Is it Better to Outsource Accounting Services?

 
Businesses generally perform their accounting responsibilities one of two ways: Outsourcing or in-house. So, which should you choose? Is it better to outsource accounting?
 
The optimal route and how much you will benefit depend on your current business stage and employees. For example, if you already employ a fully staffed and well-operating accounting department, there are fewer benefits in most—though not all—scenarios. But growing businesses and those at critical stages can reach new levels of success with the right outsourced financial services partner.
 
Below, we will explore which types of companies should consider looking outside their organization for accounting.
 

When is Outsourced Accounting Better?

 
Broadly, the types of businesses that will benefit the most from outsourced accounting are those that find themselves in any transitional development stage. Changing business circumstances often need quick, effective solutions.
 
However, outsourced accounting is especially valuable if:
 

• Increased bandwidth or specialized guidance is needed
• Going through the standard hiring process will take too long or does not make sense
• You do not need a full-time accountant

 
Instead, outsourcing the role will rapidly provide an impact. Here are some common business stages and scenarios where these cases are recognizable.
 

You are Experiencing Growth

 
Most business leaders moonlight as the company accountant during the early stages of growth. And when the tasks are more manageable, everything can operate smoothly.
 
However, as a growing business scales and owners have to find time to squeeze in accounting, they may start treading into dangerous territory. Company leaders only have so much bandwidth. There comes a point where balancing their myriad operational and decision-making responsibilities means business leaders have to hand off some items from their to-do list.
 
Outsourcing their accounting needs to the right partner will help recover substantial bandwidth and ensure timely task completion according to the Generally Accepted Accounting Principles (GAAP).
 
Outsourced accounting services that growing businesses (and others) benefit from include:
 

• Accounts payable and receivable
• Month-end closing
• Transaction coding
• General ledger and account reconciliation

You Founded a Startup

 
Similarly to growing businesses, startup founders quickly find themselves juggling numerous responsibilities—often with additional tasks like managing capital investments or projecting how much runway they have. But hiring an accountant takes an average of 37 days, according to LinkedIn, further taxing founders’ time. And, in the earliest startup phases, a prospective hire may mean parting with some equity to bring them aboard.
 
Moreover, outsourcing often makes the most sense for founders in need of extra bookkeeping help because it may not be a full-time job. If so, a fractional—or part-time—outsourced accountant can provide their services on an as-needed basis.
 

You Experience Seasonal Surges

 
Perhaps you only need accounting help periodically because of seasonal sales variations. You might even have an internal accounting team already, but the volume becomes too much at certain times of the year (e.g., Q4 holiday shopping, recreational or travel businesses during tourist seasons).
 
If your bookkeeping to-dos regularly start piling up for short periods, it’s worth bringing in an outsourced accountant to help out until things settle.
 

You had an In-House Accountant

 
If your current accountant is departing the organization or taking a leave of absence and you need to find an interim replacement, outsourced accounting services can quickly bridge any gaps. Many of these businesses also find they prefer outsourcing to hiring and decide to continue the relationship long-term.
 

You are Pursuing a Government Contract

 
Government contracts provide an important, reliable revenue stream for the businesses that land them. And your first contract could be a turning point that leads to rapid growth.
 
However, becoming a government contractor also involves a significant amount of preparation and ongoing accounting scrutiny. An outsourced accountant can help you:
 

• Assess your available financial resources if more equipment and supplies are needed
• Preparing bids or RFP responses at price points balancing competitiveness and profitability
• Contract negotiations, terminations, and close-outs
• DCAA audit preparation

You are Engaged in R&D

 
Organizations performing qualified research and development activities are eligible for tax credits that achieve significant savings. And more businesses now qualify—and for a larger refund—after the Research and Development Tax Credit Expansion Act of 2021 passed.
 
If your business conducts R&D activities and its gross receipts (i.e., cash inflow) are below $10 million annually, you may qualify for a refund up to $500,000.
 
However, the IRS heavily scrutinizes these tax credits, so it is best to have a certified accountant experienced with the process to help. If you do not employ one, outsourcing will be the fastest and easiest solution.
 

You are Preparing for a Merger or Acquisition

 
Before any merger or acquisition finalizes, all relevant parties and stakeholders will want to confirm that the businesses involved have their books in order. Both for objective due diligence and to keep your in-house accounting department’s workload manageable, it typically makes sense to look externally for accounting help.
 

You are Being Audited

 
Audits are understandably stressful times. So, whether your bookkeeping is a bit disorganized or you want the added sense of security from an external review, you may want to partner with an outsourced accounting services provider.
 

Who Benefits the Most from Outsourced CFOs?

 
Accounting is not the only outsourced financial service that positively impacts businesses. Sometimes, C-level and specialized expertise is needed for tasks like forecasting or pursuing, negotiating, and evaluating offers (e.g., capital investment, sale of business).
 
You may consider an outsourced solution for the following scenarios:
 

• You need an interim CFO – As with businesses trying to fill the role of a departing accountant, you might need a CFO to cover responsibilities for an interim or ongoing period.
• You need a CFO soon – If scaling business is approaching one of these benchmarks identified by Lancor and Bessemer Venture Partners, outsourcing CFO responsibilities can help you find the right person in time:
• 100 employees
• $25 million in annual revenue
• 111% revenue growth year over year
• You need to hire a controller soon – Similarly to businesses who anticipate needing CFO guidance soon, an outsourced controller will add value to your business if:
• Annual revenues are nearing $500,000 to $10 million
• Your business will need to start following GAAP
• You are seeking capital investment – CFO guidance can be crucial for successful meetings with potential investors and securing the most capital with an acceptable exchange.
• You are involved with mergers or acquisitions – While outsourced accounting will help perform due diligence, you still want someone with M&A expertise to sit beside you and provide advice during the meetings.
• You are exploring an IPO – IPOs involve substantial effort—such as financial statement preparation, determining tax requirements, and maximizing value. Going public will require CFO guidance to ensure all boxes are checked.