The growth rate of IT companies is generally higher than that of the company’s internal financial management. With new customers, renewals, cross-border transactions, payroll management, software costs, and reporting to investors the amount of accounting will increase rapidly. However, hiring a big in-house finance department might not be reasonable for a developing technology company.
Outsourcing will allow obtaining accounting capabilities for an IT company without having a big permanent finance department. Scalable offshore accounting services for IT companies will help to handle accounting tasks, gain financial transparency, and adapt the level of assistance according to the changes in the number of transactions.
Why IT Companies Need a Scalable Accounting Process
The complexities involved in accounting will likely increase with the growth of an IT firm. For instance, at the beginning of the start-up, the business may keep records through the efforts of a founder, bookkeeper, or the accounting team. This becomes increasingly difficult with time as the company grows.
Increased Transactions
IT businesses will deal with subscriptions, billings for projects done, software license fees, costs of cloud infrastructure, staff costs, payment to vendors, and multiple accounts with various banks.
These increased transactions will necessitate a scalable accounting process that will be able to accommodate such transactions without increasing the size of the finance team.
Increased Needs for Financial Reporting
As the IT firm grows, there will likely be need for monthly management reports, cash flow statements, profitability analysis, budgets, forecasts, and even financial information of the firm to lenders or investors.
A standardized financial reporting process will help management to make better decisions from the financial information obtained.
What a Scalable Accounting Process Looks Like
The scalable accounting system relies on efficient workflow, technology, responsibility, and financial analysis.
Standardized Accounting Workflow
There must be a clear process for each of the repeating accounting actions. These may include bookkeeping, invoicing, reconciliation of the bank account, accounts payable and receivable, payroll management, and accounting closure at the end of the month.
Such standardization will reduce reliance on individual personnel and make it easier to scale up accounting in the growing firm.
Cloud-Based Accounting Solutions
Cloud accounting solutions give finance experts access to the data, remote collaboration, and storage independent of the physical location.
Technology can be used to automate repetitive processes and improve financial transparency.
How Offshore Accounting Can Support IT Companies
It is possible for IT companies to utilize scalable offshore accounting services and thereby scale their accounting function without having to form a large finance function in-house.
Supporting Scalability in Response to Growth
A company’s offshore accounting function may initially be small and gradually scale with the company’s needs.
For instance, as a technology firm grows, outsourcing the bookkeeping and reconciliations process initially and eventually scaling into the other finance areas including financial reporting, accounts payable and receivable, payroll coordination, and management reporting becomes possible.
Access to Specialized Finance Skills
By outsourcing finance activities, a company can get access to specialized personnel in different areas of accounting.
This may be necessary for a company that does not have sufficient volume to justify hiring dedicated personnel in all areas of its finance function.
The Benefits of Outsourcing Accounting Services for IT Companies
There are several benefits of outsourcing accounting services beyond reducing the need for internal employees.
Lower Fixed Finance Costs
Establishing an extensive finance function within the organization requires payroll, benefits, recruiting, training, technology, office space, and management costs.
Outsourcing ensures that organizations get the benefit of accountants without having to incur the total fixed cost involved in creating a large finance function.
More Flexible Management of Resources
Information technology firms will be able to manage accounting functions in accordance with business requirements. Resources can be brought in whenever the number of transactions increases, and fewer resources can be maintained when activity is less.
Such flexibility may prove extremely helpful to companies with growing or fluctuating activity levels.
Freeing up time for Core Business Activities
Entrepreneurs and managers don’t have to dedicate most of their time dealing with accounting work.
Outsourcing enables professionals to take care of accounting activities, allowing internal teams to focus on product creation, customer base, recruiting, and growth.
Which Accounting Functions Can IT Companies Outsource?
There is a range of tasks that can be included in the scalable accounting model.
Bookkeeping and General Ledger Management
External accountants will handle transaction recording, account maintenance in the general ledger, reconciliation of accounts, and updating financial records.
Correctly done bookkeeping forms a base for financial reporting.
Accounts Payable and Accounts Receivable
Handling vendor invoices, customer billing, tracking payments, and accounting for outstanding receivables can be quite challenging.
An outsourced accounting team will take care of these tasks according to the payment approval process of the company.
Month End Closing and Financial Reporting
Month end closing becomes very critical when an IT firm gets bigger. Outsourcing will help with reconciliations, review of accounts, journal entries, and preparation of financial statements.
This will allow for consistent delivery of financial reports to management.
How the Best Outsourced Accounting Services Add Value
Companies evaluating the best outsourced accounting services should look beyond basic bookkeeping. The right provider will be able to assist the company in its processes as the company’s accounting becomes increasingly sophisticated.
Understanding of Industry and Business Model
Information Technology companies may have special requirements for their accounting regarding SaaS, recurring revenue, project-based services, software development costs, foreign clients, and currencies.
A provider with an understanding of the nature of tech businesses will be better positioned to adapt accounting processes to these needs.
Advanced Reporting Capabilities
Accounting needs to do more than just document transactions. Financial statements must be informative for management regarding trends, costs, revenues, margins, cash flow, and other key metrics.
An experienced outsourcing partner will help to convert accounting into informative management reporting.
Scalability
The provider should be able to scale its accounting services as the company scales.
It allows the company to avoid changing its entire accounting model when its volume of transactions or reporting requirements change.
Building a Scalable Month-End Close Process
Month-end close process reliability is key for scaling up the finance function.
Create a Close Process Checklist
It is recommended that the accounting department create a list of actions that need to be completed regarding banking reconciliations, credit card, accounts receivable, accounts payable, payroll, expenses, loans, fixed assets, and any other account balances.
A written checklist can help you avoid forgetting some critical processes.
Define Deadlines
Every single step within the close process needs to have its own deadline and accountable person. It makes it much easier to notice any delays and maintain consistency with reporting.
Analyze Significant Variances
It is important to analyze any significant variances in monthly financial statements concerning revenues, expenses, margins, and cash flow.
Variance analysis can help your management avoid any future financial issues.
How Outsourced Accounting Services Improve Financial Visibility
Efficient accounting procedures will enable the IT companies to know more about their financial situation.
Monitor Income and Expenditures
Proper reporting will allow the management to determine sources of income and changes in the cost of operations.
It is especially vital for organizations that have to deal with different products, customers, projects, or subscription plans.
Efficient Management of Cash Flow
A lot of attention should be paid to cash flow in case of fast growth. Efficient reporting will help businesses to keep an eye on receivables, future payments, payroll needs, etc.
Thus, there is no necessity for IT companies to have huge finance departments in-house in order to develop effective accounting systems. Using standardization, cloud technology, sound financial controls, outsourcing of accounting activities with the help of The Fino Partners enables IT companies to develop their finance function that will grow along with the company.
While choosing the best outsourced accounting services provider, it is important to pay attention to the company's ability not only to cope with the current accounting needs but also to adapt in the future. A scalable accounting system ensures that IT companies will be able to maintain their finance functions without increasing their finance personnel.
