Financial services outsourcing

Financial services outsourcing is an efficient way to handle financial tasks that you lack the time or expertise to manage yourself. 

Here’s what you should know to determine if it’s right for you, including which processes you can outsource, how it compares to automating them, and some common outsourcing mistakes to avoid.

What is financial services outsourcing?

Financial services outsourcing is the practice of hiring an external professional to manage one or more aspects of your business’s finances. The alternative is to handle your finances in-house, either by doing the work yourself or hiring employees.

Financial outsourcing tends to make the most sense when neither in-house option is feasible. That’s often because you no longer have the time or expertise to perform the work yourself, and hiring a full-time employee is too expensive.

For example, if your startup is growing so rapidly that you can no longer keep up with recording all the transactions, you could outsource the function to an expert bookkeeping service, freeing yourself to focus on duties only you can fulfill.

Different financial services to outsource

1. Bookkeeping

Bookkeeping refers to the process of maintaining an accurate record of your business’s financial activities. It includes tasks like tracking income and expenses, categorizing transactions, and reconciling records to bank and credit card statements.

This provides the financial statements and reports that serve as an essential foundation for other financial processes, such as tax preparation and strategic planning. Without accurate records, none of these other functions can operate effectively.

Many bookkeeping tasks are manageable in the early days of your business or startup. Not only do they require relatively little financial experience, but modern bookkeeping software can automate a significant portion of the recurring tasks.

For example, Zeni’s AI bookkeeping software can track your business activities in real-time, provide instant insights and financial analysis, and learn from your data to improve its accuracy over time.

However, bookkeeping is still one of the most commonly outsourced finance services. Beyond a certain level of transaction volume and financial complexity, it often becomes too time-consuming for a business owner to manage personally.

In addition, outsourced bookkeeping tends to be relatively affordable compared to financial services that require more advanced expertise. 

The difference in affordability is reflected in their pay rates: Bookkeepers earn roughly $24 per hour on average, compared to $44 per hour for Certified Public Accountants (CPAs).

2. Accounting

The line between bookkeeping and accounting outsourcing can seem blurry, as there is some overlap between the two. The key difference is that while bookkeeping is largely administrative, accounting is more analytical and requires more advanced expertise.

Generally, accounting refers to the process of refining and interpreting financial information to ensure you’re meeting your obligations. In other words, accounting leverages the data generated through bookkeeping to guide compliance and reporting.

That can include a wide variety of tasks, such as:

• Making adjustments to journal entries to finalize financial statements
• Managing sales tax filings and compliance across multiple states
• Preparing federal and state income tax returns for business entities

In many cases, an outsourced accounting service is the first one small business owners hire. You’ll face accounting questions before you even start your company, such as which legal entity structure you should use.

In addition, because accounting tasks take more expertise than bookkeeping, it’s not always possible to handle everything yourself. Software is less helpful, as tools may not be able to replace the judgment necessary to apply complex accounting standards.

Hiring a full-time professional to manage the process can also be too expensive to justify for small businesses, especially in your early days. As a result, outsourced accounting services are often an excellent solution.

3. Financial planning

While traditional accounting services look backward to ensure compliance and accurate financial reporting, financial planning involves looking forward to help business owners make better-informed decisions about the future.

In other words, financial planning is about transforming information gathered through bookkeeping and accounting into actionable insights. It’s about asking what those numbers mean for your business and using the answers to guide tactics and strategy.

For example, some typical financial planning tasks include:

• Performing budget vs. actual analysis to guide spending plans
• Building cash flow projections to anticipate potential shortfalls
• Identifying opportunities to proactively reduce income tax liability

Financial planning typically becomes more valuable once your finances reach a certain level of complexity. It may be less beneficial if your business is still in its early days with relatively straightforward financial operations.

Alternatively, it can be a good practice to engage financial advisors periodically, such as when you have a particularly challenging project ahead. For instance, you might want to consult a professional before buying a commercial real estate investment.

You can find financial planning services offered by a variety of financial firms, including CPA offices, fractional CFOs, and financial planning and analysis (FP&A) specialists.

3. Payroll management

Running payroll refers to the process of compensating employees for their work in compliance with payroll tax and reporting requirements. That involves calculating gross pay, withholding and remitting the proper amounts, and distributing payments on time.

In addition to managing these routine processes for you, outsourced payroll services can handle tasks like employee onboarding, payroll system setup, benefits administration, and employee terminations.

Naturally, these services only become relevant once your business hires its first employees. Note that even if that only includes you and your spouse, you’ll still be responsible for payroll tax compliance.

You may be able to manage payroll yourself in that scenario, but as your team expands, outsourced payroll services can quickly become invaluable. Payroll processing can be surprisingly complex, even with payroll software.

In addition, payroll is one aspect of your finances where you can’t afford to make mistakes. Your team’s livelihood depends on it, and accuracy is essential if you want to attract and retain your talent. 

Errors can also be quite costly in more direct ways, potentially triggering penalties or even resulting in lawsuits.

4. CFO advisory

CFO advisory services grant you access to C-suite level financial expertise at a fraction of the usual cost. Traditional CFO salaries often range from $300,000 to $500,000 per year, which can be prohibitively expensive even for established businesses.

As a result, CFO advisory services can make sense for businesses of all sizes that need expert financial leadership. They’re often especially valuable for rapidly growing startups facing a complex financial task.

This is because, in addition to planning services like financial modeling and forecasting, fractional CFOs can provide strategic leadership, helping you navigate challenges like venture capital fundraising or mergers and acquisitions.

If you’re interested in having a fractional CFO serve in more of a leadership role, it’s typically best to purchase recurring services, which generally provide you with assistance for a fixed number of hours per month.

For example, rapidly growing startups often need between 15 and 25 hours of fractional CFO guidance per month. Assuming an average hourly rate of $300 per hour, that would cost you $4,500 to $7,500 per month, or $54,000 to $90,000.

While still a significant investment, that’s still far less than the price of a full-time CFO. Starting at just $1,350 per month, Zeni’s fractional CFO services are even more affordable, making them viable even for early-stage startups and small businesses.

Outsourcing vs. automating

If you’re struggling to keep up with certain aspects of your financial management but want to avoid incurring the cost of hiring a full-time professional, your two main solutions are going to be outsourcing and automation.

Outsourcing is typically more expensive, but it offers the benefit of comprehensive support and specialized expertise. An outsourced provider can usually handle their finance function end-to-end, and you can be confident they’ll do it properly.

Meanwhile, automating tends to be more affordable, but you may still need to manage some tasks yourself. Automated tools aren’t always capable of handling more sophisticated processes, and a human should still be checking their work.

That said, financial automation is becoming increasingly powerful, especially with the recent developments in AI. More and more solutions are incorporating smart agents, expanding their capabilities to include more complex tasks.

The right solution is often a combination. For example, it’s common practice to let software automate routine bookkeeping tasks while relying on an outsourced team to review the results and translate the financial data into actionable insights.

If you’re looking for a hybrid approach, consider Zeni’s virtual bookkeeping services, which combine intelligent automation and dedicated human support in a single solution.

Outsourcing benefits

Outsourcing financial services provides several benefits that can make it an effective way to manage processes you don’t want to manage in-house. Here are some of the most significant ones to consider:

• Specialized expertise: Outsourced professionals have advanced knowledge and experience that you may not have. Not only does that help ensure compliance, but it also tends to produce higher quality results than you could on your own.
• Cost savings: Outsourcing is typically much more affordable than hiring a full-time accountant, controller, or CFO. You only pay for the services you need, making it possible to access a financial expert at a fraction of the cost.
• Scalability: As your business grows, your financial needs become more complex. You can change to a more appropriate outsourcing provider once your company evolves without having to recruit, train, or manage extra staff.
• Time savings: Delegating your financial responsibilities frees you from having to manage them yourself, allowing you to spend more time on areas of your business where your hours are better spent.

Common outsourcing mistakes

A business process outsourcing arrangement can be a great way to take financial responsibilities off your shoulders. Often, you can also get better results than you would have alone—and without costing as much as hiring a full-time financial professional.

That said, it’s not without its potential pitfalls. Here are some common mistakes to avoid:

• Outsourcing unnecessarily: Not every financial process requires a human expert. Modern software can handle many routine tasks, such as basic bookkeeping and payroll. To keep costs down, consider saving outsourcing for areas where human judgment is more valuable.
• Choosing the wrong provider: Don’t just pick the cheapest outsourced financial service provider you can find. Look for one with a proven track record, strong customer service, and experience working with businesses similar to yours.
• Neglecting communication: One drawback of outsourcing activities is reduced visibility and control over your finances. To keep both parties aligned, set clear expectations from the start and establish a system for regular check-ins.

Outsource financial services with Zeni

Zeni is a comprehensive financial management platform built for startups. We offer all the outsourced financial services you might need in one place, including bookkeeping, payroll management, business tax support, and fractional CFO guidance.

Because our services are fully integrated, we can manage your finances much more efficiently than multiple separate providers. 

Our clients also gain access to a suite of AI-enhanced supporting products, including bill pay and employee reimbursement software, as well as business checking and credit card accounts.

Schedule a consultation today to learn more about how you can simplify your finances by choosing Zeni as your outsourcing partner.

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