Every stage of business growth places new demands on your accounting team. Whether you’re a small business with an administrative team of one or a larger organization with a fully staffed department managing the daily workings of your business, having competent and knowledgeable professionals managing your accounting is essential to your long-term success.
There are benefits at any size to outsourcing some or all of your accounting needs. We’ll discuss the most common (and costly) accounting mistakes, then examine some of the ways you can optimize your business through outsourcing.
The High Cost of Poor Accounting
Accounting is a field that requires strong attention to detail, organizational prowess, and the ability to stay current with ever-changing regulations.
While no accounting professional (or professional who is also tasked with keeping the books) sets out to make mistakes, mistakes do happen, and they can have significant consequences.
These are some of the most common poor habits and costly errors in accounting.
1. Delayed or incorrect expense trackingIf you have a small team managing a lot of moving parts in your organization, basic bookkeeping tasks like entering expenses and reconciling accounts can continually get placed on the back burner in favor of other duties that appear more urgent. When the urgency does strike (typically around tax season), the flurry of playing catch-up can lead to missed and misattributed expenses.
The cost: When expenses aren’t entered immediately, receipts can get lost or damaged, and poorly filed receipts are overlooked, resulting in missed write-offs and incorrect tax calculations. Additionally, when expenses aren’t properly recorded, a business’s balance sheet is off, making the business appear more profitable than it actually is.2. Manual data entryData entry errors can upend your accounting system. Common manual data entry errors include transposing numbers, over- and under-charging customers, applying payments to the incorrect invoice, and duplicate entries.
The cost: Improperly entered accounting data can lead to lost income, frustrated customers, and even additional IRS fines.3. Fines and fees for late payments and missed deadlines
Typical business costs include vendors who supply goods or services to your business, industry or networking-related memberships, estimated tax payments, and miscellaneous operating expenses. These accounts payable must be tracked and paid to remain in good standing.
The cost: Remitting payments past the due day may incur fees. Not paying estimated or annual taxes by the deadline will result in fines. If you routinely pay vendors late, they may choose to stop doing business with you.
4. Incorrect or incomplete tax filings
Filing business taxes requires an accurate accounting of your profits, losses, and expenses over the year. Poor accounting practices can lead to incorrect tax filings. When these errors are discovered, you will need to file an amended return to correct any errors in your taxes.
The cost: Incorrect and incomplete business tax filings can trigger an audit. Audits require an in-depth review of several years’ worth of tax documentation, tying up your administrative and accounting staff and diverting resources away from your daily work of running a business.
5. Outdated Software
Like any other software application, accounting software can become antiquated. Outdated software may expose you to cybersecurity risks as software vendors may not update security protocols on older systems. You may also find it hard to identify employees who know how to use the outdated software, or be unable to locate training programs that can support new employees learning the necessary skills to operate the software.
The cost: If vendors stop supporting antiquated systems, this could open you up to costly security breaches. You may also find you’re spending more time and money on recruiting or training efforts needed for employees to operate the system. There are also numerous cost-saving benefits provided by modern systems, such as customizable reporting, real-time dashboards, data analysis, multi-entity consolidations, and inter-company transfer automation.
Better Business Outcomes Through Outsourced Accounting
If your business accounting is currently being managed by an individual or small team overseeing all the administrative tasks (including the accounting), outsourcing some of those responsibilities can free up your workforce so they can focus on the work of managing your business.
Why is outsourcing accounting a smart business move?
Cash flow is key to growing your business. Outsourcing some or all of your business accounting functions can improve your cash flow by:
- Ensuring your accounts are regularly reconciled so you have an accurate accounting of profits and losses.
- Keeping tabs on expenses that allow your staff to flag opportunities for saving money.
- Producing accurate financial statements that can be used to secure new funding.
- Freeing up your administrative staff to focus on more important aspects of your business.
- Reducing or eliminating the time and expense of onboarding new accounting staff or accounting technologies.
How Do Outsourced Accounting Services Work?When you outsource your business accounting services, you are handing the most important administrative function of your business over to people who are passionate about accounting.
A reputable outsourced accounting service provider will work with you to determine your bookkeeping needs. Often these firms offer tiered services so you can select the level of service that’s right for your business.What services are offered through outsourced accounting firms?
Typical services offered by outsourced accounting firms include
- Managing accounts receivable and payable
- Regular account reconciliation
- Forecasting
- Expense attribution and reimbursement
- Payroll
- Regulatory compliance
- Tax preparation
- Custom reporting
What roles do outsourced accounting services fill?Many of the services offered by outsourcing your accounting services can replace the need for in-house bookkeeping professionals. A quality accounting service will be able to fulfill every role within the financial services sector that would otherwise be handled internally.
Some firms even offer CFO services. In this role, they act as your organization’s CFO, fully taking on that responsibility up to and including reporting to the board of directors.
If you aren’t interested in fully replacing your entire accounting staff, you may be able to find a firm that offers training and consulting to help you streamline your financial functions and get your team working efficiently.