Outsourced accounting: What are the benefits for businesses, and how does it work?

As your company grows, you may find it harder to keep up with all your accounting responsibilities, such as payroll, tax filing, and reconciling your accounts.

One common solution is to outsource your accounting, but what exactly does that involve? Who is responsible for what? And is it the right approach for your business?

In this article, we’ll explain what exactly outsourced accounting is, what it covers, and how it can help your company. We’ll also give you some key tips and insights into finding a provider and ensuring the process goes smoothly.

So let’s jump straight in.

What is outsourced accounting?

Outsourced accounting is the practice of using external professionals or service providers to handle all — or individual elements of — your accounting responsibilities, such as:

• Payroll processing

• Tax preparation

• Bank reconciliation

• Bookkeeping

One alternative, of course, is to hire an in-house accountant (or even a team of accountants). However, this might not be cost-effective and, as your company grows, it might not be scalable either. You may also be tempted to manage your own books to keep costs down but, without any accounting experience, it’s easy to make a potentially costly mistake.

That’s why many businesses — from fledgeling startups to multinational enterprises — opt to outsource instead.

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What are the benefits of outsourced accounting?

If you’re unsure of the benefits of outsourcing your accounting, consider the following:

It reduces overhead costs

As certified professionals, accountants don’t come cheap. The amount of work you have available may not justify hiring one in-house, even on a part-time basis.

When you outsource your accounting responsibilities, you can significantly reduce what you would otherwise be paying. For any business this is a plus, but for budget-conscious growth startups, this can be a game-changer, allowing you to focus funds and resources elsewhere. 

It grants access to specialized expertise

When you outsource, you’re tapping into decades of experience and expertise across multiple facets of accounting. This ensures you’re getting the best support and advice on a range of financial matters, from tax planning to financial forecasting and budgeting. 

It ensures you comply with local legal requirements

If you’re hiring across borders, you’ll have to recruit in-house accountants in all the countries you’re onboarding in. This can be costly and complex, especially if you don’t have legal entities in those countries.

When you outsource, you can leverage the expertise and experience of firms who are already established in those markets. This ensures that your tax and legal obligations are being handled by local accountants who understand local tax laws and regulations, and who are sufficiently qualified.

It frees up resources

If you’re a small business that manages its own books, you could be spending your time and resources elsewhere. After all, there are only so many hours in a day.

Outsourcing your accounting allows you and your team to focus less on numbers and legislation, and more on more strategic initiatives, like growing your business, running and improving your day-to-day operations, and building products.

Which types of outsourced accounting services are available?

When outsourcing, you don’t necessarily need to delegate everything. As a result, it’s helpful to understand what you might want to outsource, and what you might want to keep in-house.

Here are some of the standard services you can outsource:

Accounts receivable and accounts payable management

Accounts receivable (AR) and accounts payable (AP) are essential accounting functions for any business. They ensure the timely collection of payments from your customers for products or services sold (AR), and management of the money you owe to vendors (AP).

AR tasks you can outsource include:

• Issuing invoices to customers

• Tracking and recording payments received

• Conducting credit checks on new customers 

AP tasks you can outsource include:

• Reviewing and approving supplier invoices

• Reconciling supplier statements with company records

• Negotiating payment terms with suppliers

Outsourcing these tasks to professionals allows you to better manage your cash flow, maintain healthy relationships with your suppliers, and more accurately gauge profitability.

Payroll management

Payroll management is all about making sure your employees are paid accurately and on time for their work. In administrative terms It involves calculating wages, withholding taxes and other deductions, and issuing payslips.

You can outsource payroll management to an accounting firm, but it’s often easier, faster, and more cost-effective to use a global HR platform like Remote — especially if you have team members in different locations.

By adopting this approach for payroll, you can ensure that:

• All your team members get paid the right amount in the right timeframe

• All your data is streamlined and manageable in one place, as opposed to spread across multiple tools and sources

• You’re fully compliant with all employment and payroll tax laws in all the countries and individual states you have people in

• You’re kept up to date — and able to comply with — any changes to those laws

To learn more about how Remote can make your payroll operations quick and simple, check out our in-depth payroll processing guide.

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Tax preparation

Almost all companies must pay taxes on their income, regardless of where they are headquartered. But preparing taxes and complying with regulations can be tricky, especially if your business has a complex corporate structure. Many businesses outsource this task to a certified tax professional. 

You must also manage the relevant tax obligations for your employees and (in some cases) independent contractors. If you have team members working abroad, this can be confusing. Again, Remote can help ensure that you are withholding (and contributing) the right amounts of tax for your employees, regardless of where they are based. We can also help ensure that you are filing the right tax paperwork, including contractor paperwork.

As well as helping you comply with all relevant laws, this ensures that you are fully prepared if your company gets audited.

Internal audit

As a business, internal audits are an important tool for mitigating risk. They enable you to understand:

• If your operations are compliant with all relevant tax laws and regulations

• How effective your internal controls are

• If there any instances of potential fraud (or any other issues that could affect your company’s financial management)

Many companies outsource this task to experienced auditors, who can independently assess your company’s financial processes and even advise on ways to improve. 

Financial planning and analysis

To make the best possible financial decisions, it’s important to fully understand your company’s financial position and analyze potential outcomes. 

Many accounting firms specialize in financial planning and analysis, and can:

• Provide in-depth analysis reports to determine your company’s financial health

• Help you prepare budgets for upcoming financial periods

• Analyze financial performance against key performance indicators (KPIs)

• Create detailed planning models that inform financial strategy and decision-making

This can help you identify key trends and opportunities for growth, and make decisions that benefit your company’s bottom line.

How to outsource your accounting

If you’d like to outsource some or all of your accounting obligations, here’s how to get started.

1. Determine which accounting functions to outsource

First, analyze your accounting operations and determine which functions you’d like to outsource. Consider factors such as time spent on certain tasks, the level of expertise required, and the costs of performing these tasks in-house.

The goal here is to identify:

1. What can be handled more efficiently by an an external provider

2. If it will free up your internal team to focus on other important tasks

2. Research service providers

Once you’ve established what you want to outsource, the next next step is to identify who you’re going to outsource it to.

As a general rule, look for a provider that can work as an extension of your company and that can scale alongside yours. They should have:

• Relevant experience in your industry

• Expertise in the areas you need help with

• A proven track record of delivering results

• Strong communication skills

• Security measures for data protection

Directly engage with potential providers and request a meeting to discuss your needs. If possible, obtain references from past or existing clients too. Compare your options and choose a provider that meets your requirements and, of course, your budget. 

3. Establish a service-level agreement

When working with any service provider, it’s important to establish service-level agreements (SLAs). These lay out the specifics of the services provided and keep both parties on the same page.

In your SLA, ensure you clarify:

• What services (and level of service) is being provided

• What the delivery timelines are

• What metrics are being used to measure performance

• What the pricing structure for their services is

You should also specify what happens if the provider fails to meet any of these expectations. This could be anything from a partial refund for a late delivery, to termination of the contract in more extreme cases.

Establishing a SLA should, in practice, be fairly straightforward. However, if there is anything in the provider’s agreement that you’re uncomfortable with, don’t hesitate to challenge it or move on to another provider.

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4. Ensure your data is protected

Once you’ve signed an agreement, your service provider will need access to your data. Set up restricted user accounts, and only provide access to the systems and data that are needed for the provider to perform their tasks. 

Also, take all relevant steps to protect sensitive financial and employee information during data transfers. This will help minimize the potential for data misuse, keep your data secure, and ensure you’re compliant with any relevant data protection laws in your region.

5. Maintain regular communication

Maintaining regular communication with your provider is key to building a strong, collaborative relationship and addressing potential misunderstandings before they escalate. Set up check-ins with your provider every once in a while to discuss the partnership and convey expectations. This will help keep both of you aligned.

6. Continuously evaluate the partnership

As alluded to in the previous step, outsourcing isn’t a “set it and forget it” solution. As your business changes or grows, continuously assess whether the agreement is continuing to meet your business needs.

If the relationship is no longer providing value, or expectations are starting to fall short, you may want to take corrective action. This might include revising the SLA, or potentially scrapping it altogether.

What are the challenges of outsourced accounting?

As with all outsourcing decisions, there are risks to weigh up too. Knowing what these are can help you better manage them.

Some common challenges of outsourced accounting include: 

Loss of control over accounting processes

The obvious downside to outsourcing is that you cede control over the process. However, this can be mitigated significantly by choosing the right accounting partner and building a positive relationship.

At some point, you may find it more beneficial to move some or all of your accounting processes in-house. But the majority of companies just want to meet their obligations with minimal fuss, and entrust the heavy lifting to trained experts. If you’re communicating clearly with a trustworthy partner, this doesn’t need to be a negative.

Data security concerns

Data security is a serious concern for any business, as breaches can lead to financial losses, legal issues, and reputational damage. As mentioned, it’s crucial to take relevant precautions when sharing sensitive data with your provider.

You can also mitigate this concern by assessing the security measures of your potential provider. For example, Remote’s payroll services are protected by the latest ISO-standard security protections, with a 24/7 on-call security team. These kinds of steps can give you peace of mind and help ensure you avoid any costly slip-ups.

“Remote has complete ownership over its end-to-end operations, as opposed to relying on third-party entities. This approach is particularly beneficial because it allows us to have complete control over the data and mitigates the risk of uncertain data handling practices.”

- Marcelo Lebre, co-founder and CTO at Remote

Outsource your payroll management with Remote

If you’re thinking of outsourcing your payroll management, Remote can help. Specifically, we can:

• Consolidate your payroll processing

• Minimize administrative tasks

• Ensure compliance with local labor and payroll tax laws

• Reduce your payroll costs

• Make international payments and capital cash transfers

• Handle tax deductions and tax returns

We do all the heavy lifting for you, giving you peace of mind and allowing you to focus your time, money, and resources on running and growing your business.

To learn more about how we can help, speak to one of our friendly experts today — or check out our in-depth payroll processing guide.

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