When Should Startups Outsource Their Accounting?

Entrepreneurs often juggle many responsibilities, including keeping track of their finances. Startup or not, nearly half of small businesses don’t employ an accountant or a bookkeeper. At some point, however, it may be more productive for an entrepreneur to outsource their accounting and free up their time to focus on running their business. At what point does outsourcing your accounting become more productive than managing it in-house?

In this article, we discuss thresholds for startups to consider, and the benefits of outsourcing their finances to an accounting company. Use the information below to determine if it’s time to outsource the accounting needs of your startup.

What functions does an accountant fill at a startup?

Accounting encompasses more than payroll, payments and taxes. Some additional responsibilities of your accountant include creating financial forecasts, helping you to choose a business structure, providing insight on cash flow patterns, creating financial forecasts and more. A good accountant will help you make decisions about how to direct investment and grow their business.

Related: 8 Ways to Inspire a Virtual, Outsourced Team

Are there requisite milestones to hit before hiring an accountant?

According to GrowthForce, most businesses wait to achieve certain milestones before they outsource their accounting.

For example, companies may hire an accounting firm once they:

  • Employ 8 to 10 people
  • Earn $1 million in revenue
  • Accept outside investment capital
  • Experience accelerated growth

But, should entrepreneurs necessarily wait for specific milestones before outsourcing?

While it is tempting to wait until you have free resources to invest in accounting, outsourcing your accounting earlier can save you and your business valuable time. This, in turn, allows your company to dedicate more efforts to business growth and finding problems to everyday challenges.

Accountants help optimize startup resources

To be effective, your accounting requires a significant amount of time and quality assurance. Accounting responsibilities entail more than day-to-day data entry and invoicing. Bookkeeping, payroll, tax preparation and financial statements are all mission-critical activities that require a knowledgeable member of your team to review. It’s likely that these members are also the ones who already juggle the most responsibilities.

At some point during your company’s growth, the deciding factor of whether or not to outsource accounting turns into a pure numbers challenge: How much is your time worth versus how much does it cost to outsource your accounting?

An accounting company can:

  • Prepare financial materials much quicker than a business manager
  • Reduce the time and expense involved in correcting accounting data errors
  • Relay and pull crucial accounting information to appropriate parties when needed

In its report, Orba outlines the basic knowledge needed to manage small business accounting. If this list contains terms you’re unfamiliar with, or if the amount of responsibility seems like a lot to incorporate into your day-to-day responsibilities while you build your business, you may want to consider outsourcing your accounting sooner rather than later.

Data indicates that outsourcing accounting corresponds to higher revenue

Some startups think hiring an accountant is something that’s financially out-of-reach, but data indicates it’s more expensive to DIY your accounting than to outsource it.

According to a report by Consultance Accounting, businesses that outsource accounting report higher profits and revenues.

Another recent survey of over 1,700 business professionals found that:

  • Business professionals who outsourced their accounting reported more profit increases than those that did not
  • Businesses that are open to new accounting technologies are twice as likely to report a higher profit
  • Almost all business professionals (80 percent) report that outsourcing their accounting freed up time that they could spend focusing on their businesses

Working with an accounting expert helps organize your finances and increase the amount of time your startup can spend on other crucial activities – time that can contribute to revenue-generation.

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Early outsourcing facilitates growth

Accountants prepare reports that help business owners make better decisions. Hiring a financial expert in the early stages of your business can help you plan and invest wisely from the beginning.

For example, accountants:

  • Generate financial projections that help you develop more accurate business plans
  • Develop graphs and charts to visualize key business metrics such as revenue run-rate
  • Project growth to inform personnel and resource decisions

For the best chances of success, outsource your accounting at the launch of your business.

Startups benefit from outsourcing their accounting

The earlier a startup can outsource its accounting, the better their chances of success. Doing so during the pre-launch or early stages of your business will help you to increase profits and ensure the best possible opportunity for your company to thrive.

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