Accounting has a reputation for being a dull topic in the business world. You’d much rather talk about your goods and services than your financial debits and credits as a small business owner. You’ve kept a close eye on expenses as a small business owner, recognising you must keep costs as low as possible. You may have also done your bookkeeping in QuickBooks or peeked over your bookkeeper’s shoulder to keep an eye on the finances.

What is the reason for this? Since intelligent business owners understand that reliable and timely accounting is a necessary evil and critical to their survival.

Having outgrown bookkeeping: However, as the company expands, most owners discover that their time is better spent on other activities. Focusing on developing the core company rather than overseeing day-to-day bookkeeping is a better use of time. When a business owner may no longer be involved in any aspect of the company, the company needs more than just bookkeeping. Billing, collections, payroll, deposits, income taxes, bank account reconciliation, and simple financial statements are the only skills most bookkeepers have.

In the early stages of a company, a bookkeeper cannot provide what a business owner needs: management accounting. For their company, financial and management reports are required. Simple financial reporting is necessary for compliance and to ensure that the books are up to date. 

Management monitoring is used to support real-time data and key performance metrics in making business decisions. When a bookkeeper is no longer adequate, and management accounting is needed, you have reached a point in the lifecycle of a small business or nonprofit organisation where accounting becomes a more interesting subject of discussion.

Small businesses are triggered by outsourced accounting: Typically, one or more of the following reasons must occur for a small business owner to consider switching accounting software:

  • Getting to $1 million in sales
  • Having a staff of eight to ten people
  • Accepting funds from outside investors
  • The CEO cannot be interested in every part of the company any longer.
  • The company lifecycle has progressed to the stage of exponential growth.
  • Need more than just billing and collections out of QuickBooks?
  • Requiring more complex financial reporting for data-based decision-making requiring technology systems to communicate and speak to each other.

We notice that business owners with a “getting better” goal are dissatisfied with the status quo value accounting outsourcing to advance management accounting rapidly. They see outsourcing as a competitive advantage that enables them to be the best in class without making any upfront time or financial investments. The psychographics of small business owners born in the Millennial Generation is also likely to support outsourcing. They believe outsourcing has a competitive benefit and a positive impact on workers, their most valuable business asset since they grew up surrounded by technology.

Organisations that are not for profit (NGO): In charitable organisations, similar management psychographics and life-cycle milestones exist, necessitating a new and enhanced accounting solution.

A nonprofit executive director is usually motivated by a desire to help others rather than manage finances. The director may find a skilled volunteer to help with the bookkeeping, but that person normally bales when the accounting tasks become more demanding. Nonetheless, just as with small companies, reliable financial reporting is a critical factor in nonprofit growth and sustainability. If one or more of the following causes occur, you might want to consider a new accounting approach if you’re a nonprofit:

  • When revenues exceed $500,000, many states require audits.
  • The financial results must inspire greater trust in the Board of Directors.
  • Programs are vying for restricted funds and must demonstrate a return on investment.
  • Obtaining grants necessitates reporting to foundations.
  • Changing to a real Fund The accrual basis of accounting is needed in accounting.

We assume that a charitable corporation should be managed in the same way as a for-profit company, with the same management reporting, except that profits are re-invested in the services. Fund Accounting, which is more complex, is typically beyond the capabilities of a bookkeeper trained in cash basis accounting and may trigger financial stress in a charity.

Taking Action in Response to Warning Signs: When these signs appear in your small business or nonprofit, you’re probably ready to grow beyond a bookkeeper as your accounting department. As the CEO or executive officer, you must decide how to proceed with the accounting function at these crucial stress points.

Options for Accounting Upgrades: 

  • Hiring a controller (salary of $75,000 to $100,000 plus 20% benefits) 
  • Using a conventional CPA (who charges between $175 and $250 per hour)
  • Contracting with a billing and collections firm and separately with a Value Added Reseller (VAR) to develop and instal accounting software are examples of a la carte outsourcing to various companies.
  • To manage all accounting requirements, outsource bookkeeping and accounting to a Client Accounting Services (CAS) company.

While you may have the time and resources to explore all of these options, Client Accounting Services is rapidly expanding because it is often the most cost-effective choice for growing companies and nonprofits. 

In terms of expense, outsourcing the accounting department is at least 30% less expensive than establishing and maintaining an in-house accounting department. Outsourcing, on the other hand, isn’t just about saving money.

Businesses chose to outsource to boost their core business focus, avoid the expense and costs of recruiting additional workers, and gain access to outside resources that they could not manage otherwise, according to The Outsourcing Institute.

Summary

To summarise, Whatever bookkeeping solution you use, make sure it provides reliable financial statements, tax-ready books, and a safe way to store and access your company’s financial records and information. I hope that this blog helped you and was worth a read. 

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