Outsource Bookkeeping Services - Asian bookkeepers working sorting out financial documents

Written by Rene Mallari

Contents

Are you considering outsourcing your bookkeeping needs to efficiently record and organize your company’s daily income and expenses? Errors in your accounting will lead to financial losses and government fines. An outside expert can help you budget, audit, and advise you on how to avoid those accounting errors.

More and more businesses are outsourcing their bookkeeping because of the benefits it brings. The opportunity to work remotely and collaborate online also contributes to the uptrend. 

This guide will help you properly outsource bookkeeping services to benefit from it. Read on and learn more.  

How Do You Outsource Bookkeeping Services? 

Bookkeeping and outsourcing concept

This is perhaps the first question that comes to mind. But it is not really a hard one to answer. A quick online search of the keywords “outsourcing companies” or “outsource bookkeeping services” will show you business process outsourcing (BPO) companies or public accounting firms. 

However, the crucial question is: to which accounting firm or BPO company should you outsource your bookkeeping services? It should meet your business requirements and be within your budget. 

There are more than 46,000 public accounting firms in the U.S. According to a Bloomberg article, the global market size of BPOs will reach $620 billion at a compound annual growth rate (CAGR) of 8.5% by 2032. Many of these external service providers offer bookkeeping, accounting, auditing, tax consulting, and other related services. 

What Are Outsourced Bookkeeping Services?

Outsourced bookkeeping is a business approach allowing third-party vendors, BPO companies, or public accounting firms to manage your books and taxes for an agreed fee and time period. Many businesses use this strategy to cut operating costs and focus on their core business. 

Accounting or bookkeeping contractors manage your accounts receivable, management accounting, taxes, financial reports, payroll, accounts payable, bookkeeping, payment collection, and other similar activities. Most BPO companies and public accounting firms have access to the latest technologies such as cloud accounting software, making their processes faster and more secure. 

In addition, external service providers specialize in monitoring your cash flow, consisting of revenue and expenses. They are responsible for documenting your financial transactions and putting them into a ledger. Keeping your records organized and updated for easy use is one of their main tasks. 

Bookkeeping service companies can also handle your accounts payable and accounts receivable. They help you stay informed about all your payments. Following up on balances from clients or customers to improve revenue collection is also their strong suit. 

Finally, BPO companies can take care of your payroll. Your employees do not have to compute their salaries and proper deductions, including taxes, medical and dental benefits, insurance, and retirement plans every month. 

How Do Bookkeeping Services Work? Businesspeople meeting in an office analyzing financial graph

Bookkeeping services essentially help you handle and arrange the day-to-day transactions of your business. Availing your business of these services can also enhance your company’s long-term financial performance. Among the services offered are financial reporting, bill settlement, financial planning, payroll management, tax preparation and planning, cash flow management, and bank reconciliation. 

Bookkeepers are in charge of your financial information and government compliance by ensuring that your books are accurate and updated. They handle your accounts payable, accounts receivable, and daily financial entries. These professionals also conduct daily tasks, including general ledger entries, payment documentation, and periodic financial reporting. 

Bookkeeping Versus Accounting 

The Balance Small Business, an online resource for small businesses, explains the difference between bookkeeping and accounting.

Bookkeeping includes the initial steps in processing your financial transactions. A bookkeeper gathers, records, classifies, verifies, and organizes all your transactions based on your list of accounts (assets, liability, capital, revenue, and expenses). 

In contrast, accounting summarizes all the financial transactions a bookkeeper has recorded and organized. The financial summary can either be in the form of quarterly or annual reports for budget planning, tax preparation, and other related purposes.   

While the bookkeeper is in charge of the transaction details, the accountant goes over the books to review and analyze your financial data. The accountant also provides you with yearly financial statements that are easy to read and understand.   

The Balance Small Business article notes that the year-end reports the accountant prepares should comply with the Financial Accounting Standards Board (FASB).  This is an independent nonprofit organization tasked with establishing accounting and financial reporting standards for businesses and nonprofit institutions in the U.S. 

In addition, FASB provides a standard set of accounting principles and procedures known as generally accepted accounting principles (GAAP). Failure to comply with GAAP can be costly for your business transactions and lead to accounting malpractice. 

Can You Handle Your Own Bookkeeping?Surprised female bookkeeper manager at a workplace overwhelmed with tons on to do notes.

Regardless of your company’s size, as a business owner, you sometimes wear several hats to help your employees with their daily operations. These roles can range from marketing, sales, and customer service to accounting and bookkeeping. 

However, bookkeeping and accounting should be left to those trained in them. It takes years of discipline to develop the relevant skills. Unless you have earned a bachelor’s degree in accounting or a similar field, experienced professionals should handle bookkeeping activities. 

Although various bookkeeping software packages are available for purchase, these products do not totally guarantee that you can save money and time by doing the tasks on your own.

The Problems with the DIY Approach to Bookkeeping 

Using only your basic knowledge of the books and available software suites, the do-it-yourself (DIY) way of bookkeeping can disadvantage you instead of benefitting from it.

Recording and organizing your transactions with bookkeeping software are easier said than done. For example, browsing through the menus and applying the features of an application become complicated as you input more data. When cash flow is involved, it’s risky to use trial and error to get the right customization to suit your needs. 

The DIY approach in this particular field might cause more harm than good to your business. The crucial aspect of bookkeeping is accuracy. 

If you don’t have a solid background in the processes, errors in placing and classifying accounts can become frequent. This can pose issues when settling your taxes, making decisions based on your records, submitting your financial statements to banks for a loan application, etc. 

Moreover, handling your bookkeeping on your own will divide your limited time. As an entrepreneur, you should focus on more critical tasks such as generating more sales and maintaining major clients or customers. 

Is It Cheaper to Outsource Bookkeeping?

Is It Cheaper to Outsource Bookkeeping

Subcontracting your bookkeeping processes to a back-office outsourcing company can be a viable option. In most cases, this is better than the DIY method. 

With outsourced bookkeeping, you don’t have to build your own finance department and spend on hiring and training employees as well as buying hardware, software, and other needed equipment. Such expenses can be significant, especially if you plan to establish a sizable team. 

In-house Bookkeeping Versus Outsourced Bookkeeping

In-house bookkeeping pertains to the bookkeeping operations that your staff do for the company. To determine whether it is cheaper to outsource or not, distinguishing the in-house from the outsourced bookkeeping functions is vital. 

Having an in-house team means that you have to shoulder the employees’ salaries. You also have to consider the different overhead expenses. These include overtime pay, insurance coverage, paid time off, training expenses, and holiday pay. 

By outsourcing to a BPO company, you only have to pay for its services, and it will take over your bookkeeping processes. It has its own staff to perform the tasks and collaborate with you. 

Your in-house team generally works for you about eight hours a day and five days a week. You can contact this team anytime within that schedule. But during weekends or in unexpected situations, the team is usually not available.

With outsourcing, the team of bookkeepers of a BPO company can offer you long hours, even during weekends or holidays. You can reach them anytime and anywhere; most third-party vendors adopt mobile technologies that make working from home or away from the office possible.

An in-house bookkeeping team can be prone to fraud and malpractice because employees can access confidential information. A public accounting firm or a BPO company, on the other hand, practices compliance and transparency with its clients. 

Do Other Companies Outsource Bookkeeping?

The growing popularity of remote working, coupled with progress in digital technologies, has enabled businesses of all sizes to outsource some of their business functions. Small and medium-sized businesses (SMBs) depend on outside experts for back-office outsourcing services

Accounting and bookkeeping are among the services they outsource. If you’re running an SMB, you need a team of accountants and bookkeepers that are readily available. 

Nonprofit organizations and charities also benefit from outsourced bookkeeping. Many of these institutions run on a limited budget due to the nature of their operations. Recruiting their own dedicated accounting team is not feasible. 

Every Business Needs Bookkeeping 

Companies sometimes find it challenging to look for qualified and experienced full-time staff, including bookkeepers. 

The global health crisis has changed the job landscape. Many employees prefer work flexibility—where, how, and when to work. Staff turnover increases as a result. Outsourcing your bookkeeping services, instead of hiring regular workers who might leave your company anytime, can solve this problem. 

Whether your business is new or is already expanding, you probably should outsource bookkeeping services. It enables you to spend most of your time, effort, and money on your core business functions such as developing better sales and marketing plans or improving your products and services. You can focus on your growth strategy without being distracted by other tasks. 

If you run an enterprise that needs to hire only independent contractors and freelancers to perform tasks on a per-project basis, then outsourcing is the best option for you.

What Are the Advantages and Disadvantages of Bookkeeping Outsourcing? What Are the Advantages and Disadvantages of Bookkeeping Outsourcing_

Advantages of Outsourced Bookkeeping

1. High Level of Confidentiality 

Third-party vendors can keep your sensitive financial records private and secure. It’s often a struggle for you to hire an accountant or a bookkeeper who will stay with your company for long. Outsourcing your bookkeeping to an established and reputable external entity lessens the chance of financial data being disclosed to unexpected parties.

2. Fraud Prevention

Having a few employees handling your bookkeeping activities opens you to fraud or malpractice such as manipulating the books and fabricating account expenses that can be hidden from you for a long time. If you outsource your bookkeeping services, you and your independent partner can closely monitor your transaction processes and reports for higher internal control. 

3. High-quality but Low-cost Service 

Perhaps the biggest advantage of outsourcing is its cost-effectiveness. BPO companies generally offer affordable rates. Their base of operations is mostly located in India and the Philippines, where labor costs are lower. Both countries have a skilled and qualified workforce to perform these tasks. 

Disadvantages of Outsourced Bookkeeping

1. Partial Control

With an in-house team, you have full control over the financial operations most of the time. If you are an action-oriented owner who wants to personally track all your processes, outsourcing might not be your top priority. Subcontracting your bookkeeping activities does mean giving up some degree of control.

2. Tendency to Overspend

BPO companies charge based on the time spent on a task or the volume of work. The costs you incur to outsource vary depending on the amount of work done. If you don’t regularly monitor the running expenses, you might overspend on outsourced bookkeeping services.

3. Communication Issues

Since you partner with an external service provider that is hundreds or thousands of miles away from your office, communication might be limited compared to running an in-house team. This is a typical concern that you and your provider will have at the onset of your partnership. Setting up a solid communication schedule with your partner will resolve this issue.  

How Do You Know If You Should Outsource Bookkeeping Services? 

Bookkeeping tools - closeup calculator and spectacles near pen on paper

You should outsource bookkeeping services when:

  • Your company is growing or focusing on a growth strategy
  • Investors pour a significant amount of capital into your business
  • You are always late updating your books 
  • You want more refined but accurate financial reports for data-driven insights
  • You cannot maximize your tax deductions
  • You need to submit correct and detailed financial records for bank loans
  • You have difficulty complying with government standards
  • You can hardly monitor your accounts receivable and accounts payable
  • Your finance employees come and go frequently
  • The DIY approach is ineffective or costly
  • You need extra or temporary service to help you with recording and organizing financial data 
  • You can’t properly track your cash flow
  • You want access to the latest accounting technology that many third-party vendors provide
  • You decide to sell your company and want to maximize its value
  • You start to lose money because of continual errors in financial data recording 
  • You begin to lose your trust in your accounting team

Other indications can also help you decide if you should proceed with outsourcing.

When your business has shown some of these signs, you should decide and take action soon thereafter. Bookkeeping is a vital process that can make or break your company. You should give proper attention to this business function all the time.    

How Do You Know If a Company Offers High-quality Bookkeeping Services?

Your potential partner offers first-rate outsourced bookkeeping services if it provides you with a highly trained team and integrated technology. 

The prospect should have proven experience that shows its successful track record working with numerous startups and large organizations. Its specialists should use technology to spot-check their work and help them enter large volumes of financial data as efficiently as possible.

One example is Unity Communications. Since its establishment in 2009, the Arizona-based BPO company has garnered several global awards serving businesses of all sizes, catering to their various needs, from outsourced data entry services to general bookkeeping.

Other Considerations

Other Considerations for outsourced bookkeeping services

Privacy and confidentiality of critical financial information play an important role in bookkeeping outsourcing. A third-party vendor should keep client and customer data secure. 

The external service provider’s specialists should undergo regular security training to update their knowledge and skills. The vendor should also comply with government and industry regulations and be transparent about its security practices and policies with your business. 

Another factor to consider is how effectively your potential partner communicates with its clients and workplace. You should be able to contact it at any time. It should regularly update you on the status of the projects and work progress.  

Last but not least, the BPO company should offer you flexibility in terms of payment schemes, work volume, and job quota to accommodate your future needs. It should be open to early agreement termination if you find its performance below your expectations.

The Bottom Line 

Outsourcing bookkeeping services generally yields more benefits than drawbacks. But before hiring an external vendor, make a detailed list of the support and services you need. Don’t forget to define your business and financial goals from the start and convey these objectives to your prospect. This will give your potential partner a clear picture of what you want to gain from the partnership. 

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