Productivity losses in the global service industry waste $5 trillion every year. Administrative tasks are to blame for these huge drains.
In the United States alone, these repetitive tasks cost businesses $2.87 trillion. That’s because these activities eat up a third of the working year, or 69 business days.
Another study also found that less than three hours of the working day go towards actual work. The rest goes toward non-core businesses activities, including accounting and financing.
As one of the 30.2 million U.S. small business owners, you can’t afford to spend hours crunching numbers. And you don’t have to. You can outsource accounting tasks to free up time for more valuable activities.
Ready to know how, why, and when exactly outsourcing accounting makes sense? Then let’s dive right into it!
Outsourcing 101
Outsourcing means contracting out a professional individual or business to complete a job. These jobs are those that internal employees used to carry out. The external parties hired are often referred to “third party providers”.
Third party providers have their own people who will then carry out these jobs. They have their own “headquarters” or offices where they conduct the work assigned to them. Majority of their people work on-site, although some are also remote employees.
You know those customer service or technical support hotlines, say for Sony? Many of these operate under outsourced or third-party companies.
You don’t have to be as big as Sony though to need or afford outsourcing services. Lower costs are the main reason businesses outsource, after all. In a 2016 Deloitte Survey, 59% of respondents said they outsource for this reason.
Why Smart Businesses Outsource Accounting Tasks
From cutting costs to saving time, here are the top reasons to outsource accounting tasks:
To Cut Costs
Before hiring an accountant, be sure your business finances can accommodate their salary. To give you an idea, a Certified Public Accountant in the U.S. makes an average of $64,247 a year.
Now, compare that with the average salary of a U.S. business owner, which is $59,000 a year. In this situation, you’ll be in debt because you’re paying one employee more than what you’re making!
Even if you made more and paid an accountant less, a full-time, in-house accountant is too expensive. Outsourcing accounting for your small business is much more affordable. Plus, you get to save on overhead and utility bills, since there’ll be fewer equipment on-site.
To Save Time
We’ve already mentioned how productivity-draining admin tasks are. But to make things clearer, know that more than 41 hours of an SMB owner’s time goes toward tax preparation alone. That’s a dead giveaway that these redundant business processes kill your business.
Outsourced accounting companies can take over your tax duties and save you that 41 hours. You can hire them even if you only need help with tax prep. They’re that flexible, which is another reason why you can cut costs using their services.
If you only want to delegate financial reporting to a third-party accountant, you can do that too. You can also hire them for financial auditing or inventory management. In short, it’s up to you which tasks you want to outsource, and you pay them only for that job.
Unsure which accounting tasks to delegate to a third party? Click here to find more about which accounting services you can outsource.
To Focus on Core Business Activities
The time that an accounting outsourcing service saves you can now go towards actual work. Core business activities are the critical aspects of your business. They’re the kind of work that allows you to stay true to your business’ mission, vision, and goals.
For instance, if you’re in the manufacturing industry, then this can be designing a new product. If you’re a restaurateur, then you can use the time you save coming up with a new dish. For videogame developers, that means creating games or designing new game characters.
With an outsourced accountant, you can start doing the things you love once again. The things that prompted you to start a business in the first place.
To Ensure Accuracy in Accounting and Financing Tasks
In 2013, IRS civil penalties due to accounting mistakes cost U.S. businesses almost $7 billion. These include incorrect business income reports and data (like employment values) entry mistakes. Lack of expertise in state tax laws and incomplete data are also common errors.
Worse, these mistakes won’t only cost your business in dollar-loss terms. They can even also give rise to legal issues, which can taint your reputation. They may also affect your financial health, as these can damage your credit standing.
There’s a higher risk of accounting and financing errors for those untrained to do it in the first place. Lack of experience and knowledge can lead to confusion on which tax law to follow.
But there’s also the “rushing” of bookkeeping and number-crunching. This is a common scenario for business owners who do most admin tasks on their own.
So, don’t put your business and yourself at these risks. Hire an outsourced accounting service company to ensure accuracy in your financial reports.
To Achieve Work-Life Balance
As fulfilling and rewarding as it is to be a business owner, it can be as stressful, or even more so. In fact, 41% of surveyed business owners say managing their business is the top source of their stress. Many of them find it more stressful than their personal finances or raising their kids.
Don’t risk your personal life and health stressing out on your business’ finances. Outsource some of your accounting responsibilities for better work-life balance.
The Best Times to Outsource Business Accounting
Thanks to their flexibility, you can outsource accounting help only when you need to. But there’s always a need for an accountant, whether it’s the start or end of the fiscal year or during tax season.
Before You Even Launch Your Business
You can hire outsourced accountants from the get-go to help you launch a start-up. They can assist you in securing the right business loan for, say your capital. With their help, you can avoid being one of the 80% of businesses at risk of business bank loan rejection.
They can also help you decide the right “entity” type for your business. They’ll discuss the pros and cons of being a sole proprietor, a partnership, or corporation. This is crucial, as your choice will affect your business and personal taxes and finances.
Accountants can even help you decide whether to buy or rent equipment for your business. They’ll figure out which option is more cost-effective, both in the short and the long run.
Hire them before you launch your start-up, and you’ll have higher chances of surviving its first year.
During Tax Season
You already have an idea on how time-consuming tax preparation and filing is. So, it’s best to have an accountant on your team during this season.
When You’re Having Trouble Interpreting Data
Let’s say you’ve managed to keep track of all your cash inflows and outflows. But the numbers don’t add up, and you can’t account for a considerable expense. It’s possible that you misinterpreted part of the data.
Again, this can be accounting errors or lack of accounting know-how. If you find yourself in this situation often, it’s time to hire an outsourced accountant.
When You’re Planning on Making a Huge Investment
You need an accountant for any new business investment to ensure it’s the right decision. For example, you want to upgrade your business facilities or update your inventory. Both involve acquiring and spending a large amount of money.
How confident are you that your business is ready for such a venture? Unless you’re 100% sure, you should have an accountant go over the financial aspects. This way, they can determine if you should make the investment now or if it’s best to wait.
When You Can No Longer Do the Things You Love about Your Business
You started your restaurant, videogame, or soap-making business because it’s your passion. But you now spend more time poring over your ledgers than making food, videogames, or soaps.
This is a clear sign you should outsource some of your accounting tasks. Again, it’s up to you which financial-related responsibilities you want to delegate. The important thing is to get expert help so you can go back to doing the things you started your business for.
When You Feel Overwhelmed
Although you shouldn’t wait to feel this way, once you do, that’s already a sign you should seek help. Whether it’s for accounting tasks or any other business activity, outsourcing can help. The last thing you want is your health to suffer, as that would mean even more productivity losses.
Accounting Help Whenever You Need It
As you can see, there’s always a good reason and time to outsource accounting services. Whether it’s before launching your start-up or during its lifetime. Besides, they’re more flexible and cost-effective than hiring an in-house accountant.
So, make your business work for and not against you (and your health) by outsourcing an accountant now! This way, you can make the most use of your precious time growing and scaling your business.
Need more help in managing your finances? Then be sure to check out this guide we have on financial preparation!