.