A reader asks: I am a partner in an Internet marketing firm. We currently use a local accounting firm for most of our tax and accounting services. We do the bookkeeping. We are expanding and need to focus on the business rather than the accounting. I have three questions:
- Since accounting is not one of our core competencies, should I outsource every aspect of the bookkeeping and accounting?
- At what point do we need to switch to a big-five accounting firm or another of this caliber? We have annual sales of $500,000 and hope to double every year for the next three years.
- If we switch to a big-five firm, should we keep the local firm for the bookkeeping work?
Small Business Accounting expert Stephen King responds:
I will answer each question by number.
- I think you should consider outsourcing your accounting functions. Here's why:
- Outsourcing frees up time and resources to focus on business strategy and goals.
- Outsourcing allows businesses to tap into the resources and expertise of the outsourcing company.
- It can reduce operating costs.
- Since accounting is not one of your core competencies, it may make sense, operationally and economically, to outsource all of your bookkeeping and accounting functions. That should not, however, include any treasury functions (e.g. investing, signing checks, authorizing bill payments online, executing wire transfers, etc.), which should remain completely under your control.
(Disclosure: My company, Virtual Growth, provides outsourced bookkeeping and accounting services.)
- You do not need to switch to a big-five accounting firm. However, I recommend hiring a big-five firm to perform an audit and certify your financial statements if you plan on raising capital from investors. The sooner you get a reputable CPA firm to do that, the better. Decisions on accounting treatment of transactions can then be made early on, rather than risking audit adjustments at a later date that may materially affect your financial statements.
In addition, a reputable CPA firm can be an extremely valuable resource while you are raising capital.
- If you hire a big-five accounting firm to perform an audit, you should continue to use the small firm for your accounting and bookkeeping functions. Due to independence regulations and standards within the accounting profession, a CPA firm performing an audit cannot also perform the accounting and bookkeeping for the same company.
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