Small and midsize companies are now starting to ask whether outsourcing some or all of the routine transactional accounting and bookkeeping tasks such as accounts payables, accounts receivables, payroll, tax filings and financial statement preparation is practical for them. The primary concerns when transitioning these functions are:



1. A change in their financial accounting process

2. Loss of control

3. Cost implication

4. Managing an employee verses managing a vendor

1. A Change in the Financial Accounting Process

A primary concern to any business and the employees of a business is change, especially changes related to the management and reporting of finances and income. Although changes present challenges to any business it is a given that all businesses will undergo transition and change. The changes can be planned for and managed or be forced upon management by external situations.

Implementing an outsourced accounting solution is a change that can be managed and implemented proactively. Outsourcing the accounting process provides a business owner with an opportunity to upgrade and improve on the current financial accounting system. The end result is improved internal efficiencies, the company positioned for long term growth and secure in the knowledge that it has implemented a comprehensive scalable accounting solution that will grow with the company.

2. Loss of Control

Outsourcing the routine back office operation such as accounts payables, accounts receivables and other bookkeeping functions places more control into the hands of the owner. The owner is no longer burdened with doing routine data entry or managing bookkeepers but rather can focus on critical tasks such as sales, marketing, customer service, operations. These are all core functions central to the success of the organization.

Freeing up the owner's valuable time coupled with having access to accurate financial information in a timely manner are critical factors in helping an owner understand and manage their business intelligently and efficiently resulting in them having more control of their business.

3. Cost Implication

The cost analysis for hiring and retaining a bookkeeper should go beyond just crunching the numbers of the hourly rate. The total cost of the bookkeeper should include all of the associated benefits, taxes, overhead, the cost of your time to manage that person and the cost to correct errors by the bookkeeper. Listed below are some of the typical costs associated with hiring, retaining and managing a bookkeeper. What you think is costing $25,000 to $32,000 for a bookkeeper may actually be costing $50,000 to $65,000.

Typical costs for a bookkeeper:

- $2,600/month of salary based on an hourly rate of $15/hour and a 40 hour work week

- $350/month for health insurance

- $100/month for the 2 weeks of paid vacation per year, that is taken by the bookkeeper

- $260/month for payroll taxes and workers compensation

- $520/month of overhead costs based on office space usage, computers, supplies, etc.

- $52/month for retirement benefits such as a 401K plan

Additional items not included above that drive up the cost of retaining the services of a bookkeeper is the amount of time an owner has to spend monitoring and managing a bookkeeper as well as hiring a CPA to correct errors and prevent fraud and embezzlement by the bookkeeper. If an owner's time is valued at $100 per hour and they have to spend three hours per week with the bookkeeper, then on a weekly basis the additional cost to the owner is $300 per week or $1,300 per month. In addition, if a CPA is hired at $200 per month to correct and verify the bookkeepers work then the total additional cost, including the value of the owner's time, is $1,500 per month or $18,000 per year.

Once each of the costs detailed above are factored in, the true cost of hiring and maintaining a bookkeeper on staff is $64,584 per year, more than double the annual salary of $31,200 per year.

By implementing an outsourced accounting solution a business can typically save twenty-percent to fifty-percent in accounting costs.

4. Managing an employee verses managing a vendor

In addition to the costs outlined above, managing employees can present additional challenges. These can include spending additional time hiring and training replacement personnel due to employee turnover, managing internal conflicts and running the risk of employee fraud and embezzlement.

Critical to the success of outsourcing your back end accounting functions is finding a suitable vendor that you can work with. The vendor should have a good reputation, be capable of processing your work on time, and have a system in place for processing the work and a means for communicating the status of the work being processed. Once a qualified vendor is identified and a system is in place, the process will appear seamless to your vendors, clients and employees.

Conclusions

Outsourcing the back office operations of accounts payables, accounts receivables, payroll and bookkeeping will continue to evolve and eventually become routine for small and mid-size companies. The benefits to outsourcing the accounting functions include improved efficiencies, more control, reduced cost, elimination of gaps in work flow due to employee turnover, improved financial reporting and minimized risk of fraud and embezzlement. All of these benefits will position your company for long term future growth.