Outsourced Accounting – A common decision most businesses face is whether to consider outsourcing non-core business functions to enable them to focus on the core activity of their operations. In this article, we will explore some benefits and implications of outsourcing, specifically outsourced accounting, and how a company can take full advantage from its use.
What is outsourcing
In simple terms, it is the practice of hiring another expert firm for the purpose of performing specified business activities and tasks stipulated in an agreement. This would therefore involve engaging with a specialist firm to perform certain non-core business tasks, rather than employing a full-time, in-house employee to perform those tasks.
For example, instead of employing a full-time accountant, a business can engage with an accounting firm to service all of its accounting and financial reporting needs. There are various reasons a business would view outsourcing as a better option, discussed in more detail below.
There are many other examples of services that can be outsourced (e.g. IT, HR and recruitment, or sometimes additional labour in the case of a shortage within the full-time employed workforce). For the purposes of this article, we will only concentrate on outsourced accounting, expanding on a previous article (https://www.invicta-accounting.com/blog-post/should-your-company-outsource-its-accounting-function/).
With the accounting industry, the main services that are outsourced are listed below. Invicta provides these services to many of its clients.
Services include the preparation of a business’s monthly or weekly pay-run, the preparation of payslips for each employee and calculations of net pay, and submission of PAYE, ITIP and NI declarations and returns to the relevant tax authorities as required by law. As payroll contains sensitive information, data protections controls are crucial at the outsourcing firm to ensure information is not lost or stolen. Payroll is discussed in more detail in our previous article at the following link: [Glen yet to upload the Payroll article].
This would involve the outsourcing firm taking over the recording of transactions of the business, include day-to-day accounting of sales, purchases and expenses, banking, payroll and month-end processing and reconciliations, depending on the nature of the business’s trading activities. It is important for the outsourcing firm to understand the core operations of the business in order to record transactions accurately and appropriately, therefore communication between the two parties is key.
On an annual basis, financial statements of the business are produced in accordance with accounting standards, showing the profit or loss made and the financial position at year-end. Most businesses take advantage of the expertise and experience of accountancy firms and therefore hand over this task through outsourcing. It is an added advantage is outsourcing firm is also involved in the bookkeeping function of the business as they would have a better understanding of the transactions that make up the figures in the annual accounts.
Income tax and VAT reporting
The process of income tax and VAT reporting as required by the relevant tax authorities is very involved, which prompts businesses to utilise the experience of accounting firms to engage with. This involves preparation and submission of tax returns, and addressing any queries raised by the tax offices. Accurate reporting is crucial in order to comply with the tax laws, and any breaches could have detrimental a impact on the success and continuity of the business.
Budgeting and forecasting
This is a financial planning process and involves projecting profits by looking at historic information and trends to estimate how profits will change in future. Sales estimates are created as benchmarks which the business intends to work towards or exceed, and expenses are analysed and budgeted in to ensure the businesses work towards not exceeding these due to operational inefficiencies.
As budgets and projections require more detailed financial analysis and expertise, businesses work closely with their outsourced accounting partner to come up with figures that are as realistic as possible. Again, it is easier if the accounting services provider is involved in the bookkeeping to use as basis for when creating budgets.
These can involve more complex financial arrangements such as group restructures, tax planning, implementation of internal control processes, mergers and acquisitions, and divestments, to name a few. Expertise and experience is key for these activities, which is why the use of a qualified accountant is often a prudent choice.
Outsourced Accounting – Agreements and responsibility
It is important that agreements are put in place detailing the scope and nature of work to be outsourced, and the responsibilities of each party to the agreement. As the accounting firm is not a director of the business, they cannot hold ultimate responsibilities of managing the finances of the business. Therefore, outsourced accounting arrangements usually stipulate disclaimers in order to create professional distance from ultimate managerial duties, whilst also limiting exposure to business risks that are not associated with the specific duties and obligation per the engagement agreements.
These agreements can also be seen as protecting the interests of the business, its owners and directors, and creates levels of accountability for each party.
Advantages of Outsourced Accounting
Expanding on a previous article (https://www.invicta-accounting.com/blog-post/budgeting-and-financial-forecasting-for-your-business/), the following are some of the advantages of outsourced accounting, and pertinent reasons why a business would choose to outsource accounting:
- Accounting firms have deeper experience and expertise with accounting functions, including liaising with the likes of HMRC and IOM Tax Division, and they can even advise on the best practices and processes to put in place
- Access to qualified accountants at Invicta with significant experience, therefore giving the business piece of mind that your accounts are being looked after and statutory obligations are met on time.
- The cost of outsourced accounting tends to be lower than having an in-house accounting function, which justifies its use more given that a business gets greater efficiencies for the lower price
- There is less training required than when employing in-house, given that experience of qualified accountants used when a company opts for outsourced accounting
- Freeing up management’s time in order to concentrate on the core business and higher-level financial management such as forecasting, budgeting and sourcing of funds
Outsourced Accounting – What Invicta can do for you.
Outsourced Accounting Services – provides full outsourcing function for your business, covering all of the services specified above. Invicta are an accounting practice with fully qualified accountants at your disposal, who will take the time to understand your accounting needs and making sure that the accounting burden is lifted off your shoulders to enable you to concentrate on the core operation of your business.
Invicta put the accounting needs of our client first, making sure that relevant reporting is made to management to enable them to make better decisions regarding the business’s finances.
Invicta also act as your tax agent for tax reporting purposes, ensuring that all your statutory filing obligations are met and any queries from the relevant tax offices are addressed.
Call us on 01624 672358 or email us at firstname.lastname@example.org for a free consultation.