What Accounting Outsourcing Covers
Accounting outsourcing passes recurring finance work such as bookkeeping and bank reconciliations to an external provider.
Providers can be local bookkeeping firms or offshore finance teams. A written agreement will specify what each provider is to do.
Research by Oxford Economics for CA Australia and New Zealand suggests that the Australian accounting sector will be short by nearly 18,000 people by 2035.
With such a massive shortfall, it’s worth comparing the cost of external support against the cost of hiring in-house staff.
Which Tasks Suit Outsourcing?
Jobs that repeat every month, like matching bank transactions, are the easiest tasks to hand over to an external provider. Strategy and spending decisions stay with the business.
| Finance Task | Who Handles This Task? | Why |
| Data entry and bank reconciliations | External provider | The steps are the same every month and easy to write down |
| Accounts payable and receivable | External provider | Bills and invoices arrive in regular batches, each with a due date |
| Payroll | Depends on team size | Pay runs for a large team take real time, and a small team can run payroll in-house |
| Budgeting and forecasting | In-house | Both need close knowledge of the business and its plans |
| Payment approvals | In-house | The owner or a director decides what leaves the bank account |
How Accounting Outsourcing Compares
Besides accounting outsourcing, a business can hire its own staff or use accounting software for recurring finance work. Each option carries a different cost and level of control.
Hiring staff gives you full control of the business but of course you’re paying full salaries. The software can do the data entry and the matching of the bank statements, with a human then looking at any exceptions the software has flagged.
You have to set up and check the software’s rules for matching and coding prior to you being able to trust the results.
With accounting outsourcing, you get a team for a fixed monthly fee. The team then carries out what you ask them to do.
The business is all about how fast the provider works so response times need to be in the agreement.
To compare the costs fairly, you need to look at the total cost of hiring in-house versus the provider’s monthly fee and the manager’s time for each option.
The First Weeks with a Provider
The business provides the provider with read-only access to its accounting file and a written list of tasks, each with a named individual to approve.
At the end of each month, the provider produces the reconciliations, and the business looks at those before the books are closed.
Payment approval limits are set at this point so every payment run thereafter will be subject to the rules that the business has already agreed to.
In the initial few weeks, the provider will get to know how the business categorizes its transactions and who the approvers are.
Having written the procedures protects the business if the relationship terminates, as a new provider or an in-house hire can simply follow the same steps.
What Should a Business Check in a Provider?
A written agreement should cover four points before work begins.
1. Account Access
The business maintains control over user permissions in the accounting software, providing the provider with only the level of access required for each individual task.
2. Report Timing
The agreement should stipulate a set day each month on which the reconciled accounts will be delivered so that the owner can see the current balances when looking at their cash flow.
3. Tax Deadlines
The agreement should also specify who is responsible for submitting each activity statement and set the dates on which they are due.
Business.gov.au recommends that you check that whoever is preparing the statement is a registered agent with the Tax Practitioners Board.
4. Error Corrections
If the provider maintains a log of all the corrections and passes that on to the business, then the owner has a clear record for the registered tax agent.
The Right Level of Support
The number of transactions per month dictates how much external support a business will require, and that will obviously vary as the business grows.
A fixed monthly arrangement is perfectly suited to businesses with fairly steady transaction volumes. If you have a seasonal spike, then you can obviously agree on a scope that will grow during the tax season.
When the business takes on new staff or adds a new product line the workload changes and the scope has to be updated.
Compare the monthly fee against the number of hours an owner would otherwise spend on their own finance work to see if the support is cost-effective.
Each year, the owner and provider review the agreement and adjust the scope to fit the current workload.
Popular on OTW Right Now!
About The Author
Gagan Bhangu
Founder of otechworld.com and managing editor. He is a tech geek, web-developer, and blogger. He holds a master's degree in computer applications and making money online since 2015.