Everything You Need to Know About Bookkeeping Outsourcing

Managing a few dozen transactions each month is a manageable DIY task for any new business. But as you scale, those dozens quickly turn into hundreds or thousands, turning your financial data into a bottleneck. To maintain momentum, you face a pivotal choice: expand your in-house headcount or leverage bookkeeping outsourcing to pass the burden to a professional team.

While both options certainly have their pros and cons, bookkeeping outsourcing is often the go-to solution for business owners who need a team of bookkeepers, don’t have the work for a full-time in-house employee, or simply want to pass the burden of bookkeeping onto a professional.

With this in mind, it’s no surprise that 45% of middle-market companies either partly or entirely outsourced their accounting function. This is a large jump from a few years prior, when 80% of respondents in a survey hadn’t even considered outsourcing.

As outsourced bookkeeping continues to gain traction among companies of all sizes, it’s important that you explore whether this solution fits your company’s needs. We’ll cover everything you need to know about bookkeeping outsourcing in this article, from the tasks that can be outsourced to the cost of using professional services.

What is Bookkeeping Outsourcing?

Bookkeeping outsourcing involves hiring an external individual, provider, or firm to manage your company’s financial data. The alternative to outsourced bookkeeping is hiring an in-house employee, which isn’t always a cost-effective solution. Bookkeeping outsourcing can take on different forms, from the tedious tasks in your accounting function, like data entry and bank reconciliations, to high-level oversight, like CFO services.

Unsure if your team needs daily transaction management or high-level financial strategy? Read our guide: Bookkeeping vs Accounting: Which Do You Need?

Why Should You Outsource Bookkeeping?

Business owners leverage outsourced bookkeeping for a variety of reasons, including:

• Cost savings

• Freed up time to focus on core business operations

• Scalability and flexibility in operations

• Access to specialized services, like tax preparation

• Independent oversight

• Access to accounting-specific technology and software

• Greater fraud prevention and detection

• Stronger compliance and financial reporting controls

We’ll expand on these benefits in a later section.

When Should You Outsource Bookkeeping Tasks?

Knowing when it’s time to pay for professional services in your business isn’t always straightforward. However, there are a few key indicators, including:

• Your bookkeeping is constantly behind, causing missed deadlines and errors.

• Your bookkeeping is taking up too much time in your schedule.

• Your business is (or will be) experiencing rapid growth.

• Your financials give you little to no insights.

• You need expert advice on recording transactions or making informed decisions.

• Your bookkeeping complexity has outgrown your in-house team.

• You don’t have the need for a full-time in-house bookkeeper.

• You need specialized services, like tax planning and preparation.

If you are experiencing any of these challenges in your bookkeeping function, using an outsourced bookkeeping firm is right for you.

If you're noticing operational bottlenecks beyond just the finance department, check out: When Should a Company Outsource? 5 Signs It’s Time for a Change.

Common Bookkeeping Services and Tasks

Bookkeeping tasks focus on financial data management. They can cover everything from categorizing transactions in your ledgers to generating financial reports for tax preparation services. Here are ten common bookkeeping tasks that can be outsourced:

1. Data Entry – Entering and clearing all accounting transactions

2. Reconciliations – Ensuring all bank and credit card statements match your internal accounting records

3. Accounts Payable and Accounts Receivable – Tracking vendor and customer payments for accuracy, including sending and receiving invoices

4. Inventory – Reconciling general ledger accounts with inventory counts to ensure accurate financials

5. Financial Statements – Creating internal financial statements, like the balance sheet, income statement, and cash flow statement, including making adjusting entries

6. Payroll Processing – Processing payroll for your in-house team

7. Contractor Management – Requesting and entering contractor information, including tracking payments eligible for 1099s

8. Budgeting – Updating budgets and forecasting upcoming income and expenses to align spending with strategic goals

9. Sales Tax – Monitoring sales tax compliance, including registering in new states and preparing and submitting returns

10. Tax Preparation and Planning – Preparing and filing tax returns and maintaining compliance with regulatory agencies

Bookkeeping outsourcing is designed to fit the needs of your business, whether you need a few of the above services or all of them.

Types of Bookkeeping Outsourcing Services

There are four main types of bookkeepers: in-house employees, freelancers, local firms, and providers. Let’s explore each of these types in more detail.

In-House Employee

An in-house bookkeeper is an individual who works for your organization. They are put on payroll at a set hourly rate or salary and receive the same benefits as other employees, such as retirement matches, paid time off, and health insurance. Since they are employees, your business is also required to pay employer payroll taxes on their wages, which can be expensive.

A full-time in-house bookkeeper can be a cost-effective solution if your business is large enough, meaning you have enough work for a full work week. In addition, if you need direct oversight and you can afford the cost of hiring another employee, having a dedicated in-house team member might make sense.

Freelancer

The first type of outsourced bookkeeper is a freelancer. A freelancer is a single individual who manages your bookkeeping. Freelancers often work on an hourly basis, helping your company as needed, such as at month-end. Since freelancers are just one individual, there is the potential for business disruptions and limited scalability options.

Nevertheless, freelancers can be a great solution if your bookkeeping isn’t complex or time-intensive, as freelancers will often have numerous clients at any given time. For example, if you only need help reconciling bank accounts and drafting internal financial statements each month, a freelancer might fit your needs. Services outside of basic bookkeeping generally warrant the need for a local firm or outsourced provider.

Local Firm

Partnering with a local firm to outsource your bookkeeping can be a good option if you have strong candidates. Finding reputable local firms is easier if you live in a populated area. Local firms can also be a great option if you like meeting in person or need someone on-site to handle your bookkeeping. For example, if you need your bookkeeper to do physical inventory counts, a local firm would be the best option.

Outside of convenience, local firms can be more expensive and have limited service offerings. This can cause issues if you plan on scaling or growing and need to onboard more help.

Outsourced Provider

The final type of bookkeeper is an outsourced provider. Outsourced bookkeeping providers specialize in bookkeeping outsourcing, often having numerous team members available at any given time. This is ideal for businesses that need to access a team of experts, want to leverage advanced technology, or plan on scaling.

Businesses that have specialized issues and complex operations benefit the most from outsourced providers. It’s not uncommon for these providers to have dozens of professionals, all with extensive backgrounds in accounting.

What is the Cost of Bookkeeping Outsourcing?

Outsourced bookkeeping rates can vary based on the services you need and the professional service you work with. Some outsourced bookkeepers bill based on an hourly rate, while others may work on a retainer or for a fixed price each month. Expect to pay $20 to $150 per hour, with more complex tasks warranting a higher hourly rate. Here are a few more factors that can influence your outsourced bookkeeper and accountant rates:

Volume

Transaction volume impacts the number of hours needed to reconcile accounts and record transactions. While transaction volume might not raise the hourly rate, it can increase the number of hours needed.

Complexity

More complex operations result in a higher rate. For example, CFO-level services will average above $100 per hour compared to general transaction management, which can range from $20 to $30 per hour.

Location

Outsourced bookkeeping rates vary by location. Higher cost-of-living locations, like New York and California, will result in a higher rate. This is why many small business owners choose to work with outsourced providers that can keep prices steady.

Experience

A CPA with 20 years of experience will charge more compared to an entry-level bookkeeper. Finding the right balance between experience and cost is important to find affordable rates.

Need CFO-level services or comprehensive accounting? Dive deeper into the numbers with our breakdown: How Much Does Outsourcing Your Accounting Cost?

The Pros and Cons of Bookkeeping Outsourcing

Evaluating the pros and cons of bookkeeping outsourcing can help you determine if this is something your business can benefit from.

The Pros of Bookkeeping Outsourcing

Here are a few of the advantages of using bookkeeping outsourcing:

• Cost Savings – With bookkeeping outsourcing, you don’t have to pay employer payroll taxes, offer company benefits, or pay an employee when there is minimal work.

• Extra Time for Growth Initiatives – Passing the bookkeeping baton to an expert gives you more time to pursue growth initiatives.

• Operational Flexibility – The ability to onboard additional bookkeepers at a moment’s notice is an advantage that all businesses can leverage, especially those planning on growing.

• Specialized Services – In-house bookkeepers are limited in the services they offer. For example, very rarely will an in-house bookkeeper have the experience or credentials to file income tax returns. This isn’t the case when working with an outsourced bookkeeping provider.

• Fraud Prevention and Detection – Outsourced bookkeepers work independently of your company, meaning they have no financial incentives tied to your company. This gives you access to independent oversight, which can help prevent and detect fraud and asset misappropriation.

The Cons of Bookkeeping Outsourcing

Outsourced bookkeeping does have drawbacks. However, many of these disadvantages can be alleviated with the right policies and procedures.

• Security Issues – Without the proper safeguards in place, your company’s information has a greater risk of security breaches. Using secure document-sharing programs and having rigid protocols can reduce security issues.

• Less Control – Giving up control of your bookkeeping and accounting can be challenging for some business owners. However, the right bookkeeping provider will equip you with all of the necessary information to make informed decisions.

• Hidden Costs – Outsourced bookkeeping is generally most cost-effective compared to hiring in-house employees, but sometimes providers can add hidden costs and expenses. Working with a provider that has transparent pricing is the best way to avoid this disadvantage.

How to Choose the Best Bookkeeping Outsourcing Firm

Fully leveraging the benefits and insights from bookkeeping outsourcing relies on working with the right provider. Here are the main criteria you should evaluate when choosing the best bookkeeping outsourcing firm:

Certifications

Analyzing bookkeeping certifications and credentials is a great way to determine the provider’s experience. For example, to become a Certified Public Bookkeeper through the National Association of Certified Public Bookkeepers, the individual must complete four exams, have at least one year of experience, and follow a code of conduct. Formal certifications ensure they have the background and experience to properly complete your bookkeeping. Other credentials include a Certified Public Accountant (CPA) license, an Enrolled Agent (EA) designation, or a Certified Management Accountant (CMA) certification.

Experience

The experience of your bookkeeping outsourcing firm is just as important as its certifications. Experience, especially related to your industry, is crucial for insightful and accurate accounting services. For example, e-commerce businesses need to adjust gross income for service fees and sales tax. An outsourced accountant with e-commerce experience knows this and can help you report accurate gross revenue.

Tech Offerings

One of the benefits of outsourcing bookkeeping services is access to tech offerings outside of standard accounting software. Programs, like NetSuite and Sage, can be expensive to purchase. By partnering with an outsourced bookkeeper, you can access accounting software programs that you might not otherwise have the funds to purchase.

Communication and Transparency

It can be difficult to give up control over your bookkeeping as a business owner. However, choosing the right outsourcing firm makes sure that you still have complete transparency in your transactions and accounting. Ask about the communication methods of the outsourcing firms. How will they share monthly reports? What is the process for getting questions answered? Will you be able to use video calls, instant messaging apps, or email?

Security and Compliance Protocols

Cybersecurity protocols are non-negotiable when using bookkeeping outsourcing. Without the proper safeguards, the sensitive information of your company could be at risk, which could harm your brand image and cause financial repercussions. Ask your potential outsourcing bookkeeping firm about their security and compliance protocols. The more steps they take to secure your data, the better.

Scalability and Flexibility

Scalability and flexibility are priorities when growing your business. When working with an individual freelancer or a local firm, your scalability options may be limited. This is why many companies use outsourced providers, who can easily add team members during busy times or as your company begins to grow. Inquire about the depth of the provider’s team and how they can facilitate smooth transitions during growth phases.

Affordable Pricing Structure

The outsourced bookkeeping rates of the provider should also be evaluated before selecting a firm. What is their pricing structure? Are there any hidden fees or costs? How often will the cost of your services increase? Are there discounts when bundling multiple accounting services? These are all important questions to ask. Remember, you want to balance value and cost. The cheapest option isn’t always the best. Instead, consider the value you receive in return before making your selection.

Knowing what to look for in an outsourced bookkeeping provider can help you find the right fit for your company.

Remember, vetting a partner goes beyond checking credentials. Learn the universal traits of a reliable firm in Choosing an Outsourcing Provider: Top Five Things to Look for in a Partner.

Common Bookkeeping Outsourcing Mistakes and How to Avoid Them

After you make the decision to outsource, your job isn’t done. Here are a few common bookkeeping mistakes and how to avoid them:

• Poor Communication and Data Sharing – Failure to clarify communication channels and required outputs can lead to minimal insights. During the onboarding phase, ensure everyone is on the same page with expectations.

• No Backup – If you work with a freelancer or local firm, having a backup process is non-negotiable. What happens if your firm can no longer handle your bookkeeping? This is why many businesses choose an outsourced provider to guarantee continuity of service.

• Not Leveraging Technology – Dedicated outsourced bookkeeping providers have a slew of technology at your disposal. Be sure you take advantage of these offerings to gain the most insights from your bookkeeping.

How Bookkeeping Outsourcing Works

Bookkeeping outsourcing isn’t a one-size-fits-all process. The first step is determining which services you need. Next, it’s time to select your provider and start the onboarding process. After onboarding, constant communication is required to ensure accuracy in your financial data.

Ready to see the big picture of how a fully delegated finance function operates? View our comprehensive resource: The Complete Guide to Outsourced Accounting.

Transitioning to bookkeeping outsourcing doesn't have to be a disruption. At Personiv, we specialize in building dedicated accounting teams that act as a seamless extension of your office. If you’re ready to make the move, our experts are here to build a solution tailored to your needs. Contact our team today to get started.