What is the True Cost of Outsourcing Accounting?

Outsourcing accounting services has become increasingly popular among businesses due to its cost-effectiveness and improved results, enabling businesses to focus on their core competencies while delegating accounting tasks to external experts. While outsourcing can reduce the need to hire and train in-house staff, businesses should also be aware of the different types of costs involved, including direct, indirect, and hidden costs. 

With minimal potential downsides, outsourcing accounting services can help businesses cut costs, reduce fraud, save time, increase profitability and operational efficiency, and access greater skills and resources.

Understanding Outsourcing Accounting: The Basics

Outsourcing accounting services has become an increasingly popular practice among businesses of all sizes. This involves hiring an external service provider to perform tasks or functions related to the accounting and finance department of the business.

The main reason why businesses outsource accounting services is to increase quality and reduce costs. By outsourcing, businesses can eliminate the need to hire and train in-house staff, which can be expensive. Instead, they can rely on the expertise and experience of an external provider who can offer cost-effective solutions.

Let’s take a look at these costs.

The Cost of Outsourcing Accounting

When it comes to outsourcing, there are different types of costs that businesses should be aware of. Direct costs are expenses that are directly associated with outsourcing, such as the fees paid to the outsourcing company. These costs are typically outlined in the outsourcing contract and can be budgeted for accordingly.

Indirect costs, on the other hand, are expenses that are not directly associated with outsourcing but arise as a result of it. For example, the cost of managing the outsourcing relationship or the cost of training internal staff to work with the outsourcing company can be considered indirect costs.

Hidden costs are expenses that are not immediately apparent, such as the cost of transferring knowledge to the outsourcing company.

At Signature Analytics, our monthly retainer typically falls within the range of $5,000 to $15,000 per month, depending on the size of the business and the level of services required. This fee includes a full-service, fully trained accounting team, including a CFO-level advisor, accounting manager, staff accountants, and bookkeepers.

How Outsourced Accounting Can Help Businesses Cut Costs

Hiring an outsourced accounting team is more affordable than hiring an entire in-house accounting team. Hiring in-house incurs expensive overhead costs including costs regarding hiring and onboarding, PTO, health insurance, retirement, vacation, workers’ compensation, sick days, and more.

Outsourced Accounting Can Reduce the Likelihood of Fraud

According to research conducted by Price Waterhouse Coopers (PwC), 46% of organizations surveyed reported experiencing fraud, corruption, or other economic crimes in the past 24 months in 2022. Private companies and small businesses were the most common victims, with up to 42% falling prey to fraud and incurring median losses of $164,000. Such losses can be catastrophic for small and mid-sized businesses.

One reason why internal fraud occurs more frequently with in-house accountants is that small businesses usually lack the checks and balances found in large enterprises. Additionally, internal controls in small businesses are often weak, and with just one person responsible, there is little opportunity for correction. However, outsourcing accounting services can significantly reduce the likelihood of fraud and other economic crimes.

Outsourced Accounting Can Save Business Owners Time and Increase Profitability and Operational Efficiency

By engaging an outsourced team, you can expedite the process. With a ready-made team at your disposal, you save time and avoid the need for training. Moreover, the hiring company can rid itself of the onus of mentoring, training, onboarding, and managing accountants (typically not their core skillset).

Outsourced accounting teams bring with them a wealth of experience from different industries. They can introduce novel and efficient methods of tackling old problems. An external team’s unbiased viewpoint can uncover operational gaps or hidden drains on profitability, which can be addressed promptly.

Outsourced Accounting Increases Access to Greater Skills and Resources

When opting for an in-house accountant, you are limited to a single individual’s expertise. However, outsourcing provides access to an entire accounting team with a wealth of experience in handling day-to-day accounting processes such as accounts payable, accounts receivable, and month-end close. These professionals are well-versed in providing accurate, relevant, and timely numbers to businesses across various industries. 

Moreover, outsourcing allows for the flexibility to cater to specific needs such as controllers or accounting managers, unlike in-house accountants with limited skill sets. Additionally, hiring is expensive, time consuming and there is a notable shortage of qualified accounting professionals entering the workforce. 

Outsourced Accounting Costs: FAQs

What is the Cost of Outsourcing?

The cost of outsourcing varies depending on a number of factors, such as the type and scope of services being outsourced, the location and experience level of the outsourcing provider, and the duration of the outsourcing engagement. Typically, businesses will pay a set fee for the services being outsourced, and this can either be a fixed amount or based on hourly rates.

What Are Three Important Costs of Outsourcing?

Three important costs of outsourcing to consider are direct costs, indirect costs, and hidden costs. Direct costs are expenses that are directly associated with outsourcing, such as fees paid to the outsourcing company. Indirect costs are expenses that are not directly associated with outsourcing but arise as a result of it, such as the cost of managing the outsourcing relationship. Hidden costs are expenses that are not immediately apparent, such as the cost of transferring knowledge to the outsourcing company.

Is Outsourcing Really Cheaper?

Outsourcing can be cheaper than hiring and training full-time employees for certain tasks, but this depends on a number of factors. For example, outsourcing can be cost-effective for tasks that are not core to the business’s operations, or for tasks that require specialized expertise or equipment that the business does not have in-house. However, outsourcing may not always be cheaper than hiring and training employees, especially if the business needs full time support.

What is the Main Argument Against Outsourcing?

The main argument against outsourcing is that it can lead to job loss and a decline in the quality of work. Critics argue that outsourcing can lead to the loss of jobs for local workers, as companies choose to outsource work to lower-cost providers in other countries. Additionally, outsourcing can sometimes lead to poor quality work if the outsourcing provider does not have a good understanding of the business’s specific needs and processes. However, proponents of outsourcing argue that it can actually help create jobs by allowing businesses to grow and become more competitive.

Learn More About Signature Analytics

At Signature Analytics, we support our clients’ day-to-day accounting functions, including:

• Cost Management
• Financial Audit Support
• AR/ AP management
• Budgeting, Forecasting & Scenario-Planning
• Elevated Reporting 
• Monthly close
• CFO Advisory services and more…

Ready to get started with outsourcing your day to day accounting services? Talk to an expert today.