Bookkeeping is the process of detailed recording of financial transactions of any business establishment. Accounting ranges wider than Bookkeeping. Accounting is a system in which a financial information of a company is classified, recorded, analyzed, summarized, and reported.
Bookkeeping and accounting are entirely different in terms of their purposes.
Bookkeeping or so-called recordkeeping is a financial data infrastructure with built-in quality control. Although both share some common purposes of classifying and generating financial data reports, bookkeeping is just one part of accounting and serves as the foundation of accounting.
Earlier bookkeeping was done manually. Now, most businesses use computers. In small businesses, accounts are maintained by the system of accurate bookkeeping reflecting the financial status of the business. Bookkeeping follows the basic concept of identifying & recording of financial transactions, preparation of ledger & trial balance.
The broader term “accounting” – records, classifies and summarizes the financial transaction of the business. Various reports are prepared which allow stakeholders to understand the exact financial position of business. Accounting process includes identifying & recording financial transaction, preparing ledger & trial balance, preparing & analyzing financial statements.
Different businesses have different financial challenges hence the need for accounting systems varies across businesses, their scale & scope of operations.
In house Vs Outsource
A company’s bookkeeping and accounting can be managed inhouse or be outsourced. There is a common belief that accounting being confidential, should be managed in-house. It is very challenging for small & start-up businesses to bear the employment cost of hiring a full-time accountant with right skill & qualification. Hiring an experienced accountant will be expensive while a fresher available at lower cost, will not be able to be add much value. In house accountants benefits the business administration, but unfortunately, they do not contribute to business growth & revenue increment.
Outsourcing is cheaper and one gets access to the rich & varied expertise of financial professionals. It is observed that around a third of businesses prefer to outsource accounting services. However, outsourcing may not be the perfect solution for all businesses. You are better off paying a services fees for outsourced accounting and hiring full-time resource for sales & business development.
A Hybrid Model
As the business scales up, it is not possible to manage the accounting requirements with outsourced resources. When data entry, invoicing etc requires a full-time resource, you are better off hiring a junior accountant, with outsourced accounts management services. Outsourcing your company’s financial analysis and planning brings multiple benefits. You get a candid input on the quality of in house job and hands on support on scope of improvements as well as expert opinion on your financial position and guidance on corrective action if required.
Statutory audits, financial report management, bank reconciliation, financial data analysis, investor communications, budgeting, business planning and forecast are the supports you get from outsourced experts. When your in-house accounts department lacks expertise, outsource accounting provides prompt services from skilled financial experts saving your expenses. You pay for services as you require without investing in permanent experienced resource.
Choosing the right partner
Partnering with a well-founded outsourced accounting company is of paramount importance. The whole purpose behind outsourcing is to get timely, cost effective and accurate work from subject matter experts. When hiring a outsource accounting service provider, be clear to pick a well-equipped and proven firm. The following are few pointers towards a better selection.
Meet the team face to face, you need to know whom you are going to work with. Often the back-end work is further outsourced to home-country of the business owner. It is advisable to have a reference check done on the quality of work done by the service provider. Feel free to ask for a copy of business registration, this ensures you are partnering with a legit entity. Execute a service agreement before you start, setting right the scope of work, timelines, service rates and confidentiality of your business information. Make sure they have the expertise to handle the accounting packing that you use or help you upgrade to a cost effective, efficient, user friendly platform. Free-lancers offer expertise and cost benefits, but their availability can be an issue as they keep stretching themselves thin serving multiple customers single handedly.
Finance and accounts staff are diversified from freshers to experienced and specialized. It is unfair to compare the expertise of an entry level staff with an experienced professional. Number of years engaged with hands on training makes a big difference. An outsourced accounting service provider with experienced professionals is always the best go for, to avail superior quality and industry knowledge at affordable cost.
Behind all the good business is a good accounting process is what we believe.