Lots of businesses choose to outsource their accounting needs rather than having to encompass them internally.
Doing so has its upsides, but also comes with risks you need to know about, so here are a few that should be weighed up when you’re deciding whether or not to take this path.
Handling financial data is a sensitive task, and in outsourcing your accounting needs, one main risk lies in potential mismanagement. If bookkeeping isn’t done with scrutiny, inaccuracies can creep in. These could distort your financial picture and lead to bad business decisions or even legal issues down the line.
There’s also a trust factor, as you’re handing over critical details about your finances to outside experts hoping they’ll handle them diligently and accurately.
Of course if the professional you work with has completed CPA review and preparation courses, become a certified public accountant, and built a solid reputation in their field, such concerns should not stand in the way of outsourcing your bookkeeping needs to them.
Legal compliance is another critical factor to weigh when outsourcing your accounting tasks. Specific laws and regulations like the Sarbanes-Oxley Act or the Generally Accepted Accounting Principles (GAAP) exist to ensure accurate, honest reporting of a company’s financials. Failures in compliance can lead not only to hefty fines but also damage your hard-won business reputation significantly.
Furthermore, tax laws change frequently, and it’s essential that your accountant stays updated with these shifts. If they don’t, you risk possible IRS penalties due to incorrect or late filings, which are an unnecessary cost nobody wants to bear.
Consequently, understanding these legal risks gives you a clearer insight into what it means exactly when you choose outsourced accounting for your firm.
Communication is fundamental in any business set up, including when you opt for outsourced accounting. One unforeseen risk is facing communication barriers that result from time zone differences or language issues if your accounting firm lies overseas.
Not having real-time accessibility to your accounts, or delays in obtaining crucial financial information, can hinder strategic decision-making processes and affect overall productivity.
So while communication tools do bridge the gap significantly, it’s imperative to ensure round-the-clock communication with the outsourced accountant or team. With clear, timely interactions, many of these potential barriers can be overcome.
Confidentiality is paramount in the world of finance, and any breach can have devastating consequences.
When you outsource your accounting tasks, sensitive information about your business, such as financial snippets, client data, and asset details, is put in the care of a third party.
If due diligence isn’t performed regarding secure handling and storage on their end, this exposes a huge risk to confidentiality breaches.
As such, it’s pivotal that every step be taken to ensure robust data protection protocols are in place within the outsourced firm you choose to prevent such damaging risks.
It’s natural to get used to the conveniences outsourced accountants provide, like freeing up your in-house team for more strategic tasks. But while these benefits seem attractive, there’s now an increased reliance on an outside entity for day-to-day operations and urgent matters alike.
Also worth considering is flexibility, or a possible lack thereof. Every business evolves over time and has changing requirements, so you need to be certain that an outsourced service can adapt quickly enough to cope if you scale rapidly, and take abrupt policy changes in its stride.
So long as you are aware of the pitfalls of outsourced accounting, you can pick a practitioner or firm to do your bookkeeping work for you with confidence, having assessed and encompassed potential risks as part of this process.