Outsourced Accounting Benefits, Risks and Challenges
- 10 Oct 2022
- 3 minutes read
Outsourced Accounting is a new trend that is being adopted at a very high pace globally. Analogous to every other advancement, outsourcing accounting also comes with benefits, risks and challenges. Accounting is one of the company's most critical segments; every decision you take in the field of accounting must be reviewed and reconsidered thoroughly.
Companies must have an internal discussion and meeting with the board of directors and investors before switching to outsourcing accounting. You must know the start and end of anything that you are adopting. Although outsourcing accounting has gained popularity over the years, it is not entirely free, and some challenges must be overcome.
Some companies can accept and deal with the risk of outsourcing accounting, while some firms are entirely against any risks. It is even more critical for firms not open to risks to know what risks are associated with outsourcing accounting. Conventionally, all businesses, whether huge multinational companies or small startups, had in-house or internal accounting teams.
An in-house or internal accounting team preserves the company's privacy. This comes with a lot of costs to the company as a dedicated workspace has to be given to the accountant, along with the highest salary that can retain the account in the firm must be provided to him.
Accounting costs were a huge challenge for startups and relatively small businesses, as in the initial days, spending so much on accounting was not possible for them. That's when outsourcing accounting came into the picture. One of the prime advantages of outsourcing accounting is that you pay on a pro-rata basis. Let's discuss on Outsourcing accounting more to get a more comprehensive picture of it.
Table Of Contents
- What is Outsourced Accounting?
- What are the benefits of Outsourced Accounting?
- What are the risks involved in Outsourced Accounting?
- What are the challenges that come with What is Outsourced Accounting?
- Summing Up
What is Outsourced Accounting?
Outsourced accounting is the scenario in which a business hires or makes an agreement with a third-party accounting service provider or an individual accountant (outside of their company- who doesn't enjoy the status of being a permanent employee of the company) to fulfil its accounting needs and handle the finance of the company smoothly.
The individual accountant for the accounting service provider charges the company according to the service they avail. For example, the company will be charged a different amount for its tax requirements and payroll services. Usually, outsourcing accounting firms offer a package that includes the most common accounting services.
What are the benefits of Outsourced Accounting?
- It reduces the expenditure of the firm and the overall accounting budget.
- The office space is not utilised, and you save money e.on infrastructure.
- Accounting becomes highly scalable; you can expand whenever you have a requirement.
- The overall accounting cost is low as the account doesn't enjoy the status of a permanent employee and does not avail facilities such as provident fund, house rent allowance, etc.
- Outsourced accounting firms offer a wide range of services, including payroll management.
- Since the fees are low, you may try to outsource maximum payroll and related financial services.
- They file your tax returns and tell me about the latest games and deductions you can avail of.
- The outsource accounting firm also does the budget planning and financial goal setting.
- The business owner gets time to innovate and focus on the business operations.
What are the risks involved in Outsourced Accounting?
- Outsourced accounting may lead to some hidden costs, as your charge on a pro-rata basis.
- There is a lack of control; as the content is working remotely, you cannot solicit too many questions.
- There can be some stability issues, as outsourced accountants mostly work on a contract basis. It may be hard to renew.
- There are times when the accounting work is less than promised; they might not give a refund in such cases.
What are the challenges that come with Outsourced Accounting?
- Communication gaps may be created eventually if the business owner is not very comfortable with virtual modes of communication.
- Language barriers can exist if your outsourced accounting service provider is from a different country.
- Some managers face the problem of lack of control over the outsourced accountant, as they work remotely according to this schedule.
- Sharing sensitive accounting data with a service provider may create new risks, as data can be easily manipulated or stolen.
- Companies pursuing innovation strategies reward their accountants for optimising procedures. Outsourced accounting curbs innovation.
"Outsourced accounting is more cost-effective than in-house accounting" you can always have in the back of your mind that this statement is not absolute. It is more applicable for small businesses where the accounting work is relatively less, and you don't need a full-time employee. But, if your firm is growing rapidly and substantial work is there, you must hire a permanent accountant and maintain an internal accounting team.
Before opting for outsourced accounting, you must thoroughly study it; as with many perks, it also comes with challenges and risks. Outsourced accounting is a boon for small businesses and startups, as by spending less amount of money, they can avail of decent quality accounting services.