Automation vs. Outsourcing: What Is the Best Accounting Strategy for Your Dallas SMB?

Efficient accounting is crucial to scaling small businesses in Dallas’s competitive landscape. Thus, entrepreneurs must either automate their accounting tasks or rely on business process outsourcing (BPO) providers. Either strategy has advantages and disadvantages, depending on several factors. 

If you are unsure whether to partner with a BPO provider in Dallas, Texas or invest in automation tools, continue reading. This article explores the key differences between the two strategies. It also discusses the key factors Dallas businesses must consider when choosing between accounting automation and outsourcing.

Why Efficient Accounting Processes Are Critical for Small Businesses in Dallas

First, let us discuss how Dallas small and medium-sized businesses (SMBs) can attain accounting efficiency through automation, outsourcing, or a mix of both strategies and why it is important.

According to a report by the Dallas Regional Chamber, the Dallas-Fort Worth area is one of the most affordable large metropolitan areas in the U.S. This low cost of living makes the area attractive to businesses from various industries, including technology, healthcare, and finance. The city is also home to several Fortune 500 companies, making its corporate landscape competitive.

These factors impact local companies’ need for efficient accounting, especially small businesses. They must tightly manage their finances to keep up with the competition and remain cost-effective.

Some specific ways efficient accounting can help small businesses scale are:

• Reduce costs and improve profitability. Small businesses can better understand their financial health by accurately tracking their income and expenses. They can identify areas to cut expenses or increase rates to improve cost efficiency and save money.
• Make better financial and business decisions. With accurate accounting data, small companies can determine the effectiveness of their operations and campaigns. They can make informed changes about pricing, inventory, marketing, and other aspects. Accounting data can also help identify expansion opportunities.
• Comply with accounting laws. Complex and diverse regulations cover Dallas small businesses. These rules include the Texas Business Organizations Code, Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), etc. Accurate accounting data makes complying with these regulations easier.
• Attract investors and lenders. Accurate accounting records can help demonstrate that a company is a sound investment. With better financial health through accounting, it may be easier for small businesses to find shareholders and creditors willing to invest money in their enterprise, helping raise their capital.

Unfortunately, accounting tasks, such as data entry, invoice processing, and payroll processing, can be time-consuming and repetitive. Small businesses might have limited resources and staff to streamline these procedures. 

Thus, businesses rely on automation tools and BPO to enhance accounting efficiency. But what is BPO compared to automation? Which is the better choice for Dallas SMBs’ accounting needs: automation or outsourcing? Continue reading to learn the pros and cons of both.

Automating Accounting Processes

Accounting automation involves using technology, specifically cloud-based automation tools, to streamline processes. According to Investopedia, QuickBooks Online, Xero, FreshBooks, and Wave are the best accounting software for small businesses. 

Benefits of Accounting Automation

Accounting automation tools are generally great investments for small businesses. Here are specific ways automating accounting processes can be cost-effective for SMBs in Dallas:

• Reduced labor costs. By automating accounting functions, small businesses in Dallas can eliminate the need to hire additional in-house staff. This is especially advantageous considering the city’s staff shortage crisis and compensation costs.
• Increased accuracy. Local small businesses can reduce the risk of human errors by automating tedious accounting functions, such as calculations and data entry. It can also prevent costly mistakes like late payments and overpaying taxes.
• Updated financial data. Generating real-time accounting records can take longer with manual data entry and processes. Automating such tasks speeds up the process, providing entrepreneurs with instant access to updated financial information.
• Improved scalability. Automated accounting allows small businesses to handle high transaction volumes without hiring additional staff. It also prevents accountant layoffs when there is less work. Rehiring can be challenging due to Dallas’s labor market surges. The region reports adding 20,000 more financial services jobs.
• Maintained control. Most accounting automation software and tools allow business owners to set up access controls and permissions for sensitive financial information. This feature helps lessen the risk of data breaches caused by insider threats.
• Enhanced cybersecurity. Automation tools can track all financial transactions, making it easier for small businesses to detect suspicious and fraudulent activity. With proper measures, SMBs can ensure that the data stored in automated systems is secure. 
• Simplified training. Employees may require training to use the software effectively, but this is typically less extensive and more practical. Accounting process training can teach staff skills and information they might not need.

Accounting Tasks to Automate

Dallas SMBs should consider the accounting tasks they want to automate or outsource when deciding between the two strategies. They can fully automate repetitive, manual accounting tasks, including

• Data entry: capturing data into a computer system
• Invoice processing: reviewing and paying invoices from suppliers and vendors
• Expense management: tracking, monitoring, and controlling business expenses
• Payroll management: calculating wages, deducting taxes, and issuing paychecks
• Bank reconciliation: matching bank statements to accounting records
• Accounts receivable: managing the money customers owe the business
• Accounts payable: managing the business’s owed money to suppliers and vendors
• Tax compliance: counterchecking if the company complies with applicable tax laws
• Financial reporting: preparing statements on the business’s economic performance
• Inventory management: tracking the flow of business goods and materials

Drawbacks of Accounting Automation

Dallas SMBs benefit from accounting automation because it is easier than managing and maintaining a team of professionals. Before deciding, consider outsourcing strategies and the downsides of automating accounting processes. Here are some of its drawbacks:

• Added learning curve. Learning and adapting to new accounting automation tools takes time and effort, which can be limited. Staff are likelier to commit mistakes during their first few attempts at using the software, increasing the risk of data errors.
• Minimized personalization. Automation can make it difficult to tailor accounting processes to specific business needs. This can be problematic for Dallas small businesses that follow diverse federal and state tax regulations and have complex accounting needs.
• Extra overhead expenses. Accounting automation software can be costly. Although tools are becoming more affordable and accessible, small businesses might need more expensive software to meet their accounting needs.
• Decreased human oversight. Even the best accounting automation software is not perfect, and the risk of errors is always present. Without human accountants to oversee processes, errors might not be solved immediately or go undetected altogether.

Outsourcing Accounting Processes

Business process outsourcing is delegating non-core tasks, such as accounting, to a third-party provider. BPO has become a popular business strategy. According to Grand View Research, its market value of $56.42 billion is expected to grow by 9.1% in the next seven years.

Benefits of Accounting Outsourcing

Outsourcing accounting processes is a cost-efficient way for small businesses in Dallas to improve operations and profitability. Here are more specific ways BPO providers help local companies scale in the city’s competitive landscape:

• Guaranteed acquisition of experienced labor. Outsourcing providers have a pool of talent skilled in and trained in accounting functions. This advantage helps small businesses overcome the challenge of finding qualified staff in Dallas’s robust labor market. 
• Assured access to advanced technology. BPO companies leverage sophisticated accounting software and tools. These technologies include cloud accounting software, artificial intelligence (AI), machine learning (ML), and robotic process automation (RPA). 
• Improved focus on core competencies. Outsourcing takes time-consuming and repetitive accounting processes off the plates of entrepreneurs and in-house teams. They can give their full attention and energy to central business matters and operations.
• Increased flexibility and scalability. Local businesses can tailor outsourcing services to their needs. They may outsource all accounting functions or just specific tasks. The approach also allows them to manage fluctuating volumes without incurring extra costs.
• Reduced operating costs. Outsourcing is less expensive than hiring in-house staff. With skilled accountants on the job, small businesses can cut recruitment and training costs. They no longer have to invest in technology since BPO providers leverage tools. 
• Ensured regulatory compliance. Accounting BPO teams are well-versed in the different federal and state laws that govern small businesses in Dallas. Since they solely focus on accounting tasks, SMBs can avoid costly penalties due to errors and delays.
• Enhanced efficiency and productivity. Business operations can be streamlined with internal resources and the in-house team focused on core competencies. The expertise, technology, and scalability offered by outsourcing also contribute to overall efficiency.

Accounting Tasks to Outsource

Small businesses can rely on BPO providers for several accounting functions, such as outsourced payroll. Additionally, most third-party vendors leverage advanced technology and can offer automation solutions along with expert teams.

In addition to the accounting functions listed in the automation section, outsourcing for small businesses also covers simple to complex tasks such as:

• Budgeting and forecasting: creating a plan for how the business will use its money
• Financial planning and analysis: futureproofing the business’s finances through data
• Internal controls and audit preparation: imposing strategies to prevent financial fraud
• Tax planning and compliance: identifying eligible business tax deductions and credits
• Accounting software implementation and support: helping find and use the best accounting tools for the business
• Management reporting: presenting analyzed financial data to business managers
• Financial statement preparation: preparing balance sheets and income and cash flow statements

Drawbacks of Accounting Outsourcing

Dallas SMBs greatly benefit from subcontracting accounting functions, but as with automation, outsourcing has its risks. Below are the common downsides to outsourcing accounting processes:

• Minimized control. When small businesses outsource back-office services, such as accounting, they also delegate the responsibility of managing these functions. This power transfer can increase the risk of errors, costing SMBs significant money.
• Reduced visibility. Outsourcing accounting functions can make it difficult for small businesses to track real-time financial performance. It can also cause delays in spotting and resolving problems early on, reducing companies’ ability to make timely decisions.
• Elevated security threats. Dallas is an attractive target for cybercriminals worldwide due to its business landscape. With limited control and visibility over accounting tasks and records, local companies are at risk of data breaches, identity theft, and financial fraud.
• Increased communication issues. Outsourcing to a provider, especially from another location, can be challenging. Differences in time zones, languages, and cultures can lead to miscommunications, delays, and errors detrimental to scaling small businesses.

Comparative Summary: Automating vs. Outsourcing Accounting Functions

Automation and outsourcing benefit small businesses in Dallas in several ways. They help local SMBs gain a competitive advantage by saving time and money, improving accuracy and productivity, and scaling functions. 

To help Dallas SMBs better compare the two accounting strategies, here is a table summarizing the benefits of automation versus outsourcing.

Considerations for Dallas SMBs: Accounting Automation vs. Outsourcing

Automation and outsourcing are both strategies SMBs can use to improve the efficiency and effectiveness of their accounting functions. However, whether to automate or outsource such tasks depends on small businesses’ specific needs.

Here are four factors to guide small businesses in Dallas when deciding between the two strategies:

• Business objectives. Small businesses must ensure their chosen accounting strategy aligns with their vision and capacity. This practice allows them to maximize the unique benefits of automation or outsourcing to meet and exceed their business goals.
• Operational complexity. Outsourcing and automation can significantly change small businesses’ accounting tasks. Carefully assessing processes can help minimize disruptions that may cause financial losses due to delays and missed payments.
• Budget and resources. By evaluating their financial health, local businesses can choose a more cost-efficient solution between automating and outsourcing accounting tasks. Reviewing the long-term costs and resources needed to manage both options is crucial.
• Need for expertise and software. Identifying which accounting tasks lack efficiency can help small businesses determine the best strategy for their operations. While BPO providers cover broader accounting functions, some processes cannot be automated.

Small businesses in Dallas might still find it challenging to decide between accounting automation and outsourcing. Fortunately, they can combine both strategies. 

Although most BPO providers already use automation tools, SMBs can still invest in their software while outsourcing accounting processes. The two strategies are ideal for small businesses to benefit from each other and save costs.

The Bottom Line

When choosing to automate, outsource, or both, small businesses in Dallas should assess their goals, needs, budget, and accounting processes. These strategies offer unique benefits that can enhance the accounting process’s efficiency. 

Each strategy has its drawbacks. However, automation and outsourcing provide many benefits that can give SMBs a competitive advantage in the city’s bustling corporate scene.

Let’s connect if you want to outsource or automate your accounting processes. Partnering with Unity Communications allows you to outsource functions and automate tasks without upfront investments. Our BPO company has skilled accountants and the latest tools to meet your accounting needs.