How can outsourcing bookkeeping services reduce your business risk?
How can outsourcing bookkeeping services reduce your business risk?
Generally, it has been observed that small and medium-scale business owners try to save on the cost related to accounting and bookkeeping functions by neither hiring a dedicated in-house team of professionals nor would outsource all such requirements to third-party consulting firms. These business owners often try to do everything on their own and end up struggling with the productivity of their business’s daily operations, along with impacting the effectiveness and accuracy of the accounting and bookkeeping functions.
But as the business grows, the workload increases from all aspects of business, and here, the business owner realizes the limitation of their capacity to perform several tasks simultaneously. It is when the actual need to outsource the business’s accounting and bookkeeping requirements comes into the picture.
Some business owners might prefer to appoint an internal team of accountants and bookkeepers to meet all their accounting needs in the best possible way. In contrast, some other businesses may partner with third parties to care for the exact business needs. You must note that your business is different from others, and hence what may work for others may not be viable for you. Therefore, the decision as to whether to move ahead with outsourcing all your requirements to an experienced group of professional experts or to hire an in-house team of accountants/bookkeepers should be taken with complete cognizance of the nature of your business, the scope of growth, and industry of your business operations.
This article briefly discusses the benefits of outsourcing the bookkeeping/accounting functions and how it helps in reducing the overall risk for your business.
So, here we go….
Potential business risks can be reduced by outsourcing accounting and bookkeeping functions
Every business faces unique challenges and risks during its operations in this ever-evolving world of technology and globalization. However, there are quite a few risks that can be eliminated or the intensity of which can be minimized by outsourcing your business’s accounting and bookkeeping requirements to a team of professionals and experts.
- Ineffective accounting systems or faulty technology
When carrying out the accounting and bookkeeping in-house, small or medium-sized enterprises generally resort to some applications or software to manage the activities. Since businesses are in the growing stage, cost saving is one of the critical parameters. It impacts the decision to acquire the technology to do accounting/bookkeeping, which is lower in cost and ineffective in managing complex or even regular tasks appropriately. In the name of cost saving, you may use inefficient and faulty systems.
On the other hand, if you outsource all your accounting and bookkeeping requirements to a team of professionals, you need to worry about technology or systems, as they would already have the latest techniques and advanced software to carry out their client’s business functions most effectively and efficiently.
Hence, if you place reliance on third-party consultants for your accounting and bookkeeping needs, you will eliminate the risk of using faulty technology and accounting systems, which would ultimately impact your business’s routine operations and may portray incorrect financial results.
- Manual errors
Even if you have hired the most experienced personnel to manage all your accounting and bookkeeping activities, there are still very fair chances of the occurrence of human errors. Human errors arise when you rely on manual procedures and controls rather than upgrading your business systems with the latest technological advancements.
If any such error occurs, your business will be adversely affected as you would be required to invest your resources in finding that error or mistake and rectifying the same.
While, in the case of outsourcing business needs like accounting/bookkeeping, the possibility of such human errors is almost negligible, given the fact that such third-party consulting firms have modern digital solutions to take care of your needs, and each task performed is subject to review by an independent team. Thus, outsourcing business-critical activities can save you from substantial damage that could happen owing to manual processes and blunders.
- Penalties for non-compliance
As you know, the commercial rules and regulations are being amended now and then. Thus, it becomes very critical to stay updated with such revisions. If you decide to do everything on your own, it might be difficult for you to keep track of such changes, leading to unnecessary charges of non-compliance and payment of late fees or penalties.
However, when you outsource your business-critical activities to third-party professionals, they diligently keep track of the latest changes or updates in accounting policies, tax rates, or any other government regulations that may impact the business’s financial obligations. Hence, outsourcing accounting and bookkeeping functionalities can help you save time and monetary resources well and eliminate the risk of being tagged as a “defaulter” or “non-compliant.”
- Issues related to cashflows
For any business to operate effectively, financial statements and the figures therein play a vital role. The cash flow statement helps monitor the cash movement in your business and gives you an idea about the cash positions and working capital needed to run the business. If you are managing accounting activities on your own, it may not be possible all the time to track the cash inflows and outflows on a real-time basis. Thus, you would not have any information and control over your cash/bank balances.
While if you outsource all your accounting functions to a team of professionals, they will keep a trail of all the cash movement within your business organization and present you with the cash or working capital status in real-time. It would eliminate your risk of running out of monetary resources needed to carry out the daily business chores.
- Impact on the profits
When you outsource your accounting, controlling, and bookkeeping functions, the third-party consultants help you plan and manage your clientele so that you can focus on your deliverable basis the individual client’s margin proportions, the cost of human resources involved, etc. Their intelligent analysis would help you manage your customer relationships, the contractual terms, and the pricing of the projects. The financial intelligence offered by outsourcing firms is unparalleled, which can help organically maximize your profits while managing the clients and maintaining the brand reputation.
- Inefficient management of payables and receivables
On-time collection of receivables is a crucial element for the smooth functioning of the working capital cycle. However, when you manage transaction processing single-handedly, you may not get time to follow up with your clients, requesting clearance of receivables. It impacts your cash flows very adversely. Similarly, in the case of payables, when you are not in a position to dedicate your time to clear the dues within the credit period, the vendors may start sending you unnecessary reminders. It affects your credit score and the market position as a customer.
Thus, timely tracking and clearance of receivables and payables are critical to any business enterprise, which requires effective accounting and bookkeeping strategies and systems. Consider these requirements when you outsource your accounting, controlling, and bookkeeping tasks. This way, you can reduce the risk caused by delayed payments to creditors or late collection of receipts.
- The inaccurate and faulty decision-making process
Businesses do not grow based on gut-based decisions. The vital and critical business decisions should be based on factual information and a data-driven approach. Sometimes, you may have the facts but may not be the field experts to analyze the same most accurately. The decisions made basis such information or even without any points would lead to the degrowth of the business.
However, when your accounting function is outsourced to a professional and well-experienced team, they will study your data and share thoughtful analytical reports about your financial results and positions, assisting you in making sound decisions and realistic expansion plans. The facts-supported decisions would promote your business growth and mitigate the risk of inefficient planning.
- Wastage of money on ineffective strategies
Return on investment is one of the main principles with which businesses operate. Suppose you spend a lot of money on marketing your goods or services or brand name but do not have the expertise to track the results such marketing spend is yielding in revenue growth. In such cases, you cannot justify such marketing campaigns. Thus, it is essential to track the results of such expenditures, check on the return on investments made, and determine whether the desired results are obtained or whether to discontinue the strategy.
However, when you have outsourced your accounting requirements to a team of experts, you may seek a detailed analysis report of each spending against the impact on the business periodically. Such analytical dashboards would eliminate the risk of unnecessary spending and help you in cutting these costs.
Final Words
All the points mentioned above are a few illustrations of the risks you can eliminate or at least minimize when you resort to outsourcing your accounting and bookkeeping requirements to professionals and experts. If you are looking for a partner to whom you can outsource your business-critical functions and eliminate the above-referred issues, then CFO UAE is the name to rely upon.
