As the number of startup companies continue to grow in today’s economy, the need for competent and professional accountants and CPAs follows a parallel path. Are you one of these entrepreneurs spending countless hours attempting to wear the hat of founder/owner and accountant? While you may think that doing everything yourself is the best way to save money and cut costs, more and more entrepreneurs just like you have been looking to outside companies for assistance due to the complexity and time consuming nature of accounting and tax compliance matters. Outsourcing work that is neither your passion nor a strength can help keep your business running efficiently while you focus on your core competencies and growth initiatives. From accounting to marketing to IT, there are companies out there that will make your life easier. Despite this fact, many are resistant to spending money on accounting services. However, to convince you otherwise, we’ll look at six benefits of outsourcing your accounting department for your small business.
1. Having a bookkeeper and controller that will be able to provide well organized financial information will be extremely helpful when looking for outside financing.
At some point in the early growth stages of your business, you may come to a point where you require capital in order to keep your business up and running. By having well kept financial statements that clearly portray the current position of your business, as well as potential growth opportunities, it is more likely that you will be able to convince venture capitalists or other types of investors to give you money. Your accounting service providor will be able to set your company apart due to current and accurate bookkeeping practices as well as clear financial statements that other firms may not otherwise have.
2. By having your accounting done right from the very beginning, you will end up forming habits that will make your business run more efficiently in the future.
For many entrepreneurs, bookkeeping is simply collecting receipts and shoving them in the bottom drawer of your desk. Yes, you may have all of the information, but come tax time, your life will not be pleasant. By outsourcing your accounting services, you will develop good business habits that will allow your business to run more efficiently. You will know where all of your money is going and you will also be able to identify where expenses need to be minimized. Most importantly though, you will be able to learn the process of bookkeeping from your accounting service provider– which will help you to gauge the true financial health of your company on a regular basis.
3. Accounting firms will be able to take on more responsibility as your company grows and scales.
You may think that you do not need a full service accounting service right from the inception of your business, but the great thing about the right accountant or CPA is that they likely offer service packages that cater to your company’s specific needs. You may start out just utilizing the basic bookkeeping and tax services, which could easily be done by an in-house employee, but should your company take off and achieve substantial growth, your needs will increase. By outsourcing your accounting at the beginning you will save a lot of time and unnecessary work down the road when you need to transfer from an in-house bookkeeper to an outsourced accounting service.
4. You will get reliable advice from your accounting service that could save your company from failure.
Many startups fail because they do not truly understand the financial well-being of their company. By outsourcing your accounting department, you will be able to ask for advice and recommendations from experts that you know you can trust on how to best grow your company. You can be the best record keeper on the planet, but if you do not understand what any of the data means, you will not be able to make the best decisions for your business.
5. By outsourcing your accounting department, you will get crucial advice on how to determine your burn rate (and other metrics) as well as what they mean for your company.
A burn rate measures how fast a startup company will go through its invested capital. Once this initial capital runs out the company will either have to find more funding, start generating profits, or worst-case scenario… shut down. By outsourcing your accounting department, you can ask your CPA to calculate your burn rate for you and will be advised on what the timeline should be for your business’ mission. Tech startups must pay extra close attention to this because they typically need much more money upfront before they are capable of generating any kinds of revenues or profits.
6. Outsourcing your accounting department can save you money on payroll taxes.
Outsourcing your accounting department could save you a substantial amount of money on payroll taxes. By outsourcing, you’re engaging with a third party consulting firm to provide a set of services. Typically, that engagement falls under a contractor relationship with your firm, and not an employer- employee relationship (note– this is not always the case). Savings will vary by state, but can be upwards of 10%+ of the gross amounts paid, which can certainly add up.
As you can see, there are at least six benefits of outsourcing your accounting department for your small business. If you’re looking to reap some of these benefits, make sure you line up the appropriate accountant or CPA for the job! For more on how to find the right accountant or CPA, here is a great resource for you to reference.