Starting a business and then growing a business into a successful enterprise comes with challenges and obstacles on the journey to success.
There are many facets to running a business. As a business owner, you can’t reasonably expect to handle everything yourself. Outsourcing is an excellent way to source services for a business. Outsourcing is often more affordable and more effective. The owner of any sized business with a goal to grow can benefit from outsourced accounting. Here’s how:
Outsourced accounting helps to save money that can be reinvested
When a business chooses to outsource its accounting services, it eliminates the cost of a full-time salary while offering support services as well.
Hiring a full-time accountant comes with a significant cost. Salary, payroll taxes and benefits, software, equipment, furniture and space all need to be considered.
The money saved with outsourced accounting can be used by the business to accelerate growth or invest in areas that will help the business grow.
For a more in-depth discussion, check out this YouTube video where I discuss how much outsourced accounting costs and how it can save you money.
Outsourced accounting is scalable
Many startups have a goal to scale up and grow fast. For many, this is the only way to disrupt and sustain itself in an industry. If a business is not able to scale quickly, it might lose to a competitor who can scale faster.
If the business wants to grow and scale, by outsourcing their accounting they can do so quickly because they do not need to invest in infrastructure to support full-time accountants. The business simply needs to update the agreement with the outsourced accounting firm. Outsourcing your accounting will transfer the headache of scaling an accounting function to another firm with more skill and experience.
Check out this Quora post for a list of all the accounting practices a startup should put in place.
Outsourced accountants promote good business habits
Good business means paying attention to the details, staying compliant with state and federal tax laws and implementing best practices with business development and operations. Having a clear understanding of the profit and loss (P&L) statement, the balance sheet, margins, expenses, revenue, cash flow and more are all part of running a successful business. Unfortunately, it’s not uncommon for many businesses to fall short on good business habits.
Good business is partially the result of having the right software and analytical infrastructure in place. Should you use QuickBooks Online, QuickBooks Desktop, Xero or something else? Should you use Cloud Accounting (what is this, anyway?) or Desktop Accounting? What kind of data should you be collecting in your business? Then, what sorts of KPIs can you track based on that data? Finally, the proper accounting and data infrastructure will allow for the highest probability of success.
In an outsourcing arrangement, accountants are paid to handle tasks business owners don’t have the time to take over — including data entry, bookkeeping, tax preparation, financial reporting and data analytics. Outsourced accountants execute such tasks day in and day out — something that is often missing from the businesses’ internal skill set.
Outsourced accountants promote business analysis
Business analysis is fundamental for any business that wants to grow. When business owners outsource accounting services, they are assured of a consistent stream of timely, accurate information to inform strategic decision-making.
Timely, accurate financial data, combined with non-financial data, is essential to help business owners and decision-makers in strategic planning and operations.
Outsourced accountants help determine the burn rate
Burn rate in business is the rate at which a business burns resources, especially financial resources, and how long it has been burning such resources. In a business sense, “resources” generally means cash. Businesses use the burn rate to understand how they are burning money over time. Understanding burn rate will inform how much capital a business needs and how long the current cash balance will last.
A good accountant will pay close to the burn rate of a business. This assists the leaders of a business in identifying the magnitude of expense cuts and/or revenue increases needed to sustain the business’ operations. In other words, the burn rate assists in determining if capital is sufficient and in establishing if a business needs to raise more capital.
A good accountant will advise as to the cadence and timing of periodic cash flow analysis. Cash is king in a business – it’s basically the lifeblood. Therefore, keeping a close eye on the cash flow of the business is critical to sustainability and future success.
Outsourced accountants offer unbiased advice
Every business journey is unique with its challenges and life lessons. One of the best ways to learn in business is by learning through the mistakes of others. Experience leads to a wide-ranging perspective from which to draw actionable advice.
Experienced accountants have witnessed businesses from a variety of industries grow, have observed stagnation and worked closely with mature businesses. Consequently, such accountants can be an excellent source of advice due to such extensive practical experience. Additionally, outsourced accountants can be a good source of unbiased advice.
Outsourced accountants help obtain financing
Lenders and potential investors will often require proper financial reports and records. Outsourced accountants are able to prepare financial documents to show the financial position of a business.
These documents are requirements for potential investors to consider supporting a business. Having proper business records will increase the odds of being funded.
Outsourced accountants relieve management of extra burden
Busy is the new stupid. Don’t be so busy.
I recently came across a video of Warren Buffett and Bill Gates suggesting “busy is the new stupid”, and that idea really resonated with me. In fact, the next three books I read, all quoted below, hinted at the same thought albeit in more roundabout and/or eloquent ways and in slightly different contexts.
“The dilemma in many firms is that they are allocating a disproportionate share of their resources in perpetuating yesterday and today rather than creating tomorrow.”
- Ronald Baker, Implementing Value Pricing
“…awareness and anticipation can be very difficult if we’ve all got our heads down and are focused on merely executing the current plan. This doesn’t mean a focus on execution isn’t important – it is – but it’s just as critical to focus on elevating the relevancy of our planning based on new, disruptive game changers as they emerge.”
- Daniel Burrus, The Anticipatory Organization
“Yes, a leader needs to spend some time cutting and clearing and stacking trees and showing how it’s done. That’s called ‘working in the business.’ He also needs to spend time – the larger the business, the more time – climbing trees and drawing maps. That’s called ‘working on the business.’”
- Ivan Misner, Givers Gain
Odds are, you went into business because you knew how to do the work, and you like doing it. Likely, that doesn’t include accounting, HR, IT and other back office tasks.
As a business owner’s time is best spent on activities that add value for their customers and their employees. Unsurprisingly, mundane back office tasks do not add value. Outsourcing accounting frees up time for the business owner and staff to focus on other pressing needs. Narrowing down the focus can help the management team to be more effective and productive.
Outsourced accounting is a great option for business owners to help grow their business. By outsourcing your accounting, you can save money vs. hiring a full-time accountant. Plus, it will free you up to focus on creating value for your customers and your employees. Accounting is all about providing timely and accurate financial information to decision-makers to allow for strategic decision-making. If your business falls flat in this area, you should know there’s a better way forward.