Outsourced accounting is getting a lot of buzz these days.

In fact, it’s one of the fastest growing services in the accounting industry. If you want to know why, here’s a quick explanation of what it is, how it works, and who it is — and isn’t — a good fit for.

What is outsourced accounting?

In a nutshell, outsourced accounting is a complete monthly accounting service for businesses that don’t want to handle all their accounting functions in-house. In other words, it’s a package of accounting services — typically including things like bookkeeping, payroll, A/P and A/R management, and financial reporting preparation — which is designed to replace the work that would traditionally be done by employees or staff.

How outsourced accounting works

On a practical level, outsourced accounting has two main ingredients: 1) a cloud-based accounting system (such as QuickBooks Online or Xero), and 2) an accountant or firm that logs in, completes their work online, and oversees your accounting system.

If you already have a cloud accounting system in place (and you set it up correctly), you’re half way there. If you don’t, you’ll need to weigh the pros and cons of switching because a cloud-based system is required for the type of full-service outsourced accounting we’re talking about here.

If you decide to explore outsourcing, you should look for an accountant who is proficient on the system you’re using and experienced enough to help you choose which services are appropriate for your business. There are no one-size-fits-all solutions with accounting — every business has slightly different needs, even in the exact same industry. Support is usually included with outsourced accounting, and the service is generally provided for an agreed-upon monthly fee.

Who outsourced accounting is — and isn’t — a good fit for

Just because outsourcing is now a hundred times easier for small businesses (thanks to the cloud), that doesn’t mean it’s the right strategy for every situation. For example, if you have enough day-to-day work to keep a full-time employee busy, or complex workflows that would be difficult for an outside accountant to understand, then outsourcing isn’t going to be a good fit for you.

However, if you have a small to midsize business with the right characteristics, outsourcing might be a viable option. In our opinion, the ideal scenarios for outsourced accounting include the following:

  • You need reliable accounting on a part-time basis.

  • You don’t want to hire an employee or build your own accounting department.

  • Your overall accounting needs are relatively straightforward — no fancy systems or complex transactions.

  • You’re tech-savvy and comfortable with the cloud.

  • You’re willing and able to pay for professional accounting services on a monthly basis.

  • You need a higher level of expertise — like Controller or CFO services — on a part-time basis.

If any of those descriptions rings a bell, then outsourced accounting might be the strategy you’ve been looking for.

One last thing you should know

In our opinion, there’s no such thing as 100% outsourced accounting. That’s an unrealistic idea because most businesses need to handle certain front-end accounting functions themselves — including things like processing sales, invoicing customers, and purchasing from suppliers.

However, those types of tasks are generally non-technical in nature and can easily be done by non-accounting staff or business owners themselves. After all, you don’t need an accounting degree to enter sales orders or purchase more peanuts and honey for your peanut-butter-making machines.

Instead, the ideal goal is to shoot for an 80:20 split. In other words: You handle the front-end functions and non-technical tasks (which tends to be 20-30%); and we’ll handle the back-end accounting, technically-demanding jobs (like account reconciliations, financial reporting, and tax services), and overall system design and maintenance (70-80%).

If that sounds like the type of approach you’re looking for, feel free to contact us for a quote. We’d be happy to take a look at your situation and help you figure out if outsourcing is a good fit for your business.

Additional resources

For a good general explanation of the outsourcing strategy: Investopedia- Outsourcing.
Here’s a nice infographic about outsourced accounting: Bill.com- Outsourced Accounting.