What is outsourced accounting? A guide for SMEs

If you want to sustain the long-term success of your organisation, then proper management of your finances is crucial.

A lot of SME decision-makers would probably think this happens in-house, with their oversight and careful control.

We’d argue the opposite is the case. Business owners should instead leverage the industry-specific knowledge, up-to-date technology, and dedication of an outsourced accounting firm.

In this article, we’ll answer the most important questions around outsourcing your accounting function, including:

What is outsourced accounting? 

Outsourced accounting is the process of entrusting a third-party service provider with the management of your business’s financial affairs, rather than performing the function within your business. 

An outsourced accountant should be able to perform the following services for your company: 

An outsourced accountant might also manage your tax compliance. For example, completing your annual tax returns, or ensuring your business is up to date with the latest IR35 regulations.

What services should I look for from my outsourced accounting partner?

We outlined some of these services above, but it’s worth drilling down into why these services are important for your business’s bottom line. Here are six services you should look for from your outsourced accounting partner: 

1. Xero support

Xero is an accounting system designed for small and medium sized enterprises . It connects your SME with trusted advisors, who provide you with instant visibility on your current financial position, and can help you grow your business. It’s industry leading features include everything from capturing receipts to reconciling bank transactions and helping you get paid faster. Here’s a list of the benefits Xero can bring to your business.

2. Management accounts & analysis

Looking back at numbers and data is vital if you want to keep your business moving forward. You should get an outsourced accounting firm that digs deep and takes a closer look into how well your business is doing and what can be done to improve it further.

This exercise should be performed either monthly or quarterly. Further, setting up KPIs and seeing how much your business spends in comparison to the actual budget set are important steps of this procedure too.

3. VAT returns

VAT returns and registration services should appraise the most suitable VAT scheme that a business should apply for. Your outsourced accounting partner should do all the leg work here and communicate directly with HMRC; these returns should be filled on time and well ahead of the deadlines.

4. Company secretarial

This service consists of checking the proposed company name and registering your operation with Companies House. It further includes making sure that all of the legally required filings are done on time. If there are any future changes to shareholders or directors, then that should be taken care of too.

5. Payroll

Efficient organisations provide their employees with constant access to payslips so that employees do not lose those documents. Your outsourced payroll partner should ensure your staff are paid in a timely manner while keeping you informed of when you need to pay your PAYE.

6. Statutory accounts

Your outsourced accounting partner should be a firm of Chartered Certified Accountants who are qualified to prepare accounts to the highest technical standard. They should be required by law to complete technical training every year to keep ahead of any developments in the domain of accounting standards and tax.

What should I consider when opting for outsourced accounting?

To entrust the finances of your business to a third party is a big step for an SME founder. Many business owners struggle to let go of key functions, and that’s understandable.

Outsourced accounting isn’t necessarily the best choice for all companies. It’s worth taking stock of a number of questions you should ask of yourself and your trusted colleagues to make sure you’re making the right decision:

1. Is virtual accounting right for my company?

Instead of scouring the internet for international accounting standards, you need to decide whether outsourced accounting makes sense for your business. This means that if your current accounting process falls into any of the categories mentioned below, you are an ideal candidate for outsourcing:

2. Does outsourcing align with my company’s goals?

The benefits that you get out of outsourcing your accounting will only become visible with time. And to measure those benefits, you need to create KPIs that are actionable and well-defined.

Those figures should be carefully aligned with the goals of your business. Are you looking to expand your research & development capability? Then working with an accountant with knowledge in that field, that can help you produce new innovations, while saving money is advisable.

3. Additional tips

Apart from the basic steps mentioned above, there are some additional factors that you should consider when opting for outsourced accounting. Let’s take a closer look.

Finding the right vendor

Start your search online and narrow it down to a handful of potential vendors. After making sure they provide the services we suggested above, get in touch with them and see if there’s a good cultural fit. You’ll be working closely with the company for a long time (hopefully), so ask them questions about their values, how they help companies grow, and just get to know them in general.

Bringing everything to the table

After you have finalised the accounting firm you wish to move forward with, create a roadmap of how things will transition moving forward. If you have questions related to the accounting packages, then this is the right time to get those questions answered.

Analyse the services

It’s easier to get lost in the world of finance and accounting. This is why you must analyze the services that your accounting firm is offering to you. This means that you evaluate the validation, demonstration, breakdown, communication, timeline, and tech check that is being provided to you.

Transfer your knowledge

Sharing your business’s story, goals and USPs is crucial in letting your outsourced accounting partner find the right path forward. It’s important you trust your provider, as you will be sharing confidential information with them throughout the relationship.

Identifying opportunities

After the initial setup, communication should not die down. Instead, always connect with your outsourcing provider to look at any trends and opportunities that would be beneficial for your company.

How do finance and accounting affect the valuation of your company?

Several factors determine the value of your company. From cash flow to financial leverage and future performance, every factor has an important role to play. This means if you are seeking funding or you intend to sell your business, then you would need your accounting valuation to understand the value of your organisation’s assets and liabilities.

Beyond this, factors like earning history and growth prospects play an important role too. The individual who is appraising the value of your business will also want to take a look at the income trends of your company. 

But what if your company has outdated and inefficient transactional processing and you further lack formal documentation policies or financial controls? In that case, you will be hurting your business and negatively impacting your company’s valuation.

Because of these reasons, consistent maintenance of your financial records is crucial. This would give transparency to your business by showcasing your success and exposing your weaknesses, which is extremely important in making informed decisions down the line. But for all of this to happen, you need:

Sadly, not all business owners have the time, expertise, or leadership to ensure proper financial and accounting departments are in place. This is understandable given the number of challenges any SME business owner faces regularly.

Thankfully, the solution here is quite simple. Smart business owners can turn to outsource accounting service providers instead of bleeding resources every month to maintain an in-house accounting team.

The best outsource service providers customise the services to match the requirements of their clients. This means that you will only get the financial services you need to fill in the gaps in your business!

The benefits of outsourced accounting services

There are several other benefits to outsourcing your accounting

Significant cost reductions

Hiring, training, and retaining employees is a high-cost process. By outsourcing, you can simply save on all of these expenses. You can also get rid of additional expenses related to hardware, software, office supplies, and any upgrades that come with it!

With outsourcing, you can get access to expert accountants, bookkeepers, and finance professionals at a lower cost. You further save on employment taxes, infrastructure fees, and other overhead costs because those experts will be employed by your outsourcing firm and not directly by your company.

Latest technology

When it comes to outsourcing and financial services, only relying on cutting-edge technology and software is the way to go. And if your outsourcing partner has access to those technologies along with the Xero accounting system, then you get the benefits of using the latest technology without paying any additional costs!

Managing operations during tough times

If the COVID-19 pandemic has taught us anything, then it’s the simple fact that life can change at any moment. Few businesses would have anticipated the sudden hike in energy prices that followed in 2022. This means that if situations change economically, then companies should be ready to shift their workforce. This can be a very challenging and resource-intensive process.

However, if the responsibility of managing the talent assigned to a particular project, including paying team members, lies with an outsourcing company, then it can make your life easier. You would be able to scale up or down in terms of staffing with ease. 

Also, an outsourced accountant can help your business plan for the worst-case through scenario forecasting: the process of modelling for outside shocks that can threaten your business’ survival. 

Scalability and flexibility

When your business grows and expands, then it would become critical to have the right software and expertise to manage your accounting needs. Hence, it is best to outsource your accounting services to a firm that can provide you with active support when you grow your business.

Boosting compliance

Financial and tax regulations are always changing. It is essential that you keep up with those changes. But as a business owner, you might not have that kind of time.

With outsourced accounting and bookkeeping services, you can avoid tax penalties and maximize your tax benefits by ensuring compliance.

For example, in the past few years alone, there have been significant changes to legislation pertaining to corporation tax, R&D tax credits for SMEs, and the tax rates for capital gains and taxes on dividends. Using an outsourced accounting firm makes both your professional and personal finances more tax efficient. Saving you a lot of money in the long run. 

For a guide on how to make your business more tax efficient, read our 101 guide

Say goodbye to mistakes

If you outsource your finance and accounting to experts, you can avoid mistakes and the associated punishments from the authorities. Finance experts will make it easier for your company to solve even the most challenging cash flow management issues. Your books will be accurately checked, and all the transactions will be reported, which means there will be little chance of your books being manipulated.

Improved confidentiality and data security

It seems counterintuitive to say that getting an outsourced accounting team will enhance your data security. Professional practices spend a large chunk of their time maintaining the security of your data. This means that you and your information are always secured against data threats with state of the art security systems. This will keep your business protected against the latest tax scams, which have increased exponentially over the past few years. 

Prioritising and saving time

Outsourcing accounting services can free up valuable time that you can utilise for managing and growing your business. It will allow you to devote time to revenue-generating and value-added tasks like:

Get in touch to make Pennyhills your outsourced accounting partner

At Pennyhills, we go above and beyond for our clients. We always make sure that you get:

We provide all of these services and more. Not only can Pennyhills act as a trusted outsourcing accounting partner, we can also help to make your business’ finances more sustainable, and offer advice on how to grow your business

Our intrinsic knowledge of the taxes most likely to affect your business allows us to deliver wins for our clients; be that CIS or R&D tax credits

We can help businesses from any industry unlock their potential. So why not give us a call, and see if we’re the right match?Don’t know what to say? Then, send us a nice old hello! And we’ll take it up from there.


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