What is Back Office Outsourcing?
The back office is the supporting department that is made entirely of administration and support personnel who don’t have to deal with clients. Depending upon the size of a company, the back office can consist of the following departments- Human resources department, IT Department, Accounting, Marketing Department, Legal Department, Administration, Customer Support, etc.
Back-office outsourcing refers to delegating or outsourcing the roles and responsibilities of the departments as mentioned above to a third-party vendor. It is beneficial for small businesses and new businesses to outsource their back-office functions because-
- Outsourcing allows them to focus on their primary business operations.
- It is time-effective because your business doesn’t have to interview, hire, or train new personnel.
- It is cost-effective because it saves money on office space, training, and insurance.
Outsourcing Back Office Accounting
One of the most important back-office functions is accounting. A back-office accountant performs the following functions: record journal entries, maintain accounting books and general ledger, prepare annual financial statements, prepare cash flow statements and balance sheets, prepare tax reports, and file taxes.
Hiring an in-house accountant for a small business is expensive. Therefore, many small businesses and start-ups outsource their accounting functions. This means that the small business hires the services of another company for accounting purposes. Outsourcing accounting services offer bookkeeping, payroll processing, accounts payable, accounts receivable, and other accounting services.
Things to consider before outsourcing accounting
Outsourcing any function to a third-party vendor requires a careful vetting process because you are sharing customer details and your employees' information with a foreign party. Here are some things to consider before outsourcing accounting-
- Evaluate your accounting needs- Before outsourcing your accounting, your business must evaluate the type of accounting functions that need to be fulfilled. You must inform the outsourcing accounting services about your business needs. For example, if you need monthly financial reports, preparation of balance sheet, and payroll services.
- Data Security- You must choose an outsourcing service if they are trustworthy because you entrust them with important and confidential data. As a proprietor, you must look into how data is handled and privacy is maintained by the outsourcing service.
- Cost of services- Outsourcing accounting services are comparatively cheaper than in-house accounting. However, while choosing an outsourcing service, you mustn't only look at their packages and the services they are providing.
- Minimal Supervision- Businesses outsource their work so that they can focus on other business operations. Therefore, you must choose an outsourcing accounting service that requires minimal supervision and interference from you.
- Software and Technology- Make sure that the outsourcing services you opt for use up-to-date software and technology to handle your business functions.
Benefits of Outsourcing Accounting
Cost-effective- An in-house accountant is very expensive for a small business. The business would also have to spend money on infrastructure, insurance, and investing in accounting software. One of the benefits of outsourcing accounting is that it is cost-effective. This is because by outsourcing your accounting functions, you are only liable to pay for the services you require.
- Focus on other business operations- For many small businesses, accounting is not a primary business operation. By outsourcing their accounting requirements, they can focus and invest in other business operations like building inventory, marketing, and other activities to increase revenue.
- Access to latest technologies and software- Small businesses don't have to invest in the latest accounting technologies and software when outsourcing their accounting functions. Therefore, one of the benefits of outsourcing accounting is that businesses can have their accounting processed by the latest accounting technologies and software without spending an exuberant amount on them.
- Professional expertise- The Benefit of outsourcing accounting is that your business's accounting functions are performed by qualified accountants who have specialized in handling data in the best way possible. Therefore, if you outsource your business's accounting functions, then that improves your business process because your accounting functions are handled by experienced accountants who follow the best practices.
- Increased productivity- One of the benefits of outsourcing accounting is that outsourcing accounting enables the company to focus on their business’s core activities. This reduces corporate overhead as the business saves on hiring and training new people and on infrastructure. This also enables the company to reduce costs and make investments that can increase the size of the business, productivity, and profit margin.
- Manpower- One of the benefits of outsourcing accounting is that completing your work is not hindered by sick leave or parental leaves as outsourcing accounting firms have many employees. Outsourcing accounting firms partner up with many accountants who can complete your work if their colleague isn't able to.
- Unbiased accounting- One of the main benefits of outsourcing accounting is that outsourcing your accounting requirements reduces bias and fraudulent activities. This is because outsourced accountants are less emotionally invested in business operations than in-house accountants. Therefore, when you outsource your business' accounting requirements, you reduce the chances of fraud and biased accounting.
- Confidentiality- From a privacy vantage point, outsourcing accounting benefits that your employees' details, salaries, and other private information, along with customer information, are handled by a service provider that handles them delicately. Most outsourcing accounting service providers ensure privacy and confidentiality of information.
Limitations of outsourcing accounting
While the benefits of outsourcing accounting outweigh its disadvantages, there are some limitations like-
- Delay in communication- In times of emergency, the business can face communication delays if they outsource their accounting functions. Companies can also face a lack of communication which can lead to misunderstandings.
- Loss of control- When you outsource any business functions, you can lose the ability to inspect the work while it is being done. This can make businesses feel as if they have lost some control.
There are many benefits of outsourcing accounting. Outsourcing accounting is cost-effective, increases productivity, and results in unbiased accounting. If you are a small business proprietor, you must consider the limitations and benefits of outsourcing accounting functions before choosing an outsourcing service for your business.
Countless companies rely completely on outsourcing accounting firms for a long time. In this way, they have saved a lot of money as well as time. Hopefully, the article was helpful to you. And has helped you show all the positives of outsourcing accounting. For more details or any queries, reach us at hgoyal@especia.co.in or 9310165114.
