What is Outsourced Accounting?
Outsourced accounting is where an organisation hires an external third-party service provider to handle its accounting, bookkeeping, and financial management functions. Instead of managing these tasks in-house, the company contracts with an outsourced accounting firm or service provider to take care of managing all or part of their financial operations.
How Does Outsourced Accounting Work?
To understand how outsourced accounting works you must first be aware of the roles within the finance function, with some being more relevant once size and complexity are added to a business.
Board of Directors:
These often make decisions about governance, ensuring the business has good financial oversight.
CEO/Managing Director:
Make business decisions based on the information provided from the financial director/CFO and other departments
Financial Director/CFO:
These are generally a functional leader of the finance area of the business. They help with forward planning, financial strategy, managing debt, cash flow and reporting to the CEO or the Board of Directors. You can find more about Finance Directors here.
Financial Controller:
Ensure the day to day running of the finance function including ensuring bookkeeping is done correctly, data is structured in a way to be able to report effectively and reports are provided on time.
Senior Bookkeeper:
Ensure the accurate input of all sales and expense information. Sometimes involves the use of non-financial systems to connect data sources
Payable/ Receivables Clerk:
Sometimes also referred to as a bookkeeper and they are similar, but their role is normally limited to data entry on one part of the business; for example, raising invoices.
Of course, there are many more roles than those labelled above including payroll and tax roles, but the roles listed help answer our question about how outsourced accounting works. It’s also important to note that although you can outsource your Board of Directors (if you have them) or CEO/Managing Director, in most cases, these roles are filled with internal employees or stakeholders.
Although a good outsourced accounting firm can help with scoping out your requirements, it can help to have an understanding of what you actually want to outsource. A good place to start is to look at the roles listed above and identify what you’re looking for before looking to outsource is to have a plan of what you are looking for. Do you need support with financial planning or just help with data entry? Do you need to implement a new system or gain access to specific information? The answer to questions like this will determine the level of outsourcing you need and the type of accountant you need to work with. It’s a good idea to scope out the current processes you need outsourcing and an estimate on hours it currently takes. If it’s a new area, then creating a ‘draft’ process can be valuable to help you think about the various elements that make up that process and how it’s connected to other internal processes. These may not be the final process outsourced, but it helps you have clarity when speaking to outsourcing firms. For example, if you want to outsource payroll, do you want the payments to employees to be made? Not every outsourcing firm will handle money on your behalf or make payments on your behalf.
What are the Benefits of Outsourced Accounting?
Saving you Time
Outsourcing liberates the business to concentrate on its core competencies, as financial matters are entrusted to external experts. By offloading the accounting responsibilities to specialised professionals, you can focus more on core operations and strategic growth, while relying on the expertise of outsourced providers to handle financial tasks efficiently. This is especially helpful if you are a business owner who eventually wants to replace yourself in your business.
Skills & Expertise
Outsourced accounting firms typically boast a team of specialised professionals, granting access to a wider array of skills and expertise. This can be especially beneficial when certain financial tasks require specific expertise, allowing businesses to tap into the collective knowledge of the outsourced team. Moreover, the flexibility of an outsourced finance function enables businesses to adjust the scope of services as their requirements change over time, ensuring cost-effectiveness and tailored support.
Cost Effective
If you hire a finance director inhouse, but have them completing bookkeeping or financial administration then this is not so cost effective. This is where outsourcing can be more cost effective so financial tasks can be split across various roles. Some tasks might only require an hour a month or several hours a week which is very hard to hire for. In contrast, you can hire an outsourced finance function where you take advantage of using part of many employees' time, whether they act as bookkeepers, financial controllers, payroll clerks, finance directors or another finance role. You will generally pay a different rate or a package price for support that takes into account using different employees at different rates.
So in the early days of a business, when there is relative simplicity and low transaction volume, and when there is not enough work for a full, or nearly full time employee, outsourcing can be more cost effective.
Scalability
With the growth of a business, accounting needs inevitably evolve, requiring adaptability and scalability. Here, outsourced accounting holds a distinct advantage, as it can readily adjust to changing requirements. The flexibility offered by outsourced providers can allow you to seamlessly accommodate increased transaction volumes, complex financial reporting, and additional regulatory compliance.
How Much Should You Outsource?
When you look to outsource your accounting you can outsource your entire finance function or just a part of it. Some firms will be able to support in all areas whilst some can only help in one or two areas. See our blog about different types of accountants for more information about which accountants can support you in the different areas of your business. And the right move can depend a lot on the type of business you have, your budget and where you are in your business lifecycle. See our blog on when to hire an accountant for more advice on when you should hire an accountant for your business.
The Outsourcing Process
Once you’ve taken time to get a basic understanding of what you’re looking to achieve you can then look for an outsourced accounting firm to work with.
Stryde provide a full outsourced accounting and finance function across all four finance roles discussed and wider.
Before we begin with a client we take the following approach:
Step 1: Discovery Call - High level discussion to check if we can help or point in the right direction of someone else (15 mins) FREE
Step 2: Strategy Call - Detailed discussion identifying your current position, your future aspirations, the key challenges you’re looking to solve and to set a draft roadmap of how to get there. We’ll provide a recommendation on services if not moving to a Pre-Pulse. (1 hour) FREE
Step 3: Pre-Pulse - (optional) - We’ll spend time analysing existing systems and processes to check if a PULSE will be valuable and we can see efficiency gains/cost savings/ways to reduce error. FREE
Step 4: PULSE (optional) - We’ll deep dive into all your financial systems and processes, providing a report detailing how to improve them to save costs, increase efficiencies and ultimately give you more clarity in your finances. We’ll also provide a recommendation on what to outsource and what to keep inhouse to support your business goals. £
Step 5: Implementation (optional) - We’ll help implement the recommendations from the PULSE providing a full project implementation plan with suggested timescales. £
Step 6: Ongoing support - We’ll support with recommended services. £
If you are interested in booking in a discovery call please contact us today.
Ongoing Services
Once you’ve decided on the right outsourced accountant you might be thinking, how does outsourced accounting work from here? At this point firms work differently, here’s some examples of the ways this could work:
- Task based - you outsource by task, e.g. upload 500 receipts
- Project based - you outsource based on a project outcome, e.g. implement a new accounting system
- Closed retainer - You pay a regular amount (usually monthly) for a set list of activities to be completed e.g. Bookkeeping, VAT, Payroll, Management Accounts and Quarterly Meetings
- Hourly - You pay a certain amount per hour of time to get access to a certain type of specialism e.g. 2 hours of Financial Director support per month
- Open retainer - The same as closed retainer, but you allow the supplier to increase or decrease their bill depending on business requirements. You trust their expertise to make the right calls for your business. This is the most proactive form of outsourcing and can offer the most value, but there has to be high trust between client and supplier.
There are also mix and match models of the above, or some choose to stage their outsourcing starting with a project and moving to a retained approach. All these options are suitable depending on how you want to work with your outsourced provider and it’s worth discussing with them the best approach.
The exact scope of the services you have with your provider might change and indeed, it’s important that both parties discuss when they believe business requirements have changed in exactly the same way you would do if your accounting was completed internally; you would review to optimise based on new technologies, changing processes, legislation, or learnings.
And that’s why overall, the key to long term successful outsourced accounting is clear communication beforehand, during any implementation and also ongoing.
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