How Does Outsourced Bookkeeping Work?

Outsourcing has become a very on-trend practice among businesses looking to streamline their operations and reduce costs. 

As organizations move to a more flexible and fluid employee setup, it’s no longer necessary to have staff in-house, particularly if the required role is not a full-time one.

One popular area is outsourced bookkeeping and accounting. This is particularly true among small and medium businesses that have a requirement for these professional roles but don’t want to go through the trouble and effort of trying to hire someone.

If you’re wondering how exactly outsourced bookkeeping works, you’re in the right place. We’re going to tell you everything you need to know so you can make an informed decision about whether outsourcing is the right path for you and your business.

What Is the Role of a Bookkeeper?

Before we delve into the nitty-gritty of outsourced bookkeepers, it’s important to understand the role of a bookkeeper. 

And what is that, exactly?

Essentially, a bookkeeper is responsible for recording and maintaining a company’s financial transactions. This includes everything from sales and expenses to payroll and taxes.

Here are the key duties a bookkeeper will undertake:

Record Financial Transactions

Bookkeepers are responsible for entering financial transactions into a company’s accounting software. This includes everything from invoices and receipts to bills and payments and more.

Doing this allows the business to understand where it stands financially and how much cash flow is available. Organized financial transactions are essential for any business to keep itself out of unnecessary debt.

Prepare Financial Statements

Bookkeepers use the transactional data they’ve recorded to prepare financial statements.  These include: 

As we’ve already mentioned above, these statements provide a snapshot of your company’s financial health and are commonly and frequently used by business owners and investors to make informed decisions about what to do in the near and far future.

Handle Accurate Financial Reporting

Bookkeepers are also responsible for ensuring that a company’s financial records are accurate and up-to-date. In order to do this, they must reconcile bank statements, track any inventory, plus verify the financial data to ensure it’s all present and correct.

If you have dealt with bookkeeping before, you will likely know how easy it is to make an error. Bookkeepers are trained to spot mistakes and rectify them before they become a real problem.

Prepare Budgets and Forecasts

Budgets and forecasts are vital for business planning. After all, you can’t expect to scale your business unless you put aside the money to handle it.

A bookkeeper can assist you with creating budgets and forecasts. This helps you properly plan for the future and make informed decisions based on what your expected income and expenses will be.

Tax Preparation

Ugh, tax season.

No one enjoys this time of year, but it’s as unavoidable as it is unpleasant. However, you don’t have to go it alone. Your bookkeeper can prepare for tax season by ensuring that all your necessary financial records are in order. 

They will also assist with filing tax returns and responding to any questions or issues from the IRS.

Handle Payroll

If you hire staff directly, you’ll be pleased to hear that Bookkeepers are qualified to process payroll, including calculating employee salaries and deductions, preparing paychecks, and filing payroll taxes.

What Is the Importance of Accurate Bookkeeping?

Proper bookkeeping is absolutely critical to the success of any business. 

Without accurate financial records, it’s impossible to make informed decisions about the future of your business or to understand its financial health. You could be deep in the red and not even know it. How can you possibly begin to get things back on track if you’re in the dark about it all?

Inaccurate financial records can also lead to problems with the IRS or other regulatory agencies. And trust us, you don’t want to end up down this path because it doesn’t end well. At best, you’ll get a hefty fine. At its worst, you could face jail time.

Finally, accurate bookkeeping is a great aid in helping you understand the profitability of your business. Once you have this information, you can make adjustments as needed to drive your company forward.

What Types of Companies Outsource Their Bookkeeping?

Bookkeeper outsourcing can be beneficial for just about any type of business. It is, in fact, excellent for smaller organizations and companies that perhaps lack the budget and infrastructure to hire staff in-house. 

There are also some industries where outsourcing is particularly common. For example, small businesses in the healthcare, legal, and financial industries often outsource their bookkeeping to save time and reduce costs. 

Similarly, businesses that operate in multiple locations across the country or have a large remote workforce may also benefit from outsourcing their bookkeeping.

What Are the Benefits of Outsourced Bookkeeping?

It doesn’t take long to see the great benefit that an outsourced bookkeeper can bring. Let’s take a look at a few areas:

Reduced Cost

Outsourcing bookkeeping is way more cost-effective than hiring an in-house bookkeeper whose salary will cost you around $42,000 on average. 

With outsourced bookkeeping, you only pay for the services you need when you need it, rather than having to pay a full-time employee. 

Furthermore, you are not responsible for providing your outsourced bookkeeper with any equipment, office space, PTO, and other employee benefits, which result in further cost savings.

Increased Productivity

Business owners often underestimate how long bookkeeping can take. Especially if they are not financially trained and lack the necessary expertise.

By hiring an outsourced bookkeeping service, you can fully focus on running your business rather than worrying about financial record-keeping and whether or not you’re doing it properly. And when you’re focusing on what’s important, your productivity shoots sky-high.

What Are the First Steps a Business Should Take?

If you’re starting to feel that outsourcing bookkeeping is the right move for your business, it’s important that you don’t dive in head first. There are some key areas to consider first.

Assess Your Financial Needs

First of all, you must determine what tasks you actually want your bookkeeper to handle and what level of expertise you require. This not only helps you determine what type of bookkeeping service you require, but it also allows you to realize what level of service is needed.

Establish Goals, Needs, and Expectations

Now you have assessed your financial needs, it’s important to establish clear goals, needs, and expectations for your bookkeeping service. By doing this, you will be on a much clearer path toward choosing the right outsourced bookkeeping services and understanding what you want them to achieve.

How To Choose an Outsourced Bookkeeping Company

We can’t state enough how important it is to pick the right service. Bookkeeping outsourcing comes in many shapes and sizes, with some specializing in certain business niches and others having various levels of expertise.

When searching for the right provider, keep the following in mind:

  • Seek a provider with experience in your industry and a strong track record of success. Look for a provider with Certified Public Accountants (CPAs) or other financial professionals on staff.
  • Ensure that the provider has strong security measures in place to protect your financial data. You need one that is compliant with industry standards such as the General Data Protection Regulation (GDPR) and the Payment Card Industry Data Security Standard (PCI DSS).
  • Any provider you consider must have transparent pricing and a range of service options. A high-quality provider will also be willing to customize their services to meet your specific needs
  • Finally, make certain you are comfortable communicating with the individual. Rapport is everything when it comes to a great working relationship, so if the conversation is awkward, move on.
Common Mistakes To Avoid

Like anything, there are some pitfalls you should avoid when looking for an outsourced bookkeeper:

  • Looking purely at cost: While cost is an important consideration, it’s important not to choose a provider based solely on price. Look for one that offers high-quality services for a reasonable cost, so they strike the right balance and provide maximum value
  • Failing to communicate effectively: Effective communication is critical to the success of any outsourcing relationship. Ensure that you establish clear lines of communication with your provider and that you convey your needs and expectations clearly

How To Manage the Transition to Outsourced Bookkeeping

Switching to an outsourced bookkeeper doesn’t need to be stressful if you’ve taken the time to plan out the transition period. While there are bound to be a few bumps in the road, most major issues can be avoided if you regard the following:

  • Establish clear expectations for your bookkeeping service before the transition begins. This will help ensure that the transition goes smoothly and that you receive the level of service you require
  • Prepare all your documents and paperwork and make certain that you have everything your bookkeeper is going to need
  • Ensure your bookkeeper has access to all the necessary information, including bank statements, receipts, and invoices. 
  • Clear your diary during the onboarding period so you can dedicate your time to your new bookkeeper. This will quickly establish a good working relationship and ensure the bookkeeper knows how you like to work and irons out any confusion or queries in the beginning

How To Get the Most Out of an Outsourced Bookkeeping Service

To get the most out of your outsourced bookkeeping service, follow these tips:

  • Establish regular communication: This is key to a successful outsourcing relationship. Schedule regular check-ins and meetings for progress updates. And determine the best communication methods for both of you so it’s easy – and fast – to get in touch
  • Determine which technology you will use to streamline bookkeeping processes and improve efficiency. Most outsourced bookkeepers will use cloud-based bookkeeping software, so get yourself familiar with it
  • It helps greatly if you provide an onboarding period. This will get your bookkeeper up to speed about your company, its culture, and how you operate. The more they understand about your business, the better their services will align with your needs

Why Is Hiring an Outside Bookkeeper Becoming More Popular?

Outsourcing bookkeeping is always more cost-effective than hiring an in-house bookkeeper. Never mind the additional time, effort, and expense of trying to find someone suitable in the first place.

Furthermore, it allows business owners to focus on running their business rather than worrying about financial record-keeping. And as the needs of business changes, outsourced bookkeeping allows the flexibility of scaling up or scaling back the service as required.

What Trends Can We Expect To See in This Area?

As technology continues to advance, we can expect to see more automation in the bookkeeping industry. 

This is likely to include the use of artificial intelligence (AI) and machine learning to automate repetitive administrative tasks and improve efficiency. We may also see more emphasis on data analysis and business intelligence as businesses look to use financial data to make better decisions about the future of their business.

What Is the Future of Outsourced Bookkeeping?

The future of outsourced bookkeeping is an exciting one. As more businesses look to streamline their operations and reduce costs, outsourcing bookkeeping will continue to be an attractive option. 

We can expect to see continued growth in the industry, as well as increased competition among providers. To stay competitive, bookkeeping providers will to stay abreast of emerging technologies that help them and their clients improve.

Conclusion

In conclusion, outsourced bookkeeping is a valuable service for businesses of all sizes. It provides a cost-effective way to manage financial record-keeping and allows business owners to focus on running their business. 

If you’re now convinced to outsource book-keeping, we’ve got good news for you. At EvolveCFO, we’ve got a highly qualified and experienced network of remote bookkeepers on hand to provide you with a wide range of essential services.

Our flexible plans are designed to suit businesses at all stages of their journey and have customizable options for a true fit. Interested in learning more? Get in touch with EvolveCFO today.