Signs That It's Time To Outsource Bookkeeping Services

How do you know when it's time to outsource bookkeeping? Discover the signs.

Bookkeeping has long been a problematic time sink for many organizations. Finance teams spend more than 80% of their time either bookkeeping or studying historical performance because they're so invested in daily reporting and consolidation.^[1]

This daily struggle pushes many small to midsize business leaders to consider outsourcing their bookkeeping. But before committing to a provider, they want to understand how outsourced bookkeeping works, its benefits, and signs to look for that indicate they need to use an external service provider.

This is your guide to how outsourced bookkeeping works, its benefits, how to know if it's right for you, how to outsource, and software that can make bookkeeping easier.

What is outsourced bookkeeping and how does it work?

Outsourced bookkeeping involves using an external provider to record transactions, balance your books, and design a bookkeeping system that works best for your organization. Outsourced bookkeeping services can also provide you with reports regarding cash on hand and trends in your cash inflows and outflows. However, outsourced bookkeeping services are more focused on keeping your financial records, while outsourced accountants "account for"—or explain—what's in them.

For SMB owners, bookkeeping outsourcing makes it easier to overcome multiple business challenges. First, you don't have to worry about whether your books are accurate and up-to-date because your provider has it covered. Also, you avoid wasting time muddling through complicated bookkeeping issues, such as differentiating between different types of sales transactions, and have more time to use for growing your company.

For these reasons, outsourcing some or all of your bookkeeping is a common strategic decision for SMB owners. Capterra's 2023 Accounting Shortage Survey found that 71% of businesses choose to outsource at least some level of finance and accounting, with 65% opting for full-service support.* On average, usage of these services covers 50% of the company's financial tasks.

At the same time, outsourcing bookkeeping isn't the only solution. The same survey found that many use certification assistance and other support resources, such as temporary help with organizing books before an audit, to help their accounting departments handle their bookkeeping. Certification assistance involves helping in-house personnel attain official accountant certifications, such as a CPA. Roughly 62% of organizations that choose not to outsource take this route.

Benefits of outsourcing bookkeeping services

The benefits your organization experiences from outsourcing bookkeeping will depend on the amount and types of services you need. However, here are some of the most common advantages organizations enjoy when outsourcing bookkeeping services.

Save on costs

The people-hours it takes to maintain accurate, up-to-date books can drive the cost of handling it internally beyond your budget. However, one of the primary benefits of outsourcing bookkeeping is that you can limit the amount you spend keeping your books in order. If your provider hits any snags, the extra work may often be included in your service level agreement (SLA). On the other hand, paying internal staff overtime, or hiring extra staff, can easily push your budget into the red.

Free up internal resources

Because your internal teams don't have to spend hours and hours trying to enter data and balance your books, they have more time to dedicate to supporting your company's progress. Accountants can exert more effort toward analyzing your finances and coming up with creative financing methods and capital structuring strategies.

Reduced risk of error

Professional bookkeepers with the bandwidth to focus only on their books may be less likely to make mistakes. This could be part of the reason why Capterra's 2023 Financial Planning Survey found that 45% of respondents weren't just satisfied but "highly satisfied" with how their external bookkeeping services were performed.**

With fewer errors, you get more reliable records, which puts you in a better position to analyze your finances and make adjustments in response to your data.

Access to experts

By hiring a bookkeeping service, you gain access to professionals who specialize in maintaining accurate, timely books. In some cases, you may even be able to choose a firm that staffs accountants to handle your bookkeeping. While this isn't a requirement for all companies, many, 22%, say they'd prefer an accountant to handle their record-keeping and bookkeeping instead of a fintech solution, according to Capterra's 2023 Fintech Survey.***

Tax preparation and auditing support

Why outsource bookkeeping services? Taxes and audits can make even the deepest accounting teams look for external help. The sheer volume of work it takes to prepare taxes and get ready for an audit can push your internal team beyond its limits.

But by strategically using a bookkeeping outsourcing solution, you can alleviate much of the heavy lifting from your team's shoulders. They can then invest their efforts towards finding ways to reduce your tax burden or ensure a smooth audit process.

Receive detailed financial reporting

Producing detailed financial reports takes a combination of time and the right kind of software, and many companies have neither on hand. However, your outsourced bookkeeping service likely has the kind of applications that streamline the process of generating detailed financial reports.

Both bookkeeping firms and businesses that do it on their own have been reaching out for new software solutions recently. Capterra's 2023 Financial Planning Survey revealed that 78% of companies planned to use new finance software in that year.** Even if you don't choose to outsource, you may be able to improve speed and accuracy using an application.

Signs it's time to outsource bookkeeping services

Here are some telltale signs that it's time to use another company to handle your bookkeeping.

Lack of time and resources

Many accounting teams simply don't have the time to analyze and adjust their company's finances and handle the intricacies of bookkeeping. Time is an omnipresent factor, and hiring an outside provider may not necessarily guarantee punctuality. Capterra's 2023 Accounting Shortage Survey also found that only 7% of businesses didn't have to delay any of their accounting tasks in 2023 due to issues with their service provider.*

However, you may have more success if you choose more time-consuming tasks to assign to your provider and give them as much advance notice as possible. It also helps ensure they have all of the information they need upfront, including receipts, contracts, and other financial documents.

Financial and record-keeping issues

Inaccurate or inconsistent books can result in delayed accounting and even harmful, business-critical decisions. By increasing the accuracy of your bookkeeping by using an external provider, you can reduce the chances of inadequate record-keeping upending your financial system.

High overhead costs

If your overhead costs, especially when it comes to managing your books, start to climb out of control, you may be able to reduce them by using an external service provider. Some of the more problematic overhead costs include having to pay in-house staff overtime because they haven't mastered bookkeeping, resulting in long, drawn-out processes. In addition, the cost of funding individual, short-term projects may be less than what you'd pay for overtime or hiring and training internal staff.

Unable to scale

When you're scaling up your operations, you may lack the physical space or budget to add more bookkeeping staff. This may be especially prudent during a merger or acquisition where your bookkeeping workload could easily multiply.

Lack of knowledge or expertise

Bookkeeping takes a certain mindset, and it's not for everyone. A skilled bookkeeper needs to be able to keep track of a complicated array of transactions, keeping each in the appropriate category and ensuring that financial records remain balanced. Also, bookkeeping is a time-sensitive discipline because you have to know when to close your books and the transactions that need to be included in each reconciliation.

If your team lacks the knowledge, expertise, or time to acquire the necessary skills, this could be a sign you should outsource.

How to outsource bookkeeping services

How does outsourced bookkeeping work? It's not always as straightforward as placing a call and signing an agreement. At times, finding the right outsourcing partner can be easier said than done. Capterra's Accounting Shortage Survey revealed that 64% of organizations struggle to identify an outside accounting firm that meets their needs.*

If you're among that 64%, you can use Capterra's bookkeeping agencies directory. Here, you can find descriptions of the services each company offers, the industries they serve, and information about whether they require a retainer and minimum project cost.

When choosing a provider, you can narrow down your search by asking questions about each company's:

• Experience in your industry. Even though many bookkeeping practices apply to multiple industries, understanding the ins and outs of your specific business sector may make it easier for a bookkeeper to provide top-notch service. Whether it's recognizing industry-specific acronyms, typical expenses, or normal spending patterns, a bookkeeper with industry-specific experience can pick up on things that others may miss.

• Range of services offered. Some bookkeepers may be uncomfortable handling the more intricate or complicated services you may need, such as managing payroll or producing financial reports.

• Previous and/or current clients. It's always good to check references, and when you do so, ask the right questions. For instance, you can ask about how flexible the provider is, how they respond to mistakes they make, their weaknesses, and whether their pricing structure is transparent.

How to leverage bookkeeping software

Bookkeeping software may come with more features than you'd expect—and in some cases, this may be enough to help you get your books in order. This is the case for many companies. As revealed in Capterra's 2023 Financial Planning Survey, only 9% of respondents outsource their bookkeeping services, perhaps because specialized software lightens the load.**

To get the most from a bookkeeping solution, you want to choose one with the features that'll give you the best return on your investment. For instance:

• If you have many customers who pay via a credit-based arrangement, you'll want to choose an app that comes with robust accounts receivable (AR) features.

• If your company hires a long list of vendors, each with its own payment timeline, you should opt for a solution with extensive accounts payable (AP) features.

• Your company may need more in-depth features, such as budget forecasting and organizing accounts according to receivable and payable timeframes, that intersect with accounting. For some companies, choosing a solution with analytical capabilities can give them an extra edge.

By leveraging Capterra's bookkeeper software directory, you can see, at a glance, the features each application offers, which makes it easier to narrow down your options. You also have access to customer reviews and ratings that can tip the scales in favor of one provider or another.

Use bookkeeping services or software to improve your financial performance

We hope you understand by now how outsourced bookkeeping works, its benefits, and how to know whether it's time to go with an external provider. You also have access to bookkeeping software, which, in some cases, may be enough to tighten your books and help you work towards your financial goals.