Bookkeeping

Why You Need to Consider Outsourcing in 2020

Outsourcing is a growing trend with seemingly countless benefits. Typically, responsibilities such as accounting and financial decision-making, marketing, and programming will be among the first that businesses make the decision to outsource. By delegating these tasks to experts, your business will be able to not only save money but also save time that can be used to advance other business objectives.Jan 16th 2020

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With the beginning of a new year, countless businesses are reevaluating their strategies and their general operational approach. While some of these businesses will elect to make some minor tweaks and adjustments in-house, others will decide to outsource many of their operations and turn to specialized experts.

Outsourcing is a growing trend with seemingly countless benefits. Typically, responsibilities such as accounting and financial decision-making, marketing, and programming will be among the first that businesses make the decision to outsource. By delegating these tasks to experts, your business will be able to not only save money but also save time that can be used to advance other business objectives.

If your business has never outsourced work before, you likely have a lot of questions. How much does outsourcing typically cost? What are the primary benefits of outsourcing? How can my business find an outsourcing partner that can maximize our organization’s full potential?

In this article, we will discuss the most important things for you to know about outsourcing in 2020. By understanding why businesses, of all varieties, make this crucial decision each year, you’ll be able to generate a reliable plan for your business.

The Benefits of Outsourcing

Businesses outsource in order to save money. In fact, according to recent surveys, 59 percent of businesses choose to outsource in order to reduce their expenses. There are quite a few reasons why outsourcing certain business functions can be cost-effective. Not only will your outsourcing partner operate via an economy of scale (allowing you to purchase goods and services at a discount), but they will also have the infrastructure in place in order to help your business operate more efficiently. Furthermore, your business may find itself in a situation where it needs a “fraction” of a specific service without making a full commitment. In response, fractional CFOs and other services have become extremely popular in the digital era.

Businesses also choose to outsource in order to gain access to experts. Regardless of how smart or well-versed a business owner might be, it is incredibly unlikely that they know how to do everything as well as a certified expert. In fact, according to Deloitte, two of the most common reasons for outsourcing include improved performance (62 percent) and reduced errors (53 percent). Because only a fraction of business owners have accounting or financial experience, these functions are often among the first to be outsourced.

Furthermore, businesses look to outsource in order to access new systems, structures and technologies. The aforementioned survey revealed that 51 percent of businesses choose to outsource in order to access new technologies. In the world of digital accounting specifically, 93 percent of businesses hope to incorporate cloud technologies into their accounting practices. By working with the cloud and various other eCommerce tools, businesses can operate more effectively and access crucial decision-making information from anywhere in the world.

Commonly Outsourced Responsibilities

Accounting and finance are often among the first set of duties to be outsourced. These tasks, which require considerable attention to detail and expertise, can help businesses protect themselves from financial and legal hazards while also finding creative methods to improve their bottom line. An outsourced accountant can help your business organize (or reorganize) your books, prepare its taxes, generate long-term financial projections, establish an eCommerce platform and much more.

A 2018 Client Accounting Services (CAS) Survey revealed that about 80 percent of all businesses would refer their outsourced accountant to another business. However, accounting isn’t the only field where businesses are happy with their outsourcing partners. Legal, software development, marketing, and payment processing are all frequently outsourced as well. Even many of today’s Fortune 500 companies will make the decision to outsource.

Making the Decision to Outsource

Naturally, whether your business should make the decision to outsource will depend on many different factors. When deciding if outsourcing is appropriate for your business, you will need to do so using a comprehensive framework that accounts for opportunity costs.

Suppose that your business’ accounting responsibilities require 100 hours of work per month. If you consider each hour of work to be worth $40 (or whatever number you deem fit), this means your business’ total accounting costs will amount to $4,000 per month ($48,000 per year). However, if your business could generate $50 worth of revenue for every operational hour that it gains, this means you are missing out on $5,000 per month ($60,000 per year) in positive cash flows.

In this situation, when all else is equal, making the decision to outsource would initially have a $12,000 annual impact on your bottom line. When factors such as added tax deductions and better financial practices are accounted for, the amount your business can save with an outsourced accountant will be even greater.

While this hypothetical situation is obviously simplified, it demonstrates that the financial benefits of outsourcing may be even greater than you initially assumed. Your business, regardless of its size, only has a finite number of resources—it will be in your best interest to use these resources as efficiently as you possibly can.

Finding the Perfect Outsourcing Partner

With so many outsourcing options available to choose from, it can be difficult to know where to begin your search. Fortunately, the digital era makes it easy to find outsourced accountants, fractional CFOs and whatever outsourced help you might need.

When comparing potential partners, be sure to conduct a preliminary interview. Ask questions about the firm’s qualifications, experiences and other important details. Identify which services the firm offers and see if there are discounts available for bundling multiple services into a single (highly personalized) package. New technology makes it easy to access countless different outsourced firms, which may be located in different states or even in different countries.

2020 is the perfect year for your business to outsource its accounting needs or outsource various other responsibilities. Outsourcing can help your business gain access to expertise, use its resources more efficiently and, ultimately, improve its bottom line. Whether you are looking for a digital accountant or anyone else, you may want to consider outsourcing and gain access to these desirable benefits.

reprinted with permission from: https://www.accountingweb.com/practice/practice-excellence/why-you-need-to-consider-outsourcing-in-2020

Good recordkeeping is just good business

Recordkeeping is an important part of running a small business. In fact, keeping good records helps business owners make sure their business stays successful.

Here are some things small business owners should remember about recordkeeping:

  • Good records will help business owners:
    • Monitor the progress of their business
    • Prepare financial statements
    • Identify income sources
    • Keep track of expenses
    • Prepare tax returns and support items reported on tax returns
  • Small business owners may choose any recordkeeping system that fits their business. They should choose one that clearly shows income and expenses. Except in a few cases, the law does not require special kinds of records.
  • How long an owner should keep a document depends on several factors. These factors include the action, expense and event recorded in the document. The IRS generally suggests taxpayers keep records for three years.
  • A good recordkeeping system includes a summary of all business transactions. Businesses usually record these transactions in books called journals and ledgers, which business owners can buy at an office supply store, or keep them electronically. All requirements that apply to hard copy books and records also apply to electronic business records.
  • The responsibility to validate information on tax returns is known as the burden of proof. Small business owners must be able to prove expenses to deduct them.
  • Businesses that keep paper records should keep them in a secure location, preferably under lock and key, such as a desk drawer or a safe.
  • Businesses that keep records electronically on a computer should always have an electronic back-up, in case the hard drive crashes.

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Good tax planning includes good recordkeeping

Tax planning should happen all year long, not just when someone is filing their tax return.  An important part of tax planning is recordkeeping. Well-organized records make it easier for a taxpayer to prepare their tax return. It can also help provide answers if a taxpayer’s return is selected for examination or if the taxpayer receives an IRS notice.

This tip is one in a series about tax planning. These tips focus on steps taxpayers can take now to help them down the road.

Here are some suggestions to help taxpayers keep good records:

  • Taxpayers should develop a system that keeps all their important info together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.
  • Throughout the year, they should add tax records to their files as they receive them. Having records readily at hand makes preparing a tax return easier.
  • It may also help them discover potentially overlooked deductions or credits. Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
  • Records that taxpayers should keep include receipts, canceled checks, and other documents that support income, a deduction, or a credit on a tax return.
  • Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
  • In general, the IRS suggests that taxpayers keep records for three years from the date they filed the return.
  • For business taxpayers, there’s no particular method of bookkeeping they must use. However, taxpayers should find a method that clearly and accurately reflects their gross income and expenses. The records should confirm income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

The IRS has several online tools taxpayers can use to stay updated on important tax information that may help with tax planning. In addition to visiting IRS.gov, they can download the IRS2Go app, watch IRS YouTube videos, and follow the IRS on Twitter and Instagram.

Taking care of business: recordkeeping for small businesses


Small business owners should keep good records. This applies to all businesses, whether they have a couple dozen employees or just a few. Whether they install software or make soft-serve. Whether they cut hair or cut lawns. Keeping good records is an important part of running a successful business.

Here are some questions and answers to help business owners understand the ins and outs of good recordkeeping.

Why should business owners keep records?
Good records will help them:

  • Monitor the progress of their business
  • Prepare financial statements
  • Identify income sources
  • Keep track of expenses
  • Prepare tax returns and support items reported on tax returns

What kinds of records should owners keep?
Small business owners may choose any recordkeeping system that fits their business. They should choose one that clearly shows income and expenses. Except in a few cases, the law does not require special kinds of records. .

How long should businesses keep records?
How long a document should be kept depends on several factors. These factors include the action, expense and event recorded in the document. The IRS generally suggests taxpayers keep records for three years.

How should businesses record transactions?
A good recordkeeping system includes a summary of all business transactions. These are usually kept in books called journals and ledgers, which business owners can buy at an office supply store. All requirements that apply to hard copy books and records also apply to electronic business records.

What is the burden of proof?
The responsibility to validate information on tax returns is known as the burden of proof. Small business owners must be able to prove expenses to deduct them.

How long should businesses keep employment tax records?
Business owners should keep all records of employment taxes for at least four years.

Tax reform brings changes to qualified moving expenses

For businesses that have employees, there are changes to fringe benefits that can affect a business’s bottom line and their employee’s tax liabilities. One of these changes is to qualified moving expenses.

Under previous law, payment or reimbursement of an employee’s qualified moving expenses were not subject to income or employment taxes.

Under last year’s tax reform legislation, employers must include all moving expenses, in employees’ wages, subject to income and employment taxes.

Exception
Generally, members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if:

  • They are on active duty
  • They move pursuant to a military order and incident to a permanent change of station
  • The moving expenses would qualify as a deduction if the employee didn’t get a reimbursement

Transition rule
There is a transition rule under the new law. Under this rule, certain payments or reimbursements aren’t subject to federal income or employment taxes. This includes amounts that:

  • An employer pays a third party in 2018 for qualified moving services provided to an employee prior to 2018.
  • An employer reimburses an employee in 2018 for qualified moving expenses incurred prior to 2018.

To qualify for the transition rule, the payments or reimbursements must be for qualified expenses which would have been deductible by the employee if the employee had directly paid them before Jan. 1, 2018. The employee must not have deducted them in 2017.

Corrections
Employers who have included amounts covered by the exception or the transition rule in individuals’ wages or compensation can take steps to correct taxable wages and employment taxes.

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