Running a startup means having ten different jobs at once. Entrepreneurs have to deal with products, sales, staffing, financing, and in all that madness, accounting tends to get left behind. Yet, bad accounting can silently doom even the most successful startup.
And that is precisely why more entrepreneurs are choosing outsourced bookkeeping for startups. It’s affordable, reliable, and gives you a chance to focus on your business growth rather than spending night hours fixing your spreadsheets.
This article will explain everything about outsourced bookkeeping, its importance, and how to choose the best service provider for your startup.
What Is Outsourced Bookkeeping?
Outsourcing bookkeeping involves delegating responsibility to another team or individual outside the organization for the purpose of handling the company’s day-to-day accounting needs instead of doing the same in-house or personally. These activities include recording entries, reconciling bank accounts, accounts payable and receivables, and preparing financial statements.
When entrepreneurs decide to outsource bookkeeping, the process involves a remote team of bookkeepers using cloud accounting systems to stay on top of the latest changes. Some entrepreneurs prefer on-site companies while some go for offshore bookkeeping.
Did you know?
Businesses that outsource their routine financial activities are able to save up to 50 percent of what it costs when the same is handled in-house.
Why Startups Should Outsource Bookkeeping
Startup accounting is not similar to traditional company accounting. The budget is limited, the team is compact, and every minute counts. At this stage, employing an in-house bookkeeper does not seem cost-effective, especially in case of limited transaction volume.
By outsourcing your small business accounting needs, you will get professional-quality bookkeeping services without additional expenses on salaries, training, and employee perks. What is more, you will have professionals handling your accounts on a daily basis, thus minimizing the error rate.
For early-stage companies that need to prepare for financing rounds or expand their operations, having accurate books is crucial.
Key Benefits of Outsourced Bookkeeping for Startups
The following shows how outsourced bookkeeping and accounting is beneficial for startups:
Improved Cash Flow Management
Financial struggles are one of the major causes behind the failure of startups. Outsourced bookkeepers monitor cash coming in and out and raise red flags before any financial problem reaches an emergency stage. Having real-time insight into your company’s finances will enable you to make better decisions about expenditures, staffing, and investments.
Quicker and Precise Financial Reporting
Outsourced professionals have their own processes, thus eliminating chances of errors in financial reporting and increasing the speed at which reports are produced. You get your financial statements done without having to chase anybody.
More Time Available for Productivity
If founders do not have to waste time entering data manually into Excel sheets, they can utilize this extra time more effectively on other activities like developing new products and acquiring new customers.
Simpler Tax Preparations
Poorly organized financial records can lead to stress and higher costs during tax time. But when you outsource bookkeeping, your books will be ready for an audit at all times, which will make your dealings with your CPA or tax preparer much easier.
Financial Statements Ready for Investors
Investors need to have access to well-organized financial statements in order to invest money into your business. If you outsource your bookkeeping, your financial reports will be ready for investors starting from day one.
Use Modern Accounting Software Without Paying for It
Most outsourcing companies for small businesses use accounting programs such as QuickBooks, Xero, and NetSuite. That means that by outsourcing your accounting, you get access to enterprise-level accounting tools without paying for them.
Want to streamline your company’s accounting processes? Contact Global Teams AI today and build your own team of bookkeepers!
Best Practices for Outsourcing Bookkeeping
- Define a scope of work — Determine the particular processes you’ll outsource (e.g., reconciliation, payroll processing, invoicing, reporting, and more) before committing to a service provider.
- Select cloud-based solutions — Make sure your service provider operates using cloud-based accounting software to ensure access to your data at all times.
- Establish a reporting schedule — Weekly or monthly meetings will help you stay aligned throughout the process and avoid any unpleasant surprises at the end of the year.
- Don’t forget about internal supervision — Just because you choose to outsource, it doesn’t mean you have to leave everything behind; appoint an internal person to control the report and spot discrepancies.
- Focus on data safety — Make sure that your provider operates under strict data security guidelines, especially if you consider offshoring bookkeeping services.
- Think of scalability — Select a service provider that will be able to cope not only with a couple of transactions but also with dozens of transactions every month.
Common Mistakes to Avoid
- Delaying outsourcing — Many companies tend to delay outsourcing until their accounting is in a mess, making the whole process even more expensive.
- Picking the least expensive option without checking for quality — Inexpensive services don’t necessarily provide good value for money. Always look for reviews.
- Overlooking compatibility with existing tools — Consider whether the service provider will work with your existing accounting system or force you to switch.
- Neglecting a trial or a test run — A short test run gives you an opportunity to assess the quality of communications.
- Failing to consider security measures — Ask how the information about your finances will be secured.
How to Choose the Right Outsourced Bookkeeping Partner
Here are several key criteria which will help you find reliable outsourced bookkeepers for your startup:
- Experience in working with startups — The provider should have experience in addressing specific requirements of startups such as burn rate monitoring and reporting.
- Compatibility with software solutions you use — They should be able to work in accounting solutions you currently use or willing to use.
- Transparent pricing — Stay away from vendors with vague pricing policies; better to choose the one providing fixed monthly fees.
- Speed of communication and turn-around time — Ask them how fast they reply to your queries and how often they provide updates.
- Certification for data security — Critical especially if you are using a vendor located in an offshore or remote location.
Did you know?
Startups outsourcing bookkeeping virtual assistant functions from the beginning save up to 15-20 hours per month which startup founders used to spend on financial administration manually.
Signs Your Startup Needs Outsourced Bookkeeping
As your business grows, financial management will become increasingly demanding. If you see any of these signs in your business, then maybe it is time to consider hiring an outside firm for bookkeeping:
- You find yourself spending more time on your spreadsheet instead of working on your product and your clients. You have less time to grow the business, because of accounting work.
- Your bookkeeping is not done for several weeks or even months. Late bookkeeping will result in incorrect data, delays with paying bills, and bad decision-making in general.
- You are preparing to raise capital from investors and need accurate reports. Investors want to see organized and transparent financial statements to make their decision.
- Tax season is always a stressful period for you. Inaccurate information, lack of records, and calculations made at the last minute can increase chances of mistakes.
- You need to switch from using simple accounting software to professional help with your growing number of transactions.
- You do not feel that the numbers are accurate. When you doubt your cash flows, expenditures, or profit margins, then it’s an obvious sign.
Conclusion
Outsourced bookkeeping offers entrepreneurs accurate and professional accounting without the expensive step of creating their own accounting department. With the assistance of professional bookkeepers, entrepreneurs will be able to keep accurate accounting information, monitor their cash flow, file taxes and make proper business decisions without any worries.
As a result, outsourcing bookkeeping services is critical for a growing company when raising capital and minimizing expenditures become necessary steps towards its success. In case you want to entrust bookkeeping operations to someone competent, Global Teams AI is ready to create a team of bookkeepers for you.
If you need professional assistance in organizing bookkeeping at your startup, feel free to contact Global Teams AI for assistance in building a customized solution for you.
Frequently Asked Questions (FAQs)
What is outsourced bookkeeping for startups?
Outsourced bookkeeping for startups is the process of engaging an external firm for managing bookkeeping responsibilities including transaction entries, reconciliations, and reporting.
How much does outsourced bookkeeping cost?
The costs will differ depending on the transaction load and the scope of services, but outsourced bookkeeping is less costly than hiring an in-house bookkeeper for startups.
Is outsourced bookkeeping secure?
Yes, reputable firms will provide a cloud-based and encrypted accounting solution and will ensure adequate protection of your financial information. You need to be sure about certifications of the service provider before submitting any financial information to them.
Can outsourced bookkeepers work with QuickBooks or Xero?
Most reliable outsourced bookkeeping providers have experience working with popular software solutions such as QuickBooks, Xero, and NetSuite.
When should a startup outsource bookkeeping?
A startup needs to think about outsourcing its bookkeeping services as soon as the manual bookkeeping becomes too resource-intensive or before tax season, fundraising, and expansion of operations.
What’s the difference between bookkeeping and accounting?
Bookkeeping is concerned with the recording of financial transactions while accounting is the process of analyzing and interpreting the data recorded.
