Have you thought about outsourcing your accounting functions?

There’s been an explosion of outsourced accounting, says Matthew Long, CPA, principal and director of Client Advisory Services at Rea & Associates. The driver behind it all? Technology. Artificial intelligence, machine learning and automation do the heavy lifting with manual data entry and transactional work, so internal accounting is more about managing exceptions and outliers.

“Businesses of all sizes are outsourcing,” Long says. “It’s become a trend the past five years, even though large corporations do it on a different scale and in a different way than mom-and-pop shops.”

A large corporation might outsource its transaction-level work, so an accounting department or CFO can focus on analysis. A small or midsized business may outsource all accounting, where the transactional piece is all to get good data and controller/CFOlevel service from the outside provider.

Smart Business spoke with Long about the benefits of outsourced accounting functions.

Why would you outsource your accounting?
The most valuable reason to outsource is to automate your systems and transactions, which helps you get information quicker. The financial data isn’t historical, where it’s 30 days before you see results. You go from keeping score and doing accounting functions because you need to maintain a set of books for a tax return or because the bank requires it, to maintaining a set of books so that you can use it as a tool to analyze data. You can move rapidly as the business environment changes.

Other times, it’s a cost-cutting exercise. If a full-time person fills his or her day with tasks that aren’t accounting related to keep busy, it may not be worth having a fixed cost associated with it. The outsourced provider often uses a more deliberate and efficient process, so that firm is able to do the work quicker and/or cheaper. By outsourcing, you obviously get an accounting professional, but you also get a team. You don’t rely on one person, where you’re scrambling if that person gets sick or leaves. It helps from a planning standpoint, too. The labor market is competitive, and you don’t have to compete to find talented people.

What’s an example of improved efficiency?
With accounts payable, historically, a clerk opens the mail, reviews the invoice and signs off that it’s accurate. Then, someone else enters it into the accounting system. Thirty days go by, and an employee cuts a physical check, compares it to the invoice, signs it, stuffs an envelope and mails it.

Now, with technology, your vendor sends the bill directly to a dedicated accounts payable email address, and software in the background reads that invoice. It picks out the vendor name, address, due date, dollar amount, etc., to code and save it for the system. An employee reviews the information electronically and clicks a button — file and pay. When the invoice is due, the payment is sent electronically with the invoice attached to the ACH or wire transfer. Again, a set of eyes looks at it and says, “Yes, that’s accurate.”

How can companies determine if outsourcing make sense for them?
Some outsourced accounting practices have an all or nothing approach. Others take a tailored approach. You’ll need to consider what components you want to continue to do in house because it’s easier, less back and forth, cheaper, etc. Questions to ask are: How are you doing your accounting? How often are the decision-makers — controller, CFO, business owner or COO — looking at the financials? How soon are those financials presented? Could time be better spent? Or, are there things that you’d like, from a financial reporting aspect, that you’re not getting?

Custom dashboards can go beyond the raw numbers. You can analyze customers, sale trends or inventory. It comes down to what are you trying to accomplish, but it doesn’t happen overnight. It takes time to evaluate the current system and processes and put together the best technology stack or solution. Then, the outsourced firm can help implement and integrate the team into it. It can be intimidating, but you don’t have to go from where you’re at now, to the best. It can be gradual because change is never easy.

Ultimately, you want to put systems in place and revamp your processes, in order to scale, grow and focus on profitability, cash flows or whatever is most important to you.

Insights Accounting is brought to you by Rea & Associates