Did you know that nearly 82% of small businesses fail due to poor financial management? That's why effective financial management is vital for any business, small or big.
Businesses often face many challenges, and finance management is one of them. That's why businesses spend capital and resources on recruiting, training, and retaining staff responsible for managing finances. But maintaining an in-house finance and accounting department can be time-consuming and expensive, especially for small and medium enterprises (SMEs.)
That's why many SMEs prefer outsourcing financial services as a flexible solution that fits their specific requirements and budgets.
This blog will explain how you can benefit from financial services outsourcing. We’ll also explain what kind of tasks you can outsource and how to find the right service provider.
What is Financial Service Outsourcing?
Any time your company hires an outside team of consultants, experts, or advisors to help with finance and accounting, this is called business accounting outsourcing. You can hire outsourcing financial services for both a permanent or temporary basis.
Financial services outsourcing refers to outsourcing several or all of your company’s finance and accounting functions to a third-party service provider. The company that you choose can handle all or some of your finance and/or accounting processes, from bookkeeping to tax returns. This saves a lot of hassles and costs involved in hiring an in-house team or managing finances yourself.
An outsourced finance team you choose should consist of experienced individuals who can provide the best quality results. Each professional on the team should be outstanding in their area of expertise, whether it's making capital strategy or financial reporting. In addition, the team should be available whenever you need them. Such a team helps create consistency, avoid stress, and ensures using best practices.
Benefits of Outsourcing Financial Services
Today, businesses, particularly small and medium-sized companies, need confidence, timeliness, quality insight, and reliability in their financial performance. Each of their financial transactions must be processed without any fraud or error.
You should be able to close books timely, create insightful financial statements, and provide accurate investor reporting. All these require financial leadership, which can be achieved with outsourced accounting services.
Here’re the most important benefits of financial services outsourcing:
Access to Global Talent and Expertise
You're restricted to the local talent pool when you hire an in-house team. But the right fit for your company may not be available within that pool.
On the other hand, when you decide to outsource, you can hire experts with specialized knowledge from across the world. Reputable outsourced firms employ highly trained accountants and finance professionals. They work with a variety of businesses across different industries and bring that experience and best practices to serve you.
Moreover, there may be fluctuating needs for bookkeepers, controllers, accountants, and CFOs. SMEs can't hire all of them. Outsourcing financial services may help receive any such services as and when needed.
What’s more? Time zone differences allow you to extend your company's working hours. So, you can benefit from the timezone disparity to boost your financial activities through proper management.
From hiring and training costs to infrastructure-related expenses, businesses have to shell out huge amounts of money to handle their financial and accounting management needs.
But with outsourced financial management services, these costs are cut down. You save on:
Hiring costs: You don’t need to spend time and money on finding the best talent. By outsourcing financial services, you can get started right away.
Training costs: Since outsourcing professionals are experienced in their area of expertise, they save you time and resources you might have to spend on training an in-house team.
Software pricing: Not using the latest software programs can make you lag behind in the competition. But these programs can add high costs to you. On the other hand, outsourcing financial services have access to updated technologies so that you can benefit from high-end tools at a fraction of the cost.
Infrastructural costs: By outsourcing financial services, you save on real estate rental, utility bills, and many other costs by financial services outsourcing.
Sometimes, you may need only 2-3 people to manage the current workload. You may need more people to handle the seasonal peak at other times. You can't keep hiring and laying off staff members.
But achieving this flexibility is easy with outsourced accounting services. You can either pay only for specific services rendered by the outsourcing provider or hire a full-time team. It’s possible to convert fixed costs into variable costs and invest capital in other areas.
Improved decision making
If you handle your company's finances yourself, there's a fair chance that you don't find time to assess your financial situation. It’s because you’re often caught up with endless duties in addition to running your business. So, it’s unlikely that you’re able to make sound business decisions that align with your financial situation.
By outsourcing financial services, you can free up time for other business activities while still being able to keep a tab on your financial picture. The outsourced team keeps you updated on everything with regular financial reporting. As a result, you can make better decisions to ensure business growth and profitability by outsourcing financial services.
A dedicated and good outsourcing service provider follows strict practices and protocols for data protection, security, and client confidentiality. There is no chance of fraud as the external team closely monitors and regulates your accounting and financial activities to ensure everything is on track.
Meeting compliance deadlines
Failure to meet regulatory compliance deadlines can significantly affect your business. It can result in hefty fines or other non-monetary penalties for your business and you personally. For example, non-compliance with deadlines may cause problems in acquiring tax rebates or refunds due to your business. It can also cause trouble when renewing your trading license.
By outsourcing financial services, the external team ensures that your business returns are updated timely. In addition, they ensure that all your business-related financial obligations are fulfilled, and compliance requirements are met.
What Kind of Financial Services can be Outsourced?
The goals and needs of your company determine what kind of tasks you can hand over to your outsourced financial management services. Generally, SMEs often outsource forecasting, budgeting, variance analysis, bookkeeping, cash flow management, etc. Different types of financial and accounting services that can be outsourced are:
Bookkeeping is a time-consuming, repetitive task that demands high-level accuracy. Bookkeeping outsourcing services handle this monotonous task while delivering comprehensive reports. These reports can provide better visibility into your company’s financial data and support informed decision-making.
Moreover, bookkeeping outsourcing provides access to highly qualified bookkeepers who use the latest technology to ensure secure, accurate, and error-free data.
Accounts Receivable/Accounts Payable (AR/AP) Management
Outsourcing financial services for AR and AP ensures that you’re paying you on time. They can handle all or any of the following tasks:
- Invoice imaging and storing
- Invoice approval
- Online payment approval
- Check processing
- Vendor inquiries handling
- Order management
- Billing and payments
- Collection management
- Debt management
- Cash forecasting and reporting
As a result, you can stay focused on revenue-generating tasks like acquiring new clientele, building business strategies, improving customer experience, etc.
Preparing financial documents and reports requires accounting experts and a team of Certified Public Accountants (CPAs) who consolidate your income and expenses through financial statements. CPAs record and update your account books while ensuring the security and accuracy of your financial data. Outsourcing financial services to a skilled team of CPAs also creates financial reports for your board members, the general public, and stakeholders.
Financial Planning and Analysis
Your outsourced finance team can provide a detailed evaluation of your company's financial health so that you can make the right business decisions. Outsourcing your financial planning and analysis gives you access to useful resources 24/7. You can access the required financial data anytime you need:
Your outsourced partner can offer the below functions efficiently:
- Preparing management reports
- Data collection and analysis
- Audit support
- Board and bank reporting
- Investor reporting and communication
- Planning, budgeting, and projections
- Creating reports for cash flow forecasts
Cost accounting is the core of accounting, and it determines the actual costs of any service provided by your company. Cost accountants work collaboratively with supply chain, manufacturing, R&D, and marketing functions to help you make the right pricing decisions.
Business accounting outsourcing makes it easy and smooth to scale up and down your resources according to your growing business needs.
Tax Reporting and Filing
A reliable outsourced financial management services firm can ensure your compliance with federal, state, and local tax laws. They help avoid vulnerabilities to financial and accounting computation errors that can affect your business in the long run. CPAs employed with your outsourcing financial services provider can submit your taxes timely and help with other functions like:
- Preparing federal and state income tax returns for your business
- Tax assistance
- Franchise tax support
- Collecting, filing, and paying payroll tax
- Tax planning
- Recording and reviewing tax statements
Other tasks you can delegate for outsourcing financial services are:
- Payroll processing
- Forensic accounting
- Controller services
- And more
By now, you should be clear about how beneficial outsourcing financial services can be. Finally, make sure you hire a reliable outsourced partner with a team of finance specialists and serve as your complete solution for finance and accounting management. Ultimately, they will scale with your growing needs and help your company achieve the desired growth.