In my conversations with entrepreneurs, I’ve heard many reasons for why businesses decide to outsource accounting. Small teams reach a point where doing it themselves becomes too time consuming, or QuickBooks gets frustrating as the business gets more complex. Larger companies stretch the limits of their current bookkeeper’s bandwidth or find that having a controller or CPA and their outside resources get too expensive.
Every business owner is motivated by the goal to run a more efficient business.
Even though the pain is common, most business owners still hesitate to outsource their current bookkeeping and accounting tasks. More often than not, this reluctance is based on a lack of understanding of what to expect (and a little fear of change). Little do they know that being stuck in a business rut is exponentially scarier than anything they’d have to worry about with switching.
Knowing the standard types of documentation, paperwork, and records an outsourced accountant will ask for, and how they will use that information to learn about your business, will alleviate any angst of switching so you can start enjoying the perks of outsourcing.
How an outsourced accountant learns about your business:
Essential company information
Essential company information refers to a few specifics, mainly your official company name, incorporation date, location/state of incorporation, and authorized shares/shareholders. To verify this information most accountants will request your Articles of Incorporation (aka Certificate of Incorporation or Corporate Charter).
This document is the starting point for understanding what your company’s accounting and tax responsibilities are. It gives your accountant a look into your business model and corporate bylaws.
If it helps, you can think of your outsourced accountant as your doctor and your Articles of Incorporation as your medical records. Your accountant is focused on the financial health of your company, so he or she will look to this document to interpret your basic needs based on age, location, and lifestyle.
Proof of Ownership
Whether you’re a corporation, proprietorship, or partnership, any accounting provider will need to know your ownership distribution using either a capitalization table (cap table) or operating agreement.
This helps them thoroughly understand how your ownership or partnerships work, know who the decision makers are, and how to allocate your profits and losses accordingly.
Loan or financing information
There are a couple of reasons an accountant needs this information:
- Practical: Your outstanding debts are going to show up as liabilities or equity on your balance sheet and the payments you make against your loans and debts are going to show up as expenses on your profit & loss statement. In order to properly categorize these payments and create the most accurate journal entries in your books your accountant will need the loan agreements and the corresponding payment schedules.
- Planning: If your accountant has your payment schedule, they can use it to plan just as with any recurring expense. This is most helpful for producing your burn rate and cash runway reports.
Historical bookkeeping records and tax returns (if you have them)
If your business has been around for a while, you’ll have prior bookkeeping and tax history. Many outsourced accounting providers will build a historical financial profile (typically including information from previous months of the current year). This is helpful for both you and your accountant and will help him create your chart of accounts and accounting policies.
Traditionally this involves going through your banking history (general ledger, receipts, and historical transactions) to do some retroactive bookkeeping (super time consuming). However, most outsourced accounting providers, like indinero, are able to tap into your existing bookkeeping system (QuickBooks, Xero, etc.) and pull data to recreate your books. This is a win-win for both you and your new accountant. Not only will both of you save time on your switch, but your accountant will also have a sense of your current structure to start with and can focus on making any helpful adjustments instead of toiling over tons of transactions.
Another reason businesses decide to switch to an outsourced accountant like indinero is because their current solution doesn’t handle taxes. If your new provider does bundle in tax services they’ll be able to scour your history for errors that could pose a challenge or opportunities for deductions to prepare for next year. However, even if you’re switching to an outsourced accounting provider that doesn’t bundle tax services they will need your previous year’s tax returns. An accountant will use this to understand your spending, business position, as well as any debts and the payments made against them.
Access to financial accounts
Yes, your accountant is going to need custodial* access to your bank accounts, credit cards, payment, payroll, expense processors, and benefits providers. This should come as zero shock. Think about the work accountants do: they keep track of your income and expenses, all the transactions that take place at your business. How are they going to find these transactions without access to your financial accounts?
With this access your outsourced accountant can verify the figures that show up on your books with each corresponding transaction in your accounts. This is how your outsourced accountant reconciles your books each month and accurately prepares your taxes.
*This type of access allows your outsourced accountant to pull transactions and statements, not initiate transactions or make administrative changes.
Thinking of switching bookkeepers? Now that you know how an outsourced accountant, like indinero, will use different types of information to learn about your company, download your copy of the Getting Started with indinero checklist to know exactly what documents to provide when making your switch.