Outsourcing Accounting

Should you outsource your accounting?

Fact is that virtually all small and medium size businesses outsource at least some of their accounting services. It just doesn’t make sense to hire a full time in-house accountant for their year-end tax returns and similar tasks rather than use independent accountants.

But how far should businesses go? To what extent should they outsource their accounting services? When does it make sense to do the work in-house, and when should they outsource accounting work that needs to be done? These are the questions we’ll answer in this article.

First, let’s look at…

Which Accounting Services Can Be Outsourced?

Broadly speaking, you can group all accounting tasks on a frequency spectrum from tasks that have to be done once a year to those that ought to be done daily.

Once a year

These tasks obviously include preparing year-end tax returns and audits. They require a high level of expertise to achieve the desired outcome: creating the best tax results for the business and keeping HMRC happy at the same time.

Intermittent tasks

These include among many others regular financial reporting, tax planning, quarterly VAT returns, monthly payroll filing required from April 2013, and credit control. These tasks involve both a great deal of routine work but also expertise to get them right.

Daily tasks

These are the least loved of all accounting tasks. They are generally regarded as chores: everything involved in bookkeeping. But they are also the most important to get right immediately because not only do all other accounting tasks depend on correct, timely and complete bookkeeping but the proper and effective running of business depends on the information generated by these daily tasks.

They do not require as high a level of expertise as the annual or some of the intermittent tasks, but an experienced bookkeeper will be much faster, more efficient and make far fewer mistakes than someone who turns to book keeping only occasionally.

Now to answer the first question: All accounting services can be outsourced.

For small businesses, it is a question of opportunity costs: is your or your staff’s time more effectively used in running the business or by keeping the books and dealing with payroll? In most cases, it turns out that not outsourcing payroll and bookkeeping is actually the more expensive alternative.

This is true for small businesses as well as for large corporations. For small businesses, using an independent contractor is often more cost effective and brings with it greater expertise than hiring staff for the task or the DIY approach by the business owner. Apart from the immediate cost saving, bringing in experience and expertise at this level will also help avoid frequent add-on costs arising out of missed filing deadlines and associated penalties.

Large corporations frequently make use of the very favourable wage differential by going offshore with their bookkeeping and payroll. Of course, sufficient safeguards have to be in place to avoid losing documents and to ensure quality of work carried out.

Once you move further along the spectrum from daily tasks to less frequent ones, not only do hiring costs rise if you want to keep these services in-house, but finding sufficiently qualified staff also becomes disproportionately more difficult.

The Principal Benefits of Outsourcing Accounting Services

From these examples alone, we can see that outsourcing brings with it a number of core benefits.

Saving Money and Time

Done with due diligence, outsourcing is frequently not only cheaper than the in-house alternative but produces the desired results also faster and more accurately. This, as we have seen, also helps prevent an unnecessary drain on financial resources in the form of missed filing deadlines, PAYE related errors and penalties arising from these.

In addition, money saving is compounded by freeing management and staff time and energy by allowing them to focus on revenue generating business tasks.

Expertise on Demand

Outsourcers work for different clients with varying requirements. Consequently, they bring with them wider industry experience as well as up to date expertise in procedures, technological advances and legal requirements. To acquire all this in-house would be a costly and time consuming drain on business resources.

This means, for example, that businesses can request customised management accounts and reports on a regular basis to ensure compliance, guide company performance and assess progress and attainment of business goals ongoingly. Outsourced, this information can be made available at short notice without distracting and burdening in-house staff with extra workload.

Three Objections to Outsourcing

Three principle areas of concern are generally addressed by those who object to outsourcing: cost, quality and services provided.

Naturally, before businesses outsource their accounting services they need to do their due diligence on service providers, whether they are individuals, bookkeeping firms or accountancy firms, and compare these three issues.

The cost issue has been addressed repeatedly in the preceding sections, be it in terms of money saved, opportunity costs of keeping these tasks in-house, or greater expertise available through outside experts. It is the sum of these three elements that should go into the cost comparison of in-house against outsourcing.

Qualitystandards must, of course, be ensured. The best assurance beyond testimonials and recommendations, and nowadays also online search, is verifying that the service providers have the required qualifications from organisations such as the Institute of Chartered Accountants in Scotland (ICAS), the Institute of Certified Bookkeepers (ICB), the Association of Chartered Certified Accountants (ACCA), the Chartered Institute of Management Accountants (CIMA), the Association of Accounting Technicians (AAT). Are they members of the appropriate professional bodies (designated by appropriate letters behind their name – for example, ACA, ACCA, ACMA, FCA, FCCA, FCMA, MAAT, SAAT)? Frequently, reputable service providers will also offer a level of quality control that is very difficult to ensure in-house.

Quality also entails adherence to technical standards not only as required, for instance, by HMRC but also whether the outsourcer is able to use the same software as the business. Any reputable outsourcing company should be able to accommodate any accounting, payroll and reporting packages currently in mainstream use.

Services provided do not only include the accounting services discussed earlier in this article. They also encompass turnaround times, document safety and communications.

Turnaround times are crucial for meeting filing and other deadlines as businesses want to base their decision on the most up to date information. Frequently, specialist outsourcers are able to provide extremely fast turnaround times.

Document safety is vital. The service provider should be able to advise on the procedures that are in place. If they require original documents, it may be advisable to use a high speed scanner to create electronic backup copies before sending documents out. Alternatively, they could be happy to work with electronic copies of these documents, in which case either turnaround times or costs, or in many cases both would be reduced.

Finally, depending on the service, communications with the service provider may be an important factor. This would be less so for bookkeeping but certainly essential for finalising annual accounts. Some businesses prefer geographical proximity and face-to-face communication, others are happy with good online and offline communications links especially as online video links are now virtually free.

For further information on outsourcing any of your accounting services or to discuss any of the specific areas discussed above, call us now on 020 7148 0638 or complete the contact form below. We’ll be happy to help.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.