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When should you start to outsource your accounting?

With so many different apps and online accounting and recordkeeping solutions for small businesses and freelancers today, many are putting their accounting matters into their own hands. For freelancers in particular, keeping track of earnings and expenses on a spreadsheet may be sufficient recordkeeping to stay organized for tax season. It’s estimated that 62% of small business owners have some type of in-house accounting solution, whether it’s through software or a dedicated staff member opposed to fully outsourcing.

But when is it time to outsource your accounting needs to a professional? It can be difficult to afford a CPA’s fees when you’re just starting out and looking to stabilize your cash flow first. Every business is totally unique with their own goals and administrative burdens, and entrepreneurial and market trajectory can’t always be accurately predicted. However, here is a good idea of when it’s time to outsource your accounting.

You Are Unsure How to Properly Maintain Books and Records

Every entrepreneur excels at different aspects of running a business, and has weaknesses in others. Having dedicated professionals like accountants and attorneys to help you is crucial for your success. Even if math is your strong suit, it doesn’t necessarily translate to accounting knowhow as it is a complex information system that requires specialized knowledge to handle correctly.

While utilizing a bookkeeping app can help give you an idea of your overall numbers, outsourcing to a professional becomes integral if this aspect of owning a business is stressing you out and causes you to put off properly maintaining your books. If receipts and invoices are piling up, and you don’t know what to do when the bank asks for a P&L and balance sheet, it’s time to start working with an accountant who can get you on the right track.

Transaction Volume Becomes Unwieldy

When your business is just starting out, there may not be many transactions to record yet. As your business gains momentum over time, picking up more customers, clients, revenue streams, or deals means that the number of transactions has also grown. What used to take 15 minutes upon going through your bank and digital processor statements now takes hours.

Although some online accounting solutions have “smart” AI implemented to tackle changes in transaction volume, as well as copy and paste functions for recurring transactions like rent and insurance expenses, managing larger transaction volume becomes more costly simply in how much more time it takes. The more time that you spend on entering transactions and other administrative aspects of your evolving business, the less time that you have to spend on more revenue-producing activity plus your personal life.

When your business presents an ongoing need for accounting help because of transaction volume, this is when it becomes critical to outsource it.

Transactions Become More Complex

Some transactions are very simple, such as recording the receipt of payment for services or disbursing cash to pay for supplies. Other transactions can become far more complex, whether they are seldom or routine. For instance, there are business deals that entail the purchase or licensing of intellectual property with possible payment of royalties. These deals require a degree of legal knowledge to determine how to treat them for tax and bookkeeping purposes. While common in the software and games industries, most accountants have training in commercial paper that helps decipher these agreements and how they must be accounted for.

Buying and selling a businesses or components, mergers, selling property, and business deals introduce more complexities in both tax laws and accounting standards that basic bookkeeping software can’t automatically compute with its AI.

When your business transactions grow more complex than basic recording of revenue and expenses, it’s time to start working with a professional.

Your Business is Going Through Significant Changes or Growth

Both transaction volume and complexity go hand in hand with business growth. As your business matures and your goals may change, along with the business entity you originally chose, you are more likely to need to outsource accounting. Significant changes to operations are also apt to necessitate outsourcing your accounting, as you may be unfamiliar with how to properly record transactions of this nature. As regulations constantly update, accounting professionals are dedicated to staying on top of those changes so that you and your team can direct your attention to maintaining and improving business operations.

Achieving business growth is an exciting stage, but it can also be an awkward one: your administrative burden has increased, but you may not have the resources to hire a dedicated internal accountant or expensive back office stacks. In-house accounting professionals are costly to attract, retain, and train. Back office and business intelligence software meant for more robust transaction volume and complexity is equally expensive with a time-consuming learning curve. An outsourced accounting firm grants access to experienced and knowledgeable professionals, and the subsequent technologies they use, without the need to manage internal staff and costly platform subscriptions.

You’re Unsure What Financial Data is the Most Important

There’s a reason why accountants are often instrumental to helping a small business grow: they don’t just do your books so you don’t have to, they also help you determine which numbers you should be paying the closest attention to.

Different types of businesses have differing needs for parsing financial data and making more informed business decisions. Some business processes may rarely request financial statements, while others will require them to be submitted frequently. If you’re not sure which data you should pay attention to, outsourcing to an accountant can help you produce the financial reports you need on a timely basis. As it doesn’t make sense to hire in-house accounting staff at a small scale, an outsourced accountant is your best “human” solution.

Jeff Lipsey and Associates can assist small business owners with figuring out the right accounting solutions for their needs and creating a smooth transition from in-house recordkeeping to outsourced accounting. Contact us today to speak to one of our friendly and professional business tax experts.