When Should a Business Outsource Accounting?

Many businesses struggle with access to subject matter experts and other professionals because of budget and size constraints. For example, micro-business with less than five employees will have a hard time hiring help for tasks associated with taxes and accounting.

Nevertheless, these activities and responsibilities are not only mandated by law but are also necessary for a business to remain competitive and profitable. Such limitations can occur with small organizations that have any number of employees. The issue is financial limitation and the cost of hiring professionals in certain areas. This can be in any sector, including technology or accounting.

Therefore, outsourcing is a great way to offset the disadvantage of size and monetary constraints and gain access to experts without having to hire a full-time employee. 

Outsourcing Accounting Tasks is the Smartest Choice

For many businesses, an outsourced accounting services firm is a great way to offset many of the tasks that require expertise in an area that does not revolve around the businesses core competencies or what differentiates the firm. The fact is that, unless you own an accounting firm, these activities are outside of the scope of what the business does to generate a revenue stream.

This does not mean that the activities are not vital for survival, it just means that these do not add to profitability. Furthermore, hiring an accounting expert may divert funds from seeking assistance in areas that do generate sales. Essentially, businesses probably need to think about outsourcing their accounting tasks when these activities do not affect their competitive advantages or competencies.

The rule of thumb should be to outsource the activities that do not weaken the core structure and that others probably do a better job executing.

When a Small Business is Involved in Additional Activities

One of the greatest advantages of small businesses is their ability to be flexible, pivot, and adjust quickly to changing conditions. This means that they have the advantage of executing creative and innovative ideas much quicker than a larger organization given that they are structured to act.

Therefore, although disadvantages do exist, their size can be masked by partnering up with other companies that are experts in their fields. For example, many people invest in property that generate additional income from rentals. These activities may begin as a side project and grow. If a person were to handle the process alone, it would take a lot of time and resources to manage a single property.

However, some companies offer services like a free rental application or can help administrate rentals, thus reducing the complexity of the activities. For a small business or a person to handle these related tasks, they would need to hire personnel such as maintenance workers, accountants, and property managers—and this many hires would make such a small operation unprofitable. By outsourcing these tasks, the company owner can focus on growing the business.

A Word of Caution

Although many may be inclined to outsource all activities, thus generating a profit from simply administering the work of third-party companies, such a strategy may be short-sighted. A company may achieve success by obtaining help from an organization that specializes in a specific set of activities; however, success does not occur in a vacuum. Communication is paramount, and trust must be developed between partners.

Furthermore, externalizing core competencies would be counterproductive. What a company does well should always be internalized, and the organization must develop and use this as a competitive advantage. By outsourcing, essentially the business is giving away its differentiating assets.

Nevertheless, a company, for example, that excels in providing information technology services to its customers can focus on those services and outsource bookkeeping, accounting, and financial management tasks to others whose area of expertise revolves around those undertakings.