When Should You Outsource Your Accounting? Signs Your Business Has Outgrown DIY

During the initial stages of a business, owners often find themselves juggling between every aspect of the business. From sales and marketing to business operations and finances, they find it best to do everything on their own, especially because it can help keep costs low.

As the business grows, each business function demands more time, bringing up the question: when to outsource accounting? In this blog, we explore the benefits of outsourced bookkeeping services, the difference between in house vs outsourced accounting, and how to decide which suits your business best.

DIY Accounting: Why It Works Initially

In the early stages of a business, most business owners do everything on their own, including finances. This is for very simple reasons such as a tight budget, low sales volume, and for complete control.

Business owners may have spare time on their hands during the starting phase, enabling them to handle invoicing, expense tracking and reporting. The advantage of this is that you may end up understanding your money flows even better. However, DIY accounting benefits gradually fade away as the business grows.

Signs You May Need To Outsource Accounting Services

If you are already thinking of reaching out to accounting services for small business, it is likely you are feeling the pressure of doing everything yourself. There are several key signs that you may need to outsource accounting services, discussed below:

1. No Time To Perform Accounting Tasks Yourself: When you find yourself struggling to take out time to fulfill your accounting needs, you may need to consider when to outsource accounting to a professional. If you find your books are outdated, or you spend all night trying to perform simple accounting tasks, it may be time to outsource accounting services.
2. Disorganized Books: Accurate books are vital for decision-making. Without accurate and complete books, it is virtually impossible to make informed decisions. Professional outsourced bookkeeping services ensure you do not have to worry about this, enabling prompt decision making.
3. Lack Of Basic Accounting Knowledge: While business owners may be able to track and record all their business transactions, they may lack essential knowledge on what their numbers represent. You should be able to answer what your profit margins are, if you have sufficient cash to meet the needs of the next few months, does your pricing strategy make sense, etc. One of the benefits of outsourcing accounting to a professional is financial clarity.
4. Issues With Cash Flow: Cash is the lifeblood of any business, and cash flow issues can cause business failure. If you struggle to pay bills, rely heavily on credit and have unstable income, it may be time to outsource accounting services.By outsourcing to a professional, you can get access to cash forecasts and efficient business strategies to tackle your liquidity needs better.
5. Struggling With Tax Deadlines: Taxes are generally difficult to understand, especially with the ever-changing regulations. As your business scales, taxes can become more complicated resulting in late or in accurate filings, and penalties. Accounting services for small businesses can help your business stay compliant and tax-ready.
6. You Plan To Scale: When growing your business, you may consider applying for a loan or add investor financing. To scale sustainably, you would need accurate budgets, as well as clean updated financial statements, such as a balance sheet, profit and loss statement and cash flow statement. Outsourced bookkeeping services can provide top-notch accounting software to streamline your accounts in line with the requirements of an investor or lender.
7. Complex Business Model: You may be dealing with multiple and complex income streams, foreign transactions, and inventory management. This requires both time and skill, inviting the need for outsourced bookkeeping services. 

Further Benefits of Outsourcing Accounting

• Advisory Services: Other than bookkeeping, outsourced bookkeeping services also provide additional guidance such as financial forecasting, budget planning, cost optimization, and financial analysis.
• Accounting Technology: Accounting services for small business use advanced accounting software that provide real-time financial dashboards (you can see your cash flow, profit, etc in real-time), Cloud-Based accounting (you can access your books at anytime from anywhere with an internet connection), and automated processes.
• Fraud Deterrence: Internal fraud risks are significantly reduced when finances are managed by a third-party.
• Continuity: With DIY accounting or having an in-house accountant, accounting and bookkeeping roles can come to a halt if the person in charge goes on leave. With outsourced bookkeeping services, you always have a team available to update your books.
• Flexibility: One of the most important benefits of outsourcing accounting is that they can provide flexibility in the level of the services they offer you, based on your increasing or decreasing needs.  

In House vs Outsourced Accounting

Both in house and outsourced accounting offer several benefits, which are discussed below.

In-House Accounting: The benefits and limitations are:

• Benefits:
  • Almost always available during office hours
  • Direct and mostly face to face communication
  • Business has full control over the accounting process
• Limitations:
  • It can be more expensive than outsourcing as you would need to provide salaries, benefits and pay for additional training.
  • Accounting functions can suddenly stop if the employee resigns or goes on leave.
  • The In-house accountant may have lesser experience in comparison to outsourced bookkeeping services.

Outsourced Bookkeeping Services:

• Advantages:
  • Scalability: An outsourced team offers flexibility as they can cater to your increasing financial needs.
  • You gain access to a team of experienced accountants
  • Use of automated accounting tools which would otherwise be costly to implement.  
  • They offer Cost savings in comparison to an in-house employee
• Challenges:
  • There is typically no physical presence
  • They may not be as readily available as your own in-house accountant
  • Requires you to have clear communication to ensure you know exactly what services you are paying for

The Steps Needed To Transition From DIY to Outsourced Accounting  

1. Understand Your Needs: First identify what tasks you want to outsource. You can outsource either or all of payroll, financial reporting, bookkeeping, and tax preparation. It is also not necessary that you outsource all functions at once.
2. Organize Your Books: Organize and gather all your financial records, such as invoices, and receipts to ensure information provided is correct.
3. Select the Accounting Service That Fits Your Needs: Not every outsourcing business will fit your business requirements. Outsource accounting services to those that have experience in your industry and have similar goals.  
4. Clear Communication: Clearly discuss your expectations and the responsibilities you expect them to have. Also understand the frequency of communication that they will provide. Try to decide when to outsource accounting needs soon as financial issues can accumulate quickly. Choose the accounting service that fits your needs best and review the financial reports they provide you regularly to take full benefit of their expertise.

While DIY accounting may work out in the early stages of your business journey, accounting needs may become more demanding making it difficult for you to cope up on your own. The choose of in-house vs outsourced accounting comes down to which best supports your long-term goals. By handing over your accounts to a professional, you can reap the benefits of outsourcing accounting, professional insights and peace of mind.