Total Outsourced Accounting

Today's improved technology makes it possible to completely outsource business bookkeeping and other accounting needs while also dramatically reducing the costs of these functions. Outsourcing, or moving job functions from internal staff to outside professionals, has been common for years for tasks such as advertising and printing services. Now the improved availability of information technology has facilitated the transition of tasks formerly maintained in-house in a business's own location to the outsource model.

With recent developments, whole departments such as human resources, IT and bookkeeping are being outsourced, starting with some pretty large companies and making more and more sense for smaller businesses too. Old concerns about outsourcing security of data, control of records and accessibility of personnel have virtually fallen away with the new and improved systems currently available, giving place to a variety of advantages that have not been available before.

First of all is cost savings.

Now, more than ever, business owners are determined to control costs. A dollar saved in costs has the same effect on the bottom line as several dollars in sales, depending on the profit margin of a company. Selling a product or service for say $100 may only yield $20 in net profit after direct and indirect costs. On the other hand, reducing expenses by $100 drops right to the bottom line and increases profit by the whole $100.

In most businesses, payroll is the highest expense on the profit-and-loss statement. Payroll includes not just salaries and wages, but also costs such as payroll taxes, worker's compensation, medical insurance, vacation, holiday and sick days. When outsourcing can reduce these payroll costs, some by as much as half, it makes too much business sense not to ignore the outsourcing solution, particularly when considering the other advantages.

A second advantage comes from better production and services.

Tom Peters said, "Do what you do best and outsource the rest." Today more than business owners and managers needs to stay focused on core business. Finding, hiring, training, managing and maintaining the right internal bookkeeping employee or staff diverts valuable concentration from the vital business purposes of finding and satisfying customers and improving products and services.

Many times, in order to save money or avoiding the process of finding a competent bookkeeper, the bookkeeping function is relegated to other in-house personnel. All too often salesmen, customer service reps, office managers, even a paralegal in the case of one attorney's office, are juggling their primary responsibilities with doing the company's bookkeeping. Brief and simple, this means loss of production.

Competent and dedicated team members are certainly vital in the arterial areas of the business core. What invariably happens, of course, when these valuable employees are also assigned the bookkeeping task, is production and the quality of products and services suffer, and the bookkeeping records are inadequate and perpetually incomplete. In attempting to solve one problem two problems are created.

A third advantage is stability in the bookkeeping function.

Outsourced accounting can provide a more stable alternative to internal accounting and bookkeeping staff. While things may go smoothly with a bookkeeping employee or department for a while, even many years, eventually things change. For whatever reason, a bookkeeper or bookkeeping manager will leave. When that happens, a vacuum is left in the support and reporting mechanisms. All of a sudden bills are not being paid, money is not being collected and the business owner can't tell if he is making a killing or losing his shirt.

When the bookkeeping wheel falls off, it often takes weeks or months to find the right replacement and bring him or her up to speed. Sometimes a business will go through two or three bookkeepers before finding one who suits its needs and fits its culture. In the meantime, valuable time and attention are diverted to finding the right replacement and getting back on track. Who knows how the business is really doing during that intermission?

One of the major benefits of outsourcing any business function is the ability to offload the burden of assuring the stability of that function. Outsourcing companies are here for the long haul and provide continuity. A good bookkeeping outsource model has its client's records available online virtually 24/7, and the replacement of a bookkeeper can feel more like a speed bump rather than a brick wall.

It is important to draw a distinction. The outsourcing model is not the "come to my company's office, pay my bills and reconcile my bank statement" type of bookkeeping service. Neither is it the traditional, after-the-fact model supplied by most bookkeeping services and accounting firms. This is where the company submits its checkbook and bank statement each month and the bookkeeper enters the checks and other transactions and generates a set of financial statements after the fact.

These models have traditionally fallen short in the area of having a real-time grasp of a company's cash flow and often fail to provide timely business advice and solutions. What a business owner wants to know on any given day is what position his business is in, taking into consideration things like how much money he has in the bank, what he needs to spend (accounts payable) and what he can expect to come in the door (accounts receivable.) It is only with such information at one's finger tips, literally a mouse click away, that the business owner can make sound projections or correct problems as they appear in real-time.

Here's how to choose a good accounting outsource company: A successful transition to the total outsourced accounting model requires significant changes in the way things are done to assure the required flow of information back and forth between a business and its outsource company. Look for an outsourcer who can provide a timetable which shows a step by step, programmed approach that takes the business from its current process to its new system.

The new system should take advantage of paperless technology and advanced workflow processes so that the end product is a more efficient and useful solution rather than one that is only more complicated and remote. Insist that the records be available at all times to the business owner and that in the event the decision is made to stop using the outsourcing company, the records are easily transferable to a system such as Quickbooks and can be downloaded to the business' own computer.

John D. Rand is president of Rand & Associates Ltd. in Reno. He can be reached at 323-4440 or jrand@randcpa.com.