Five Signs Your In-House Accounting Department Is Holding Your Business Back

Blue and white arrows that say outsourcing

Should you outsource accounting roles?

When you run a business in which your focus is on providing products or services to your customers, your bookkeeping and accounting efforts likely aren’t your core value proposition. Nevertheless, a well-run accounting operation is a vital part of a successful business. You need a strong accounting system in place to put business strategies into action. Does your current bookkeeping and accounting serve your business adequately? This article can help to look for signs that your business may have outgrown them, and may need a different approach.

1. You’re personally involved with your bookkeeping responsibilities

It’s important to think about what you could achieve if the time you spent on your bookkeeping could be made available for use advancing your core business. Not only would you have more time, you’d have more mental energy to devote to main activities such as leadership decisions, and workforce motivation. As a business owner, it makes sense to take out time to sign every check yourself; involving yourself any more deeply in your accounting responsibilities would simply be a way to hamstring your business.

2. Your bookkeeping and accounting benefit from few checks and balances

If your entire accounting department is nothing more than you, assisted by a bookkeeper, you should realize that your system lacks the internal controls and separation of responsibilities that you need. If your system lacks supervisory accounting oversight of your books, you risk letting mistakes, efficiency lapses, and fraud, take over your system. It’s important to keep in mind that for small businesses with under 100 employees, exposure to fraud tends to be at twice the rate larger businesses experience Even if you do trust your employees, lapses of judgment aren’t uncommon. Making sure that all accounting entries are routinely viewed by at least two independent accountants is essential to introducing checks and balances.

Related Article: Report finds big fraud problems for small businesses, Journal of Accountancy

3. Shortcomings in reporting

When a small business runs a one-man accounting department, they usually don’t have the benefit of detailed weekly, or monthly reporting: profit and loss statements, balance sheets, statements of cash flow, and statements of accounts payable and receivable. In most cases, profit and loss statements by class, department, team, and job, by utilization and realization rates, are out of the question. These are reports that you need to obtain precise snapshots of the state of your business, of costs, and cash flow, to enable you to make data-driven decisions. If you don’t have the benefit of these reports, it’s your sign that you need to move your bookkeeping and accounting to the next level.

4. Your accounting system isn’t optimized

Many small businesses continue, to this day, to execute their bookkeeping and accounting with paper invoices, manual data entry, and paper checks. If you don’t have automated systems tracking every part of your accounting set-up, however, you accept the risk of human error every step of the way. In addition, the inefficiencies of manual systems tend to hamper ability to pay invoices early. Early payment discounts can be lost. Cash flow problems can be exacerbated by slow manual systems, as well. A streamlined, digital bookkeeping and accounting process, on the other hand, helps you speed up accounts payable and receivable, and save money on expense tracking. It’s important to realize, simply, that up-to-the-minute bookkeeping and accounting helps you run a tighter, better managed business.

5. Tax season tends to be stressful

While paying your taxes can never be a pleasure, a poorly organized accounting system can make the process nightmarish. Small businesses often work frantically at the last minute to find paper receipts, and work out expense categorizations. It isn’t simply the stress brought about by a poorly organized accounting system that is undesirable. Rather, the problem is that with such a system, you don’t know the numbers for your business at any given time, and are forced to base your decisions on outdated figures. This is a prospect that simply makes your business less competitive.

Should you form a full-fledged accounting department?

A full accounting department for a small business can be costly to put together and maintain. You will need to hire at least two professionals with advanced accounting degrees to ensure checks and balances, and to make sure that your business doesn’t come to a standstill when one accountant calls in sick. Keeping your accountants loyal to your business can be a challenge, as well, as your small business is unlikely to be able to offer them the kind of opportunities for career advancement that they look for. Replacing employees who leave can be a very expensive proposition. For employees with advanced degrees, it can work out to as much as 150% of their annual salary. The answer, for many small businesses, is to outsource core back-office functions such as your accounting or accounts payable roles. A specialized, third-party provider of accounting services are able to offer your business advanced services on a fractional use basis; you only pay for what you use. Your accounting department becomes scalable, provides you with responsive reporting, and costs far less than full-time employees. If your business runs a small in-house accounting department without the benefit of a full-fledged operation, considering outsourcing makes a great deal of sense.

About Universal Funding

Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.