Outsourcing Bookkeeping – Why Many Start-Ups Rely on It
For many founders, bookkeeping is a chore that they would rather leave to others than take care of themselves. Outsourcing bookkeeping is therefore a popular option. In our article, you can find out what the advantages of external bookkeeping are, what costs you will incur and whether outsourcing is also worthwhile for you.?
Many founders see bookkeeping as a burden. Often there is simply a lack of experience with the subject. Especially in growth phases, when product development and marketing are the main focus, the documentation of business transactions can fall behind.?
However, resources should also be allocated to bookkeeping. If this is not taken care of, errors and ambiguities can creep in, which can lead to problems with the annual financial statements and tax risks, ultimately resulting in the tax office getting involved.?
Careful and correct bookkeeping not only contributes to compliance with legal regulations, but also has a decisive impact on a company's prospects for success. It can provide a clear insight into its financial situation and thus create the basis for strategic decisions.?
While the number of business transactions to be recorded immediately after a business is founded is still manageable and simple accounting solutions are sufficient, founders need to look for more sustainable solutions as the number of documents to be recorded increases. In order to be able to concentrate better on the core business and ensure long-term growth, many start-ups and scale-ups decide to outsource their accounting.
Outsourcing bookkeeping –?these options are available??
External bookkeeping services, bookkeeping offices or interim bookkeepers can take over accounting tasks. They can also take over the bookkeeping as a whole, which can be particularly relevant for companies with limited internal resources and expertise.?
However, complete outsourcing does not always make sense. This applies, for example, when companies want to retain a certain degree of control and do not want to have all business transactions booked externally. In such cases, some financial service providers can flexibly take on tasks from the sub-areas of accounting.
These include:?
In addition to bookkeepers, tax consultants can also take on accounting tasks or parts of it. Unlike external bookkeepers, they can also prepare annual financial statements, profit and loss accounts (P&L), income and expenditure accounts and tax returns. They can furthermore represent their clients in dealings with the tax authorities.?
In most cases, these services are offered either by bookkeeping or tax consultancy service providers. However, there are also external service providers who offer accounting and tax advice under one roof.?
Regardless of which services a startup or scaleup uses, it is advisable for founders to acquire basic knowledge in order to better understand the work of the service provider.
Simplifying the process with accounting software?
In order to prepare the bookkeeping as error-free and efficient as possible for outsourcing, it is advisable to use a capable accounting software. It provides a comprehensive overview and already fulfills the basic legal requirements for proper accounting. With the correct use of an appropriate tool, bookkeeping can be better prepared for outsourcing and thus lead to time and cost savings.?
Furthermore, many accounting software programs offer the option of creating reports. These are not only valuable for external service providers, but also help the company to maintain an overview of its own finances and provide reports for investors even when outsourcing accounting. Software is also an advantage in the event that the collaboration between the company and service provider is terminated, as all bookings are documented in it and can be easily reused by the new service provider or internal accounting department.?
Why many start-ups rely on external bookkeeping ?
Companies that outsource their bookkeeping benefit from a whole range of advantages. In addition to the time savings for core activities mentioned at the beginning, these include the following:
Extensive expertise?
Specialist knowledge is essential for proper bookkeeping. Accounting service providers are specialists in their field and bring with them relevant expertise as well as experience gained with various clients. They are familiar with accounting standards and current legal regulations. This ensures that financial data is recorded and reported correctly. In addition, they can usually identify optimization opportunities in accounting and financial management faster than other stakeholders.?
Avoiding costs?
Even if outsourcing bookkeeping causes costs, it often leads to savings. There is no need to hire internal staff specifically for bookkeeping, which means there are no costs for recruiting, salaries, benefits or training. Even if the employment relationship with an accounting service is terminated, there are no labor law problems or costs, such as severance payments, for the client.?
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Furthermore, software and hardware do not need to be purchased or maintained and employees do not need to be trained in the use of bookkeeping tools. ?
Low risks ?
Another advantage of outsourcing is that liability risks are reduced. This is the case for two reasons. Firstly, specialized external service providers are familiar with the requirements of the tax authorities and take the necessary care in their work. Secondly, depending on the contract, service providers are partially liable for accounting errors. Tax consultancies are even liable in all cases for damages incurred by their clients due to culpable breaches of their professional duties.?
Better financial predictability ?
When using bookkeeping services, companies only have to pay for services actually provided and there are no fixed salary costs that are independent of the workload. Instead, these are usually fixed costs such as monthly service fees, which are easy to plan. The use of fixed costs as part of accounting outsourcing creates a clear cost structure and therefore better financial predictability. This enables companies to manage their finances better and use their resources more efficiently. ?
Quick response to the skills shortage ?
Due to the shortage of skilled workers, it is currently not easy to find staff for the finance department. According to a study by management consultants Horváth & Partners, eleven percent of vacancies in finance and controlling departments were unfilled in December 2022 . The specialist index from recruitment company Hays comes to a similar conclusion, with demand for finance specialists peaking in 2023 . Companies have to go to great lengths to find good employees. Accounting services are therefore an interesting alternative for many companies. They are usually up and running more quickly as they already have a team of accountants and the necessary resources. A costly and time-consuming recruitment process can therefore be avoided.?
What are the costs for bookkeeping services??
Depending on the qualifications of the service provider, the prices for bookkeeping services can vary greatly. Tax consultants, for example, often cost more than an accountant, as their scope of duties is broader and their responsibilities greater. In addition, tax consultants tend to undergo longer and more demanding training. ?
The requirements of a company also determine how much it costs to outsource bookkeeping. If the work only involves basic accounting services, the costs are lower than for complex tasks such as tax planning and preparation, given a comparable scope of activities. ?
In addition, the pricing model can vary depending on the service provider. While some providers charge an hourly rate, others charge a flat rate, offer packages for a certain number of bookings or scale prices based on the volume of bookkeeping work. ?
Other factors that play a role are the complexity of the client's business, the desired frequency of bookkeeping, the duration of the contract and the location of the service provider.?
Is outsourcing bookkeeping worthwhile? ?
Despite the advantages mentioned, many entrepreneurs ask themselves how sensible it really is to outsource their bookkeeping. After all, there are also aspects that speak in favor of doing the bookkeeping yourself. From a cost perspective, it can make sense for self-employed and freelancers in particular to do their bookkeeping themselves. After all, with the right software, it is comparatively easy to manage this yourself in environments with a small headcount, although it does take more time.?
The larger a company is, the more complex the accounting requirements are and the topic can become a considerable time waster for management due to a lack of routine. The higher the operating result, the greater the complexity and consequently the greater the accounting effort. This requires more resources. Outsourcing accounting tasks can relieve the burden and is therefore an attractive option for start-ups, scale-ups but also for small and medium-sized enterprises (SMEs).?
Whether outsourcing bookkeeping makes sense for a company must ultimately be decided on an individual basis. If the founders already feel they are working to capacity with their core business, do not have time for further training in accounting and want to avoid errors in bookkeeping, outsourcing bookkeeping should be considered.?
Conclusion: Outsourcing accounting can create great added value?
Outsourcing accounting offers many benefits for companies, including error prevention, specialist knowledge, time savings, cost savings and the ability to focus on growing and developing the business.?
Internal bookkeeping, on the other hand, is a comparatively high cost factor for entrepreneurs. In times of skills shortages, it is also difficult to find specialized staff. Nevertheless, hiring an accountant is a relevant option for many companies, especially in later growth phases.?
Handling bookkeeping independently without internal and external support is primarily relevant for self-employed and freelancers, but outsourcing bookkeeping can also be worthwhile for them in terms of time and money.?
Whether or not to outsource bookkeeping is a decision that must be made according to the individual needs of each company. Regardless of what this decision ultimately turns out to be, it is advisable for young companies in particular to take advantage of an initial consultation in order to avoid mistakes as early as possible and create the basis for reliable bookkeeping.?