How outside expertise can help owners focus on their core business

Outsourcing some or all bookkeeping and accounting functions can make a lot of sense for small businesses that can’t afford an in-house accountant.

“They may not have the budget for a full-time or even part-time accountant. An outsourced controllership can fill in and provide affordable ongoing reporting so they have accurate numbers on a monthly basis rather than waiting for an annual accounting cleanup,” says Clayton W. Rose III, CPA, a principal at Rea & Associates.

Smart Business spoke with Rose about various options available to meet the accounting needs of small businesses.

Can businesses use software such as QuickBooks instead of using a professional accountant?

QuickBooks is easy to use, but you need sufficient supervision by someone who is proficient with accounting skills. Otherwise, you’re not analyzing what is going on behind the numbers or utilizing some of the capabilities of the software, such as the reconciliation process, accounts receivable tracking and accounts payable, etc. You could end up with duplicated entries and overstated or understated balances as a result. When problems occur, there could be a lot of fees invested in cleaning up the accounting.

What forms can outsourced accounting take?

It can be a wide range, from full service to partial service or oversight.

If your business operates by the calendar year, you need to clean up your accounting between Jan. 1 and April 15. If you stay on top of your accounting throughout the year, though, this will be a much smoother process. Perhaps bring someone in at the end of six months, and then again in September and December so you can track performance and analyze your tax situation.

Tax planning is always an important part of the process, too. An accountant can help ensure commercial activities and sales taxes are filed on time and the numbers are accurate so you’re not overpaying.

If you’re required to provide periodic financial statements to banks, you need to ensure that your numbers are accurate. If you have a loan based on accounts receivable, banks often want a quarterly report so they know how much they can lend and what balance you need to pay if you’re over the limit.

Some clients just want another set of eyes for their bookkeeper, perhaps to prepare the monthly bank reconciliation. They don’t have enough people on staff to have adequate internal controls, so outside help is needed to provide proper checks and balances. Internal controls are often underemphasized because owners never think they hired someone who would steal. But proper controls will provide a much better chance of catching something if it occurs.

How does a business owner decide what level of outsourced accounting is right?

The primary concern is budget. Do you have the budget to have someone on staff? You also haves to consider if you haves the patience to handle the work. It depends on your tolerance level combined with your desire (or lack thereof) to do accounting. Most small business owners are entrepreneurial and sales-oriented. Someone with a selling attitude typically does not have an accounting attitude at the same time. They want the information but aren’t interested in the details because they’re more focused on the next deal.

The level of service can be adjusted to the needs of the business. One client has been doing some data entry, and having us reconcile balances and actually write checks on their behalf. But they have grown and we’ve had discussions about revising the arrangement. They may be ready to go with an on-site accountant.

One concern companies have is that outside accountants can be a disruption, but that can be minimized through Web-hosted versions of accounting software. Accountants don’t have to visit the office; they can access the software and help with modifications as you go along so that you don’t have to wait to get journal entries back in order to post them.

Outsourcing can be a nonintrusive, cost-effective way for small businesses to address accounting needs until they reach the point where they can afford someone on staff.

Insights Accounting is brought to you by Rea & Associates