Running a small business is no easy feat. As an entrepreneur, you have to wear many hats and juggle countless responsibilities. From developing products and services, to sales and marketing, customer service, HR, operations – the list goes on. With only so many hours in the day, it’s tough to excel at everything. 

One area that often gets neglected is bookkeeping. While keeping accurate financial records is critical, it can be tedious and time-consuming work. As much as you’d like to save money doing it in-house, it may make more sense to outsource your bookkeeping to a specialist.

In this post, we’ll break down the key pros and cons of outsourcing this important business function. You’ll learn how working with a bookkeeping firm can benefit your bottom line, free up your time, and provide valuable expertise. We’ll also outline some of the potential risks, like loss of control and security issues. 

Finally, we’ll provide a step-by-step guide to finding the right partner and setting up an outsourcing relationship poised for success. From assessing your needs, to vetting providers, establishing metrics, and keeping close oversight, we’ve got you covered. Let’s dive in!

Why Outsource Bookkeeping? The Top Benefits

Before deciding to hand off your financial records, it’s smart to understand the upside. Here are some of the top reasons small businesses choose to outsource their bookkeeping:

Significant Cost Savings

This is often the 1 driver. Paying an external bookkeeping firm is usually far cheaper than hiring in-house. When you factor in payroll taxes, benefits, training, new hires, software licenses and other costs, the savings add up quickly. A bookkeeping service brings economies of scale and specialized expertise that keeps fees low.

Time Savings = Focus on Growth 

DIY bookkeeping devours your precious time. Tracking income and expenses, generating reports, reconciling accounts…it’s tedious. Those hours could be better spent on sales, marketing, or developing new offerings. Outsourcing frees up your time so you can focus more on growing your business and delivering value to customers.

Increased Accuracy & Compliance

Let’s be honest – bookkeeping isn’t most entrepreneurs’ specialty. Mistakes can easily happen when recording transactions, filing taxes, and tracking payments. Outsourcing to experts well-versed in accounting principles, software, and regulations helps minimize errors and ensures compliance.

Access to New Technology

Tools like AI, automation, and analytics are transforming the bookkeeping landscape. Outsourcers invest heavily in leveraging these technologies to drive efficiency and insight. Working with them allows you to benefit from innovation without major investment.

Equalizer for Rising Complexity  

Between changing tax codes, new accounting standards, SaaS systems, and automation, bookkeeping has become increasingly complex. Outsourcing is an “equalizer” that allows your small business to compete with more resourced companies when it comes to financial management.

Empowered Strategic Decisions

With accurate books and financial reporting at your fingertips, you gain powerful visibility into the fiscal health of your business. This allows for data-driven decisions on pricing, budgets, growth initiatives and more.

Clearly there are some compelling reasons to hand off the books. But outsourcing does come with some risks. Let’s look at the potential downsides.

The Cons of Outsourcing Bookkeeping 

Outsourcing isn’t a silver bullet. There are some cautions to keep in mind:

Loss of Control 

When your books are handled externally, you lose some visibility and control into day-to-day activities. You’ll need to rely heavily on your provider’s expertise. Without close involvement, you risk issues going unnoticed or decisions being made without your input.

Communication & Coordination Issues

Your bookkeeping team is offsite and outside your company firewall. This can lead to delays resolving questions, providing documentation, or addressing errors. Different expectations or processes can further hinder communication if not proactively managed. 

Data Security & Confidentiality Risks

Financial data is highly sensitive. When your records reside with a third party, make sure rigorous security and controls are in place. Some bookkeeping firms may lack adequate cybersecurity training or protocols, leaving your data vulnerable.

Hidden Costs 

Some providers lowball rates initially, only to tack on fees for training, rush delivery, reports, communications and more. Transition costs also apply when switching firms. Read the fine print to avoid unexpected charges down the road.

Negative Staff Perceptions  

Existing finance employees may view outsourcing as a threat to job security or undervaluing their worth. Reassure them of their role and explain outsourcing will shift their focus to more strategic tasks.

How to Find the Right Bookkeeping Partner

If you’ve weighed the pros and cons and feel outsourcing is the right call, following a disciplined process will help surface the best partner for your needs and avoid potential pitfalls.

Step 1 – Define Your Requirements

Gather specifics on your bookkeeping needs, including:

– Type of business, industry & typical transactions

– Volume – of invoices, payroll runs, bank imports etc. per month  

– Chart of accounts – of GL codes used

– Software platforms used – Quickbooks, Xero, NetSuite etc.  

– Types of management reporting needed and frequency  

– Budget for bookkeeping services

Documenting these details will help you find an aligned provider and get accurate fee estimates.

Step 2 – Vet Bookkeeping Providers 

Cast a wide net to identify quality candidates through:

– Online directories and marketplaces (Upwork, Guru, Fiverr)

– Search engines using keywords like “small business bookkeeping services”

– Professional associations – AIPB, NACPB, ASA

– Referrals from your CPA, friends or business network

Research top contenders thoroughly. Compare services, experience, security practices, pricing models and client reviews. Develop a shortlist of 3-5 providers for further vetting.

Step 3 – Interview Finalists 

As you get proposals, use these questions to interview potential firms:

– How long have you been in business? How many clients have you served?

– Do you have experience with businesses like mine in my industry? 

– Will you handle all my bookkeeping needs or are there gaps I need to fill?

– What accounting software, automation, AI and analytics tools do you use?

– How specifically will you keep my data secure? Can I review your cybersecurity protocols?

– What are your pricing models? Are there any additional fees beyond your base rates?

– What is your SLA for response time and resolving issues? 

– How often will you provide reporting and onboard me to a portal to review my books?

– Can you share 1-2 client references I can contact?

Look for clear, comprehensive responses. Vague or evasive answers are red flags.

Step 4 – Start Small, Set Milestones  

Rather than handing over all bookkeeping at once, consider piloting with a small subset of tasks or monthly sampling. Set 30, 60, 90 day milestones to review performance before expanding the scope. This lets you assess the working relationship before fully committing.

Step 5 – Formalize Terms

When ready to engage in a full-scope contract, be sure to define:

– Detailed description of services provided

– Frequency and methods for bookkeeping firm to report status 

– Response time and escalation procedures for issues 

– Metrics like error rate, timeliness, quality standards

– Rules for documentation exchange and storage

– Pricing schedule and payment processes

– Terms for contract cancellation or provider transition

 Clarifying responsibilities and setting SLAs upfront is crucial to set expectations and enable a smooth working relationship.

Step 6 – Stay Involved 

Don’t hand over the reins entirely. Schedule regular check-ins to review reports and sample transactions. Verify accuracy, timeliness and compliance with accounting standards. Ask questions and provide feedback to keep your provider engaged. While you don’t want full day-to-day involvement, staying informed ensures problems get promptly addressed.

Key Takeaways on Outsourcing Bookkeeping

Handling your business finances may not be the best use of your time as an entrepreneur. Outsourcing to bookkeeping specialists can yield major cost savings, free up your schedule, and provide valuable expertise. But there are also risks around loss of control, security, staff perceptions and hidden costs.

Following a careful process to define your needs, thoroughly vet providers, start slow with a pilot, and maintain involvement can help you implement a successful arrangement. The key is finding the right partner matched to your specific requirements.

While outsourcing this critical business function takes thoughtful planning, the payoff can be huge in terms of both your bottom line as well as your time and peace of mind. With your books in good hands, you’re free to focus on innovating, serving customers, and propelling your company vision forward.