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Accounting for Small Businesses: Why Outsource?

No matter the size of your business—or what stage it’s in—there are a number of ways in which an accountant can add value. To begin with, it’s important to understand that “accounting” in itself is a broad term covering an array of specific areas and respective considerations as they relate to the nature and unique needs of your business. In short, what we think of today as “accounting” can essentially be broken into two categories: internal (or “operational”) and external. A company’s normal everyday finances and the related factors directly affecting the bottom line are what you might categorize as internal or operational accounting needs. The external category of accounting activities, on the other hand, relates to more secondary (though equally important) liabilities like tax and reporting requirements.

The operational category generally relates to the recurring, day-to-day functions that are necessary in order to keep a business running successfully. This includes, but is not necessarily limited to, areas like sales/revenue recognition, accounts receivable, accounts payable, payroll and inventory control, as well as financial analysis, fixed assets and depreciation, financial reporting and monthly/yearly closings. You would be hard-pressed to find a business owner who does not think that these components are essential to operating a business, though the work that goes into carrying out these functions efficiently and correctly can often be underestimated.

When referring to “external” accounting needs, we’re typically talking about the spillover requirements outside of the day-to-day operational duties that businesses should be aware of—particularly tax responsibilities, business planning and reporting requirements. More often than not, these needs are addressed by a CPA or team of professional certified advisors. CPAs can effectively help limit your tax and other liabilities by assisting you with determination of entity type and registering you with the appropriate agencies. Unless you have substantial experience yourself in tax law, audit rules, and/or business structuring, such areas are often best kept to professionals. If you’re starting a business, it is recommended that you leave room in your budget to cover the expense to retain an outside accountant—especially when taking into consideration the significant and frequent changes to the U.S. tax code and regulatory guidelines that have come about recently.

When it comes to internal accounting operations, business owners have a few different options from which to choose. One option is to develop an in-house accounting department that’s fully dedicated to the business’s accounting duties; while another option is to outsource these duties to an outside accounting services firm (or individual). It’s worth noting, too, that many business owners choose to go with something halfway between the former two options by “co-sourcing” with another business to fulfill the company’s accounting needs. Co-sourcing is an attractive option for many midsize businesses that already employ a full- or part-time accounting person or staff to take on the basic internal accounting needs, but need to pair that staff up with a qualified outside professional who can provide additional value or services.

When determining which option is best based on the specific needs (and budget) of your business, cost is frequently the first factor that comes into consideration. For instance, a small business which may only need a singular accountant or bookkeeper would likely be looking at a starting cost of $45-50,000 annually for a full time salary. Keep in mind that with inflation and steadily-increasing national salary requirements, these are just conservative numbers; and benefits are often not included in this range. A larger company that might warrant a more substantial in-house accounting department would also need more dedicated staff (i.e. accounts payable clerk; accounts receivable clerk; accountant/bookkeeper; and controller), which could easily cost upwards of $300-500,000 per year in salaries alone.

An experienced outsourcer, on the other hand, can usually provide you with all of these operational accounting needs on a fixed-fee or as-needed basis, opening up ample opportunities for substantial cost savings. Outsourcing your business accounting needs means that the accountant or firm you utilize is bearing the cost of employment, including salaries and benefits, leaving you to pay a fee for the services without having to worry about all the day-to-day responsibilities that fall under the business accounting umbrella.

In addition to saving money (and time) by outsourcing your accounting, relying on an external group of accounting professionals can help you streamline your processes by recommending and implementing technologies and software that will increase efficiency—and, again, save your bottom line. With today’s technological advancements, like cloud-based accounting and artificial intelligence (“AI”), the possibilities for major efficiencies and cost savings are endless.

While the above factors make a great case for outsourcing, cost should not be the only consideration when analyzing your businesses accounting needs—and it’s important to be mindful of your current business accounting needs in order to make an educated decision about the best way to carry out your operational functions. If your business is still in the formation period or you’re not ready to turn your books over to an outsider, outsourcing could potentially create a lack of control or awareness that may not be suitable for the current state of your business. Furthermore, a small business may be totally satisfied with fully outsourced bookkeeping, while for a larger business it might make more sense to create a hybrid arrangement wherein some functions are kept internally indefinitely.

What’s important to remember is that for every type and size of business, there are many viable options available. Whether you’re just starting a business, growing an established business or simply looking to clean things up internally and add efficiency to your operations, we recommend that you do your research and compare your options. If not engaging a CPA firm for your accounting needs, consider getting a second opinion or business advisory services from one. Most importantly, know your business inside and out and prioritize your most essential needs.

Here at Farkouh, Furman & Faccio, we offer a comprehensive range of services including small business accounting on an outsourced or co-sourced basis. Our experienced team of professionals are well-equipped to assist with your business setup and operational accounting needs from the pre-planning stage through growth and succession. Additionally, our Small Business Services Department can add value and guidance in the area of accounting software options, including cloud-based software, creating greater efficiency in your business accounting processes. For more information on this topic or our services, or to set up a consultation, please contact us at info@fffcpas.com or 212-245-5900.

Zane Parry, Director of Small Business Services at FF&F, has over 20 years’ experience as a financial controller. Prior to joining FF&F, Zane worked at The Barclays Center and Ambassador Theatre Group (home of Broadway’s Spiderman and Harry Potter), and has had roles in several other industries. His controller/CFO-level knowledge of the internal business side of accounting provides added value to FF&F’s Small Business Services department, taking it beyond bookkeeping to full-service, comprehensive accounting.