Let’s face it. Not every business owner likes number crunching. They may be good in other aspects but preparing a trial balance and financial statements is not their cup of tea. But business owners also cannot deny that accounting is one of the most essential business operations. Income statements and expenditure reports are vital for making informed business decisions.
Outsourcing has allowed many businesses to free themselves from tedious accounting tasks. Outsourcing providers have been crunching numbers for various clients and have the knowledge and experience with accounting functions. Whether it’s a financial report, income statement, trial balance, or other accounting documents, an outsourcing provider can easily prepare them for you.
But finding a provider to outsource accounting functions can be a daunting task. When looking for an outsourcing provider to partner with, you are bound to make crucial mistakes that could prove costly in the end. Here are 10 common mistakes you need to avoid when outsourcing accounting functions.
Common Mistakes To Avoid When Outsourcing Accounting Functions
- Settling For The Cheapest Provider
- Outsourcing The Most Difficult Work
- Not Having Standardized Workflow
- Vague Job Descriptions
- Lack of Understanding of Culture
- Not Fully Integrating the Outsourced Team
- No Established Security Protocols
- Not Having Proper Communication
- Not Defining Goals
- Trusting Words and Not Actions
Common Mistakes To Avoid When Outsourcing Accounting Functions
Outsourcing your accounting functions can be daunting especially if you are doing it for the first time. You are bound to make mistakes that could badly impact your business. Here are 10 common mistakes you should avoid when outsourcing your accounting functions.
1. Settling For The Cheapest Provider
One of the biggest reasons people outsource is the potential savings it can give businesses. But paying less does not always translate to good service. Price does not only have to be your criteria when outsourcing accounting. In fact, it could be one of the biggest mistakes you can make.
Since the outsourced provider agreed to be paid at a lower rate, they will most likely be working with multiple clients in order to compensate for the cheap rate they charged you. This means that they will most likely prioritize the client that pays higher.
Make sure that you hire a good and reputable outsourcing firm to avail of a wide range of accounting services. They may only focus on one part of the accounting process and won’t offer complete accounting services.
2. Outsourcing The Most Difficult Work
Most businesses tend to get excited about outsourcing. Because of this excitement, they choose 2 to 3 difficult tasks to test out for outsourcing. This is one of the biggest mistakes you can make with accounting outsourcing. It makes outsourcing more difficult than it needs to be.
Outsourcing your most difficult accounting tasks isn’t a smart move. Doing so without testing the waters first can bring your entire accounting process to a standstill. Instead, you should start with the more standardized, process-driven, and time-consuming accounting operations. This will help you optimize the generic process before moving on to more complex tasks.
Outsourcing your most difficult work will impact your business operations in a variety of ways:
- The transition phase can become more challenging
- More time training the outsourced accountant regarding the ins and outs of your business
- Having a bottleneck in the process
The idea is to retain the tasks with the most value to your business. This way you get some quick wins before building complexity.
3. Not Having Standardized Workflow
When outsourcing your accounting functions, the outsourced team will not have an idea on how to meet your expectations. Let’s say you outsourced 5 contractors who have different ways of doing the same job. It will only result in more confusion. You can remedy the situation by following a standardized workflow.
Having a common structure will serve as a “train track” for your team to follow. It will also provide a framework for continuous improvement. Setting a standardized workflow and KPIs will help you and the outsourced team get on the same page. It will show who gets what, when, and how.
Standardized workflows are not that hard to build with several workflow and project management software like ClickUp and Trello can help streamline and manage your outsourced functions effortlessly. Having a structured workflow will make you more aware of your team’s way of functioning and can take data-driven actions to change day-to-day practices.
4. Vague Job Descriptions
When looking to outsource accounting, you should set expectations at the onset. Specify not only the skills but also the tools that will be used in daily operations. Setting clear descriptions will make the hiring process easier and more efficient. Aside from that, you should also be clear with the following:
- Preferred mode of communication
- Methods of addressing issues and possible problems
- Frequency of delivery of work (weekly, biweekly, or daily)
- Security measures and power outage protocol
You should be doing this during the initial discussions and before closing the deal to avoid disrupting the outsourced accounting service. Make sure that these expectations are clearly detailed in the written agreement. Setting clear expectations will help you meet your business goals.
Another way to set expectations is to establish metrics and KPIs. Setting KPIs provides a clear answer to the question, “What constitutes good work?” Examples of KPIs include:
- Productivity targets
- Turnaround times
- Error/rework rates to minimize
- Number of system improvements made
5. Lack of Understanding of Culture
When outsourcing your accounting functions, you want to make sure that it is compatible with your corporate culture. This is important in breaking communication barriers. You must understand the strengths and weaknesses of your potential partner so you can properly integrate them with your culture.
The success of outsourcing partnerships plays a crucial role in business success. There are many benefits of partnering with an outsourcing company that has a similar culture as your company. You can be sure that interactions will be a lot smoother as you are on the same page. Also, it will be much easier to avoid issues.
Keep in mind that your outsourcing partner should be a mirror of your organization. They do not see any difference in terms of the way they will communicate. More importantly, you will be sure that they are aligned with your company goals.
6. Not Fully Integrating The Outsourced Team
Thinking of your outsourced team as offshore workers and not an integral part of your firm is a huge mistake that could lead to worse outcomes. Your aim should be for your in-house team and outsourced team to develop camaraderie in the long run. When your outsourced staff is not aware of the goals your team is trying to achieve, it could lead to confusion and demotivation.
The outsourced team will be more eager to accomplish tasks and achieve goals when they are fully integrated into their client’s business. They will be more productive when their clients listen to their thoughts and are included in discussions. Not fully integrating the outsourced team with your in-house team will result in a change in the team’s dynamics, structure, and hierarchy.
Before considering integration, assess your objectives and assets. Identify the required technologies and the gaps in your employees’ skills and your current resources. Once you have done so, consider the aspects of your business that you can outsource with a third party and make sure that they are fully integrated with your in-house team.
7. No Established Security Protocols
Security protocol is important when looking for an outsourcing partner. Without security measures, confidential data could be at risk of being compromised. It is important to iron out security details with the provider before entering into any agreement. When outsourcing accounting functions, you will most likely share files and documents over the cloud which is not that secure at all.
When dealing with the outsourcing provider, you want to ensure that they will take active measures to protect your data. Do they have measures in place to implement usage policies? Can they ensure the prevention of vulnerability exploitation and privilege abuse? Data breach analysis by Identity Theft Resource Center revealed that there were 1,291 data breaches as of September 2021, a 17% increase from 2020.
Make sure to choose a provider that will guarantee data privacy and protection. In addition, you should also ensure that its employees are knowledgeable about best practices for handling and protecting business-critical data.
8. Not Having Proper Communication
Communication is very important in outsourcing especially if your chosen partner is located in another country and working in a different time zone. It is vital that you be informed about the progress of your project. Lack of communication may cause undue delay and lead to business loss. The outsourced accountant or team may be trained and experienced to work independently but it does not mean they should not communicate with you.
You should see to it that you check in from time to time to be aware of the work’s progress and immediately address any issues that the outsourced provider may have. You don’t have to micromanage the provider but need to communicate with you regularly. This will help get the work done as soon as possible.
Thankfully, tools and technology can make communication between you and your outsourcing provider easier. There are many project management tools that can help you track what the provider has been working on and what’s the progress. So make sure that your prospective outsourcing partner is utilizing these tools so you do not have to contact them all the time.
9. Not Defining Goals
If your aim to outsource is to get better service at low rates and minimum management, then you should reconsider. What do you really want to achieve by outsourcing? An accounting outsourcing provider can do various tasks for you but you need to determine which functions to outsource? Are you planning to outsource the more complicated tasks or the entire accounting function?
Without a well-thought-out plan for outsourcing, you may not get your desired results. Ultimately, the type of accounting outsourcing services you would avail of would depend on what you want to achieve from outsourcing. First, you need to define what accounting service you need. Are you just looking for help with invoicing or accounts payable? If you don’t define your goals, there is no way accounting outsourcing will work for your business.
10. Trusting Words and Not Actions
Trust is important in building human relationships. The same is true with outsourcing. One of the biggest pitfalls you should avoid when outsourcing accounting functions is to believe the word of the outsourcing firm without scrutinizing its action. This is where thoroughly screening the outsourcing company pays off.
Surely you wouldn’t want to entrust your confidential financial data to an outsourcing company based on its word. You need to have proof that it can deliver on its promise. You would want to work with a reliable company at an affordable cost with better service quality. It is best to follow up with references to validate gut feelings and assure yourself that your financial data is in good hands.
It all boils down to being confident that your third-party provider will deliver the expected outcomes and contribute to business efficiencies and growth. Trust is important in maintaining your integrity and reputation which could lead to your long-term success.
Accounting outsourcing providers can help you with your number-crunching tasks. Choosing the right provider is vital to a successful working relationship but one mistake can be detrimental to your business. Remember these tips when choosing an outsourcing provider for your accounting functions.
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