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7 Common Bookkeeping and Tax Service Challenges for Small Businesses

April 5th, 2024 | 7 min. read

By Matt Patrick

Meet Zach, the owner of Green Acres Lawn Care, a thriving small business in Memphis, Tennessee. Zach’s days are filled with overseeing his team, scheduling services, and ensuring his customers are happy. As a typical business owner, he wears a lot of hats—probably too many—but he doesn’t know who to hand off every hat to.

Amidst the hustle of running his lawn care business, Zach knows that staying on top of his bookkeeping and taxes is critical to ensure that nothing is slipping through the cracks. Customers are being invoiced, bills are paid, and there is enough money in the bank now and for when the tax man comes.

At Patrick Accounting, we get it. We’re small business owners too, and we’ve felt the weight of those decisions. That’s why we don’t just offer accounting services; we offer peace of mind. We strive to understand your business as well as you do, to provide insights that illuminate rather than confuse, and to protect your data as if it were our own.

We know that having the right information at the right time is vital to running a successful business, so this article will delve into the everyday challenges small business owners encounter when outsourcing their bookkeeping and tax services. We’ll start by determining why business owners like Zach should outsource this critical piece of their business, what pieces should or can be outsourced, what different services are available, and what benefit they would receive from outsourcing.

Challenge 1: Why Should a Small Business Outsource its Bookkeeping and Tax Services?

Before diving into the challenges, let’s reaffirm why outsourcing bookkeeping and tax services is smart for small businesses like Green Acres Lawn Care.

Zach has previously attempted to delegate parts to others, but he’s never satisfied with the outcome. Even when he handles it himself, he lacks confidence that it’s done right. He’s uncertain about his tax liabilities for the upcoming spring and worries that he may have missed important steps. Despite considering hiring a bookkeeper and trying to manage it on his own using QuickBooks, he still finds himself a little scared of the answer he will get when his CPA completes the tax return.

By outsourcing bookkeeping and tax services, the first benefit is saving time. Regardless of how tidy your records are, how much proactive advice you receive, or even if your business isn’t making money, outsourcing SHOULD free up more time for other things. Simply put, time savings alone should be a basic expectation from any service provider, giving you the chance to handle tasks you otherwise don’t have time for.

However, while time savings are important, they may not fully address deeper concerns, such as feeling secure about tax obligations. Despite the extra time gained, individuals may find themselves dwelling on potential tax liabilities rather than finding peace of mind.

While saving time is important, if your bigger goal is to sleep better at night and feel confident about what you owe the taxman, then time, while helpful, might just give you more room to think about how ugly that number may be come April.

Challenge 2: How Do I Find the Right Fit?

One of the initial hurdles small business owners like Zach face is finding a reliable provider. It’s like swiping through a dating app but for accountants. You’re looking for someone who gets you, gets your business, and speaks your language—preferably without making your eyes glaze over with jargon. The challenge? Not every firm is a match made in heaven for your unique business needs.

Choosing a partner that aligns with your business goals and values is essential, as there are numerous options available, like part-time bookkeepers, bookkeeping companies, virtual CFOs, QuickBooks experts, and CPA firms.

Consider factors like experience, reputation, and the range of services offered. Conduct thorough research, ask for referrals from your network, and check reliable companies like Better Business Bureau.

You can also check with your state board of accountancy to confirm the credentials of the provider you’re looking at. It also doesn’t hurt to schedule a consultation to make an informed decision.

Challenge 3: What Does Outsourced Bookkeeping and Tax Services Cost?

The cost of accounting and tax services is more than a line item in your budget—it’s an investment in your business’s future. That’s why we believe in clear, transparent pricing tailored specifically for small businesses like yours.

As a good rule of thumb, your accounting and finance expenses should be 1-4% of your annual revenue. For example, for a business earning $500,000 annually, allocating 1-4% of revenue would translate to $5,000 to $20,000 per year. Today, most of our clients pay between $1,000 and $1,500 per month for our services. Our fees are based on the volume of transactional activity you have and the financial complexity involved.

There are a number of factors that will go into determining your exact price, such as:

The Complexity of Your Financial Landscape

Just like no two fingerprints are the same, no two businesses have the exact financial setup. Some may have straightforward transactions, while others might deal with multiple revenue streams, international transactions, or complex regulatory requirements. The more complex your financial landscape, the more expertise and time it will take to manage it.

How Much Do You Have Going on in Your Books?

The volume of transactions and activity is a crucial factor in determining your costs because handling more activity generally requires more time.

Consider the factors that can influence service costs as you assess your needs: Do you have just a handful of transactions each month, or do you oversee multiple accounts with various people using different credit cards? How many separate entities are involved? How many bills do you receive monthly? Are you also keeping track of inventory?

What Level of Services Do You Need?

Like Zach, some people just want their yard mowed, but some want a full-time gardener on staff. The same goes for accounting services. Do you need bookkeeping, weekly insight into your numbers, profit-first support and guidance, proactive tax planning, and all your tax returns handled with white glove service? Or do you just need someone to keep the taxman at bay? Your needs will directly influence the costs.

What Industry Are You In?

Certain industries have unique financial considerations. For example, if you compare owning a restaurant versus a veterinary hospital, you’ll find vastly different requirements. Factors such as the technology stack, employee types, distinct employee compensation systems, and entity structure requirements can all demand specialized expertise to maneuver through these challenges effectively, which can impact pricing.

Challenge 4: What If I Don’t Understand How Outsourced Data Bookkeeping Works?

Effective communication is vital when you outsource bookkeeping and tax services. Misunderstandings or lack of clarity can lead to errors and delays in your financials and taxes.

To overcome this challenge, establish open channels of communication with your partner, and make sure you clearly understand the scope of service they are offering you.

Clearly communicate your expectations—such as when you need reports or explanations about required tax filings—ask questions about their process, and provide timely feedback.

Remember, this is one of the most important relationships you can have in your business. At Patrick Accounting, we know that having the right information at the right time is vital to running a successful business, so your partner should be committed to guiding you through the things you don’t know and empowering you with an accurate picture of your business so you can feel confident in your decisions moving forward. Your partner should be engaged in regular check-ins and updates that foster a collaborative relationship and provide transparency.

Challenge 5: How Do I Know My Information Is Protected?

Entrusting sensitive financial information to a third party can trigger concerns about data security. On one side, there’s the relief of handing over complex financial tasks to the experts.

On the other side, there’s an understandable concern about data security. It’s akin to throwing someone the keys to your personal and financial kingdom. The thought of sensitive business information potentially being exposed due to a security lapse is enough to give anyone pause.

So, how can you truly know that your data stays secure when you’re passing it off to a new accounting partner? Start by having a candid conversation about their security protocols. A trustworthy firm will be upfront about the measures they take to protect your data, like encryption and controlled access. It’s also wise to ask about their track record—have they navigated cyber threats successfully in the past? Their responses can offer insights into their preparedness and commitment to data security.

Additionally, it helps to check if they adhere to recognized compliance standards, which serve as a testament to their rigorous security practices. A firm that prioritizes these standards isn’t just ticking boxes; they’re ensuring every corner of your financial data is safeguarded.

In essence, choosing an accounting partner is about more than just their number-crunching skills. It’s about finding someone who values the security of your business information as much as you do. It’s a partnership built on trust, expertise, and the mutual goal of keeping your financial secrets just that—secret.

Challenge 6: Will I Have To Do Things Their Way? What if they won’t do things the way I want them to?

Every outsourced accounting partner may handle things a little differently. Some will be flexible to do things the way you have always done them and others are strict about their process. As you talk with potential accounting firms, it’s important to talk through the scope of what each firm does and doesn’t do because process and service offerings can vary from firm to firm.

A good small business accounting firm will have a clear service engagement that details everything they are going to do for you – AND what they won’t do. Additionally, they’ll be transparent in your initial meetings about the ways they can accommodate your preferences, as well as explain why there are certain processes they are more rigid about. This way, you can both evaluate whether or not the partnership is a good fit without risking surprises in the future.

Challenge 7: How Will the Outsourced Bookkeeping Services Integrate Into My Existing Business?

Integrating outsourced bookkeeping and tax services with existing systems and workflows can pose challenges for small business owners like Zach. Compatibility issues, data migration complexities, and training requirements may arise during the integration process.

Integrating existing systems with those of a new accounting and tax service partner proves to be a particularly tricky task. On one hand, you have your business’s established procedures, tailored over time to fit your unique operations. On the other, there’s a fresh perspective and systems brought in by your new partner

The hurdle isn’t so much about the willingness to adapt; it’s about ensuring that these two sets of systems mesh well without causing disruptions. This challenge is about more than just technical compatibility. It’s about aligning two methodologies so that they not only coexist but also enhance each other’s effectiveness. You need to approach this integration head one, ensuring the transition is smooth and your business’s unique needs are met. This way, you can continue focusing on growth and profitability without being bogged down by the nitty-gritty of system integration.

Tips for Small Business Owners Outsourcing Their Bookkeeping

  • Invest time in thorough research and due diligence when selecting an outsourced service provider.
  • Establish clear communication channels and expectations to foster collaboration and minimize misunderstandings.
  • Prioritize data security by selecting providers with robust security measures and compliance certifications.
  • Advocate for personalized solutions tailored to your business needs and preferences.
  • Evaluate the long-term cost implications and value proposition offered by potential service providers.
  • Proactively manage integration efforts by prioritizing compatibility

Transitioning your accounting and tax services to a third party is no small decision. It’s understandable to feel a mix of apprehension, uncertainty, and maybe even a bit of skepticism. After all, you’re placing a critical component of your business—its financial health—in the hands of someone else. These feelings are normal, and we’ve seen them in many of the business owners who’ve walked through our doors.

And don’t just take our word for it—see what our clients have to say. Their stories speak volumes about the fears, challenges, and ultimately, the successes they’ve experienced by choosing Patrick Accounting.

Making a change, especially one as significant as transitioning your accounting services can be daunting. But with the right partner, it doesn’t have to be. Let us show you the difference that understanding, expertise, and genuine care can make for your business. After all, your success is our success.