When is the Right Time to Outsource Accounting for Your Small Business?
March 21, 2022 | Last Updated on: February 7, 2023
March 21, 2022 | Last Updated on: February 7, 2023
In this article, you’ll discover:
Most small business owners prefer to be involved in every aspect of their business, particularly in the beginning when their budget is smaller, and they’re watching every penny that flows through their business. Even so, the truth is that most small owners would rather focus on their business’s products and services rather than its accounting tasks. Savvy entrepreneurs eventually come to the conclusion that outsourcing their accounting needs allows them more time to focus on growing their business. But the question is, when is the right time to outsource accounting for your small business? Well, to answer that, here’s an overview of what small business accounting entails and why it’s vital for your startup or business.
Business accounting is the process of compiling and recording a company’s financial activities and transactions.
Accounting processes involve preparing financial statements and analyzing the financial information you’ve collected to assist you in making more sound financial decisions.
Business accounting is vital for your company for many reasons. It helps you track your business’s inventory, assets, and liabilities, it helps you secure funding and bring investors on board when needed, and last but not least, it’s necessary for tax and regulatory purposes.
Some of the primary small business accounting functions are:
A comprehensive accounting practice for your business ensures that it has a fiscal history at hand anytime it’s needed, such as when you might need financial statements for a business loan or in the event the IRS audits your business.
Typically, small business owners do their own accounting during their first few months or years in business. Accounting functions are usually more limited when a business owner takes on the role themselves. But ultimately, when your business grows, you need a comprehensive accounting system to ensure that your business is prepared no matter what happens.
Most business owners face some internal conflict when they have to relinquish control over any facet of their business. And that’s understandable. You built your company from the ground up, and you want to make sure it’s running smoothly. You have poured lots of sweat equity into your business and have a financial stake in it. A lot is riding on the financial success of your business.
But a jack of all trades is a master of none. Accounting is a time-consuming and arduous task for anyone, much less a small business owner whose primary goal is to grow their business.
And, just as no one can run your business better than you, chances are, a financial expert like a CPA or an accounting firm can contribute much to your business’s financial health. In fact, bookkeeping mismanagement and accounting mistakes are relatively common among small business owners.
Let’s face it. As a business owner, your time is limited. When you’re busy running your company, it’s not uncommon to realize that it’s been months since you’ve made an entry into your accounting books. This often leads to a domino effect where you inadvertently fall behind on reconciling your bank statements, sales tax account, and other tasks vital to your company’s financial health. When this happens, you don’t have up-to-date financial statements. It then becomes nearly impossible to secure financing or credit for your business or to make wise financial decisions. It can also impact your ability to sell your business if you decide to do so in the future.
This accounting mistake happens most often when your business is new. It’s a good idea to keep your personal and business finances completely separate. That way, you’ll better understand the revenue from your business, including the revenue you need to pay taxes on. It will also help avoid any auditing headaches that might occur later on.
In our digital world, most of us avoid paper trails. But business receipts are instrumental for solving an accounting mistake or answering a question about your books. They’re also vital in offering your business a chance to deduct many items on those receipts during tax preparation. It’s a good idea to keep all paper receipts in a safe place or scan them into your digital financial records.
Business owners sometimes buy accounting software on the fly, or use one suggested to them without doing much research. But all too often, they don’t spend the time needed to get acquainted with the program before they start using it. This can lead to accounting mistakes, or at minimum, they miss out on some of the benefits the software offers that could make their lives easier.
Bookkeeping errors are much more common when a business owner takes on accounting tasks. Many entrepreneurs tend to work on their books after hours when they’re more tired. Any mistake, from clerical errors to posting an entry to the wrong account to incorrectly classifying an employee to sales tax errors, can profoundly impact your business in a negative way.
Many business owners struggle just to keep up with the day-to-day operations of their business. This leads to a preoccupation with the here and now, and they lose sight of planning for their business’s future. Sound accounting practices should help you leverage your financial information for planning and forecasting your business’s growth, allowing you to avoid unnecessary financial risks.
Entrepreneurs are experts in their industry. But they rarely stay up to date on tax changes or compliance laws. This can lead to financial disaster for your business. On the other hand, financial experts and accountants are required to stay apprised of evolving tax codes and regulations.
There are times when a business owner will need to seek professional advice. As your business grows, accurate accounting becomes more complex (and more important). In fact, when you first started your business, accounting probably didn’t seem like a vital part of your business practices. Often, when business owners realize how big of an impact accounting has on their business, they quickly realize they’re in over their heads.
When you factor all of these things in, at some point, it makes sense to outsource your business’s accounting. And doing so actually provides some benefits to you as a business owner.
Your time is valuable, and your time as a business owner is better spent doing the things that add value to your business. This means working on your product or service line and understanding your customers’ needs. Outsourcing accounting also means you’ll have more time to build rapport with vendors and stay apprised of trends in your industry.
It seems like it’s a contradiction to spend money to save money, but often that’s precisely what happens when you outsource your business’s accounting. For one thing, if you outsource accounting rather than have a bookkeeping staff or do it on your own, you’re paying for services as you need them. You also won’t have to buy accounting software, computers for bookkeepers, and other related expenses.
Unless you hire a full-time in-house accounting department, CPA, or CFO, you won’t get an accounting professional that fully understands accounting practices and laws. A bookkeeping staff will be limited to basic bookkeeping functions such as payroll and general recordkeeping. In the long run, utilizing an outsourced accounting service could offer significant savings for your business by avoiding costly mistakes and trouble with the IRS. Outsourced accounting can also assist you with financial reporting, tax preparation, and more advanced accounting services.
Accounting professionals stay up to date with laws, regulations, best accounting practices, new technologies, and more to ensure that you get the greatest amount of value for your accounting needs.
Accountants can offer insight on how you can improve your business’s cash flow, reduce overhead costs, and more, helping you make informed decisions about your company’s finances. Better financial decisions often mean better profit margins for you.
For instance, maybe there are certain functions or applications that are integral for your business. An outsourced accounting professional can recommend software tailored for the tasks you most often need, whether it’s real-time financial reporting or scalable software that grows with your business.
KPI stands for Key Performance Indicator, and it’s a metric that enables you to measure the long-term financial performance of your business through its cash flow, working capital, ROI (Return On Investment), profit margins, and growth.
So now that you understand the advantages it can offer for your business, what are some signals that it’s time to get help from an outsourced accounting firm?
There are a few pain points that typically get business owners thinking that it’s time to outsource their accounting. These include:
For many business owners, any of the above is a sign that they need to get outside help with their accounting.
Here is how Biz2Credit’s CPA portal helped this New Jersey-based accounting firm focus its time and energy on providing its customers with best in-class accounting experience.
But you may also realize that you need to outsource accounting services when you begin to feel overwhelmed and realize you can’t be involved in every area of your business. If you’re stressed out, working weekends, or not spending time with your family because you’re trying to keep up with your books, that’s a great sign to outsource your accounting.
Growing businesses are more likely to need outsourced accounting services through an expert accounting team that can adequately manage the company’s finances.
If you are a small business owner looking to outsource your bookkeeping, check out our partner Bench, the all-in-one financial solution that helps you grow your business. Get your bookkeeping, tax prep, and filing done by experts—with unlimited advisory services.
There are many accounting firms that can help you maximize your business’s bottom line through best practice accounting solutions that can be tailored for your small business.
Contact Biz2Credit to learn how having your financials in order and using accounting best practices can help you secure a business loan. The experts at Biz2Credit were able to grant a New York real estate brokerage firm a line of credit for $300,000 because they were able to provide these important metrics in the loan application process.