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How Can Software and Technology Companies Benefit from Outsourced Accounting Services?

How Can Software and Technology Companies Benefit from Outsourced Accounting Services?

Technology is a rapidly growing industry of near-constant innovation, and all other industries depend upon the successful advancements of the technology sector. As the tech industry continues to swiftly expand, more and more technology companies are started each year.

Regardless of whether they are well-established or just starting up, software and technology companies must have teams in place to meet their unique accounting requirements. Depending on the size, structure and complexity of the business, outsourced accounting may be a beneficial solution for technology companies to consider for their accounting needs.

Defining Outsourced Accounting

Outsourced accounting is when a business hires a third-party firm to take over all or some of the company’s accounting department functions, which can be a cost-effective option to hiring an internal (also called in-house) accounting team. Experienced outsourced accounting professionals can help technology and software businesses by performing essential accounting tasks, such as payroll and bookkeeping, as well as acting as an outsourced chief financial officer (CFO) or controller.

Comparing the Benefits of Outsourced Accounting vs. In-House Accounting

There are pros and cons to both outsourcing and hiring in-house accounting staff. When looking at structuring (or restructuring) their accounting teams, software companies should keep in mind the differences between the two strategies:

Outsourced accounting allows whoever was handling accounting functions before to have more free time to focus on core business operations. Outsourced accounting is ideal for software and technology companies who want experienced professionals, scalability, flexibility, reduced errors, access to accounting technology software, enhanced data security and timely financial reporting. Outsourced accounting is also typically more cost-effective compared to in-house accounting, as the company is not responsible for providing insurance or any other employee benefits.

In-house accounting allows businesses to have direct oversight and control of their staff but will result in higher costs and continuous training. For larger tech companies with more complex accounting needs, investing in a dedicated in-house accounting team may be more beneficial than outsourcing. For smaller to mid-sized tech companies, the benefits of leveraging outsourced accountants will likely be more cost-effective and may give businesses more of a competitive edge.

Choosing between outsourced accounting, in-house accounting or a hybrid of both requires a business to consider various factors. Ultimately, the best approach is what maximizes efficiency and effectiveness for the business.

The Importance of Payroll and Bookkeeping in Tech Business Operations

For those businesses that choose outsourced accounting, outsourced accountants can fulfill any and all accounting department functions. One of the most common and most fundamental is payroll and bookkeeping. Bookkeeping in any business is essential, since it helps track all financial transactions and ensures more accurate financial reporting. Investing in outsourced payroll and bookkeeping services can help companies streamline processes and make more data-driven business decisions. Precise bookkeeping can help software and technology companies grow in the following ways:

  • Business Growth – Technology and software businesses who enhance their financial management can boost revenue and make other strategic adjustments that will support the expansion of their business.
  • Compliance – Experienced accounting professionals can help technology and software businesses ensure they are staying compliant with tax laws and regulations, which helps avoid any costly errors or penalties.
  • Financial Planning – By keeping accurate financial records, businesses will be well-equipped to create budgets, project future cash flow, track expenses by projects and reconcile accounts regularly.
  • Making Informed Decisions – Financial reporting can offer insightful information about the performance of your business, which can assist in making choices on expenditures, investments and other strategic adjustments.

Applying Accounting Metrics for Financial Performance Analysis

Once payroll, bookkeeping and other financial reporting functions are in place, companies can work with their outsourced accountants to begin collecting various types of data for financial performance analysis.

GAAP accounting metrics, such as gross margin, working capital, accounts receivable and more, show how well a business is performing. It is also important to consider non-GAAP metrics, which are disclosed outside of financial statements and present financial results differently than in financial statements. Some common examples of non-GAAP financial metrics are:

  • Free Cash Flow – The cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets.
  • Core Earnings – Profit derived from a company’s main business that does not take into account some of the expenses related to the company’s main activities. This is calculated by subtracting non-operating income from net income.
  • Adjusted Revenue – General fund of revenue for the prior fiscal year plus the growth amount.
  • Earnings Before Interest and Taxes (EBIT) – An indicator of a company’s profitability, calculated as revenue minus expenses, excluding tax and interest.
  • Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) – A measure of the company’s profitability used by investors. EBITDA is a variation of EBIT that excludes certain non-cash expenses.

Using these metrics, along with tracking intangible assets, can help outsourced CFOs and controllers see where there may be opportunities to improve their business. Timely financial reporting of these metrics can aid in business decision-making and will give a clear insight into how businesses are performing financially.

In addition to tracking and analyzing key accounting metrics, outsourced accountants can also provide value to companies by providing access to advanced accounting software and systems, without the company needing to perform system research, secure licensing or provide upfront investing. Having access to upgraded software helps to mitigate errors and ensure accounting files remain organized and backed up for many years, should the company ever experience an audit from the IRS.

See What’s Possible by Working with Brown Plus

Outsourced accounting offers a solution to tech and software businesses who cannot handle all of their accounting functions on their own, but do not have the resources to bring on a full-time in-house team. Working with an experienced outsourced accounting firm can provide a multitude of benefits while freeing up time for you to focus on what matters, helping your business achieve extraordinary outcomes.

If you have any questions on how Brown Plus can help your technology and software business with outsourced accounting services, contact us today!

Posted In: Outsourced Accounting Services | Insights

About the Author - Brian Marchuck, CPA

Brian is a Shareholder and Audit Principal at Brown Plus with over 15 years of experience providing accounting, auditing and tax services. He is a key member of the Firm’s local government and nonprofit auditing team. Brian earned his Bachelor of Science degree in Accounting and Finance from Millersville University.

Brian is responsible for planning, performing and supervising audit, review and compilation engagements for local governments, school districts and nonprofit organizations. He also performs outsourced Chief Financial Officer (CFO) services for municipalities and other local governmental entities. Additionally, Brian provides tax services to a client base including corporations, partnerships, nonprofit organizations, estates and individuals.

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