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When Should Your Engineering Firm Outsource Accounting

    

9 min read

Outsourced accounting for engineering firms

Your firm's primary function is the service it provides – engineering. To function well, remain operational, and turn a profit, the firm must also have a well-run bookkeeping and accounting department. 

Key Takeaways

  • You're Struggling With Compliance: Most engineers are educated in engineering - not in accounting. For this reason, it can be difficult for the owner of an engineering firm also to become well-versed in and up-to-date with GAAP accounting…

  • You Aren't Using or Making the Most of Your Accounting Software: 18% of SMBs do not use accounting software - An outsourced accounting team will help your business choose the right accounting software and integrated tools based on your unique set of needs and goals…

  • How to Outsource Accounting Services: To outsource your engineering firm's back office successfully, you should first understand your needs, expectations, and goals in terms of your back office and what you hope to achieve with an outsourced provider…

 

For many small and medium-sized engineering firms, this is best achieved through outsourced accountancy.

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10 Signs It's Time to Use Outsourced Accounting for Engineering Firms

1. Your Bookkeeping Is Falling Behind

In SMBs, business owners often attempt to manage everything by themselves, including the bookkeeping and accounting functions of the business. The business owner's time, however, can be better spent on higher-value tasks such as growing the business, bringing in new clients, and improving the services provided by your engineering firm.

If you are one of these business owners managing the books on your own or even if you have a bookkeeper, you still might find that you are not able to keep up with the management of the back office as your business grows, expands, and changes. If your bookkeeping and accounting tasks have become overwhelming and you're not reliably able to close out your financials at the end of each period, then it is time for your firm to look into outsourced accountancy.

With an outsourced team, you can supplement your own in-house bookkeeping and accounting department or you can completely outsource the entire department and function to a comprehensive provider. One of the primary benefits of outsourced accounting is that services are flexible and can be readily scaled or adjusted to meet your business's changing needs.

Read More: The Pros & Cons of Outsourced Accounting Services

2. You're Struggling With Compliance

Businesses operating in the AEC industry are held to strict standards and compliance regulations in all aspects of operations, including bookkeeping and accounting. Engineering firms are required to maintain financial records that are based on the accrual accounting method and are aligned with the generally accepted accounting principles (GAAP).

Most engineers are educated in engineering - not in accounting. For this reason, it can be difficult for the owner of an engineering firm also to become well-versed in and up-to-date with GAAP accounting and an endless list of ever-changing financial rules and regulations.

It is the job of an outsourced accounting service provider to stay abreast of all the latest regulatory changes, and using an outsourced bookkeeping and accounting provider shifts the burden of compliance from your firm to a third-party provider. An outsourced accountant will establish sound and compliant accounting systems within your business and ensure you're operating compliantly to avoid any fees, penalties, or licensing issues that could arise as a result of non-compliance.

3. You Can't Afford to Hire a Three-Person Team In-House

At a minimum, a back office requires three people to ensure the proper checks and balances and separation of duties are in place to prevent fraud. Without a three-person team, your firm is at a high risk of internal fraud. While you might think that your business is too small to be a target, you should know that small businesses are the primary target of criminals.

According to a 2022 report from the Association of Certified Fraud Examiners, small businesses (fewer than 100 employees) and private companies experience the highest rate of occupational fraud (42%). The median loss due to these instances of internal fraud was $150,000, and the main contributing factor to these instances of fraud is a lack of internal controls.

Unfortunately, back-office employees are expensive to hire. A well-rounded bookkeeping and accounting team should consist of a bookkeeper, a staff accountant, and a controller. The respective average salaries for these employees (not including additional employee costs such as benefits, insurance, or PTO) ring in at $43,857, $61,663, and $250,871.

The bare-minimum, back-office team would cost your business hundreds of thousands of dollars each year. Outsourcing your bookkeeping and accounting, however, only costs an average of about $40,000 to $60,000 annually, depending on the scope and volume of services your firm requires.


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4. You're Struggling With Employee Coverage

In addition to being expensive and a potential fraud risk, in-house bookkeeping and accounting teams present staffing issues. They require you to hire employees, retain employees, and handle coverage issues during paid time off. Additionally, you are required to anticipate the changing needs of your business. As your business expands, your back office will need to expand, as well. You'll have to be ready to anticipate these changing needs and time properly time back-office hires.

On the other hand, outsourced accounting never presents coverage, staffing, or growth issues, shifting these personnel-related concerns to your third-party back office provider.

5. Your Financial Data Is Inaccurate

Inaccurate financial records can be a serious problem for businesses. They not only compromise your ability to be compliant but also make it difficult to manage your business. If your financial reports and records are filled with mistakes, an outsourced accounting team can help you establish better bookkeeping and accounting systems to improve data collection, record-keeping, and reporting.

6. Your Financial Reports Are Unreliable

Inaccurate data means unreliable financial reports. Financial reports can also be considered unreliable if they are not generated in a timely manner or if they are not produced using consistent, standardized reporting methods.

An outsourced accounting provider will establish a consistent, standardized system and schedule to ensure your financial reports are reliable and accurate.

Read More: How To Know If Your Engineering Firm Needs CFO Services 

7. You're Relying on Manual Processes

If you're relying on manual processes in your bookkeeping and accounting department (such as manual data entry, expense categorization, time tracking, payroll, accounts receivable, accounts payable, or anything else) then you are wasting time and money while reducing overall efficiency. Additionally, your data is likely inaccurate and unreliable due to human error and time management issues.

In bookkeeping and accounting, there are endless tools available that easily integrate with accounting software to streamline and automate manual processes. This means your employees will no longer need to spend time focused on simple, day-to-day, repetitive tasks and can, instead, focus on higher-value work. Plus, automating processes improves the accuracy, reliability, and timeliness of your financial data.

8. You Aren't Using or Making the Most of Your Accounting Software

A survey of 5,000 businesses found:

  • 18% of SMBs do not use accounting software.
  • only 21% of SMBs using accounting software also use integrations for invoicing and payments.
  • 27% of these businesses have no plans to streamline their payment process.

If your engineering firm is not using accounting software or maximizing the potential of its accounting software, you are not alone; you're among many businesses that waste time, money, and energy on manual bookkeeping processes - and there is no doubt that this is holding your engineering firm back.

If you aren't using accounting software or making the most of yours with smart integrations that help to streamline your processes and transform accounting software into enterprise resource planning tools, then your engineering firm will benefit from the assistance of an outsourced accounting services provider.

An outsourced accounting team will help your business choose the right accounting software and integrated tools based on your unique set of needs and goals. The two most popular accounting software solutions QuickBooks Online (QBO) and Sage Intact are designed to facilitate collaboration between businesses and remote, outsourced accounting teams.

These software solutions not only save time and improve accuracy with automated data collection, categorization, and reporting, but they can also enhance and improve overall management and operations, cost savings, productivity, and profits.


"We were profitable the first month and I knew it because my accounts and books were clean and I could understand where the money was coming from and going to."

Joe Aikens, CEO of JTAM Engineering

 

Engineering Firm Case Study: The ability to focus on growth instead of managing their accounting department fueled rapid increase in revenue and profits.


9. You Aren't Using Management Accounting

While financial reporting and traditional bookkeeping and accounting aim to maintain compliance, mitigate fraud risk, and keep your engineering firm tax-ready, management accounting and management reporting aim to help you run your business and be more successful.

If you find yourself basing leadership decisions on your gut feeling and instincts alone, then you might be missing out on opportunities, running headlong into problems, or making big mistakes. With outsourced accounting, you'll not only have reliable financial reports but also access to up-to-date management reports and metrics that can help you align your business goals and future vision with your financial strategy.

Properly run, your back office can improve and enhance just about every aspect of your business from operations and efficiency to human capital management and workplace culture. Outsourced accountancy can help you turn your back office into the engine of your business, fueling management decisions, cutting costs, improving productivity, and maximizing profits to help you achieve your firm's goals.

10. Your Business Is Growing, Undergoing a Change, or Approaching a Transformation

When Should Your Engineering Firm Outsource Accounting

If your engineering firm has a well-managed back office and a good handle on its bookkeeping and accounting functions, it might still stand to benefit from outsourced accounting services with the help of an outsourced or fractional CFO.

Outsourced CFO services can be extremely helpful in engineering firms that lack the guidance and experience of an in-house CFO. They can also be helpful to firms with an in-house CFO who are facing new challenges, undergoing a transformation, or growing rapidly.

Whether your company needs help establishing a financial strategy to support its short and long-term goals or assistance with rapid growth, a merger, acquisition, or leadership exit strategy, an outsourced CFO can bring extensive education, experience, an unbiased perspective, and expert advice to the table to help you successfully see your business through any sort of turbulent times.

How to Outsource Accounting Services

To outsource your engineering firm's back office successfully, you should first understand your needs, expectations, and goals in terms of your back office and what you hope to achieve with an outsourced provider. Next, be sure you work with a provider who has a positive track record of working with other clients in the AEC industry. These outsourced accountants will be familiar with the unique aspects of your industry and the common challenges, opportunities, and requirements it presents your business.

With the right provider, you can get your back office in order, make it start working for you, and start envisioning your firm's next stage of success.



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