Nearly 30% of all large businesses in Europe and the US now favour outsourcing bookkeeper functions. Since 1990 when the outsourcing movement first emerged, the growth in the US (according to Harvard Business Review) has risen to an estimated US$318 billion.
If you’re in a services business and you’re not already outsourcing your bookkeeping, here are 10 reasons why you might want to consider doing so.
1. Cost savings
Expect to see a small cost savings by outsourcing, but don’t make this the primary goal. The savings is likely to be 10% to 20% of the base wage of an in-house operator. Your primary motivation for outsourcing should be getting better financial reporting and advice. One key piece of advice now could save you tens of thousands of dollars later.
2. Manage less
Most business owners can only effectively manage a handful of staff. Consider hiring as many people as you can manage to carry out revenue-generating tasks and outsourcing other functions, including bookkeeping.
The management activities required for each additional staff person you hire can add up to 100 hours of a manager’s time in training, directing, salary negotiations, firing and hiring. Outsource and the 100 hours can be reinvested elsewhere. A professional bookkeeping company will shoulder the responsibility of replacing bookkeepers who leave and conduct necessary training.
3. Own less
The things you own own you. Every additional computer or software license you own is one more you need to track and manage. Apart from the upfront cost of purchase, troubleshooting these systems will add expense and require the business to learn new non-essential competencies. Outsource bookkeeping and you outsource ownership.
You save more than salary by outsourcing. Factor in employer taxes, health insurance, travel insurance, worker’s compensation, vacation pay and retirement benefits.
4. Increase effectiveness
Counting money won’t make more money. If you have spare time to build in-house accounting teams, inject it into the areas of the business which make money like your sales team. Outsourcing is not a perfect system, but compared to the alternatives its far more effective.
5. Do what you love
Not enough emphasis can be placed on this. No client I’ve every spoken to went into business for the love of administration. There’s nothing worse than an unmotivated leader to bring down the morale of the whole crew.
If you are still doing the books each month, stop today. Maintain your passion and do what you love most. You will excel at what you love most and are more likely to remain motivated.
6. Value creation
By engaging an outsourced bookkeeper, you physically restrict the number of hours you are exposed to bookkeeping per month. For most services businesses, one or two days per month is adequate. Tasks take as long as the time allotted to them. A full-time bookkeeper will occupy part of your day, every day. Outsource and instead focus adding value to your client’s business.
Rent constitutes one of the largest fixed costs for businesses. You want to maximise every dollar of this expense item and ensure the space is occupied by sales teams or producers who directly contribute revenue. If you pay S$6 per sq foot, how much do you make per sq foot?
You may want to keep the books confidential. One of the most outsourced financial functions is payroll. This is because payroll is complicated and many firms do not want to share salary details with internal stakeholders. By outsourcing bookkeeping, the accounts are one step removed from your staff.
9. Unbiased advice
In times of financial crisis, tough decisions need to be made. An outsourced bookkeeper will be more impartial than an in-house person, and will probably give you unbiased advice. Suppliers are also easier to let go of than full-time staff.
10. Improved control
Despite how it may appear, an outsourced bookkeeping company should provide you more control. Choose the software you want to use, the date each month the service is performed, the location and how reports are accessed.
When choosing a bookkeeping company, look for value in their advice and practices. Hiring one of the big-five accounting firms to do your monthly books is an over-kill. However, I recommend hiring a big-five firm to perform an audit and certify your financial statements if you plan to raise capital from investors.