When should you outsource your accounting?
Any business owner would know that handling accounting functions can be a daunting and time consuming task. At the same time, business is all about finances, and accounting is an important and integral part of managing and running your business, even if you are the sort who prefers to spend time talking about your products and services instead of dealing with numbers and spreadsheets.
Smart business owners would know the importance of having accurate and timely financial information to make the right decisions. At the same time, what do you do when you’re a small business and you don’t have the luxury of hiring your own CFO or accountant? How do you tell when you need to look at outsourcing some, if not all, of your accounting functions?
Here are some signs it may be time for you to consider outsourcing your accounting to a professional service provider:
1. When you don’t have time to focus on your business.
Your startup has entered into accelerated growth stage, and you find you are spending more time on the day-to-day accounting functions instead of doing what you do best: growing your business. At the same time, you find that you are not ready to commit to adding a headcount financially nor do you have the time to even hire someone to perform the accounting tasks for your company. Outsourcing your accounting to a professional outfit can therefore help you manage this pain quickly and effectively, since you are able to tap on expertise and knowledge without any ramp up time.
2. You don’t have the financial data you need to make business decisions.
You understand the importance of having an overview of your financial performance, but you don’t have the luxury of time or staff to produce financial reports that can help you better understand the shape of your business health, and identify areas of efficiency or cost-saving opportunities. Having someone who can provide you with timely financial statements would greatly improve the way you plan and make business decisions.
3. Your accounting person isn’t really an accountant.
Most startups and small businesses get by having one of the cofounders or an office manager to handle accounting tasks by default. You would probably get by with having someone manage the administrative and simple bookkeeping matters like invoicing, payments, bank reconciliation and payroll – but as the number of transactions grow and your business becomes more complex, that person you tasked to oversee the accounting function may soon be unable to handle all of the accounting responsibilities on top of their usual duties. A lot of times, a non-accounting trained person may not be able to implement an efficient process to complete accounting tasks, leading to backlogs and inability to provide timely and accurate information for the company decision-makers.
4. Your business is accepting new investors, or you’re taking up loans.
When you start accepting new investors outside of the company, or when you decide to take up loans to grow your business, you reach a point when you would require regular and audited financial statements. Investors and banks use financial statements for credit assessments, and to determine your company’s asset value, financing sources, profitability, estimate risks and ascertain if your company can meet its debt obligations. In both cases, you need a trained professional to ensure you are able to paint an accurate picture of your financial health to investors and lenders.
5. You have reached $1 million in revenue.
The $1 million milestone is an important one for any business regardless of where you are in the world, especially when you consider that more than 50% of new businesses fail within the first 3 years. Reaching this milestone is often taken as proof that you have a business model that works – the next question you would like to ask yourself is if this business model is sustainable. As with what we have discussed thus far, once you hit the $1 million mark, chances are, your business transactions would have outgrown your basic bookkeeping capabilities, and it’s time to call in the professionals. For Singapore business owners, you are also required to register your business for Goods and Services Tax (GST) when your annual turnover is expected to be at least SGD 1 million; you would then be required to compute and submit your GST returns on a quarterly basis, and this would mean additional work and expectations for your accounting function.
Assessing Your Options to “Upgrade” Your Accounting
Here are the options you can consider when your company exhibits two or more of the “warning” signs described above:
(1) Hire an in-house CFO (average compensation SGD 270,000 p.a.) or accountant (average compensation SGD 50,000 p.a.)
(2) Engage a part-time or contract CPA (average billing SGD 250 per hour)
(3) Outsourcing some or all of your bookkeeping and accounting functions to a professional accounting service provider to handle your accounting needs.
It typically costs 30% to 40% less to outsource your non-core business functions compared to hiring and maintaining an inhouse accounting team. The advantages of outsourcing are more than just monetary – it also helps to improve business focus and enhance productivity, and to allow companies to quickly tap on expertise and knowledge that they may not be able to afford otherwise.