Should Your Firm Outsource Accounting to Startups?
Looking to outsource tax or accounting work from your firm to an outside service? There are some new options available: accounting tech startups.
Recently I wrote a piece called, Will Accounting Tech Startups Overtake Your Firm?, which looked at the $100m+ of funding that has been funneled towards tech startups that are setting out to disrupt the delivery of accounting, bookkeeping and tax services. Needless to say, the article caused a few mixed reactions. In this piece, I will discuss the core issue of whether your firm should outsource accounting, bookkeeping or tax functions to these tech startups.
Cloud accounting disrupted the market several years back, where you now see the majority of firms of all sizes trying to rush into it in some form. But now, we may be witnessing further disruption as we are seeing a profile of new entrants to the market. Specifically, venture-backed tech startups that profess to offer the same services your firm does.
This may be scary if these accounting tech startup models prove to be feasible, but tech startups are also make or break and we do not know if these new entrants will stand the test of time as most accounting firms have. That said, the world is changing and firms are finally recognizing that their business model, service offerings and the technology required to compete in the digital age need to change.
While some firms may see these accounting tech startups as a threat, interestingly it may actually present your firm with new options. Moreover, if you are still struggling to modernize, it may be an opportunity to partner with them.
The New Players
In my article I listed a few accounting tech startups that have recently raised money and what their profiles look like. While they may look similar on the surface, one thing that differentiates them is their approach to market as some of them are indeed keen to partner with accounting firms. Others are flat out looking to replace you.
Pilot, for instance, claims to handle everything from books to taxes; a sweet spot for most firms out there. You probably won’t be partnering with them, instead you’ll be competing. And with a fresh round of $40 million coming through, it’s a threat if they can find a way to scale their model.
On the other hand, players like Bench and Botkeeper are (for now) focusing on one thing only: bookkeeping. They have been built from the ground up to focus on automating the bookkeeping and have implemented partner programs for firms that don’t want to handle the bookkeeping in-house.
Similarly, Visor offers a partner program for those that don’t want to handle tax returns for individuals.
Let’s take a look at some reasons why you may want to outsource accounting to these new tech startup as well as reasons for why you may not want to partner. I have left the topic of price aside.
Reasons Why You Might Want to Partner
1. You get an immediate solution. This is probably the biggest reason for partnering. If you want to move to the cloud but don’t want to spend the time it takes to properly implement the service or become an expert in the technology, then outsource accounting options may work well with these tech startups partners.
2. You’re not tech savvy. If your firm is more traditional and does not have anyone on the team that is particularly tech-savvy to implement a more automated service, then partnering could be a good option as most of these new tech startups are on the bleeding edge of technology.
3. Not straying too far from your focus. If you’re really good at tax, but your clients keep asking you for help with their books, should you implement a new bookkeeping service? Maybe doing that would stray too far from your focus, in which case, you can offer this as an alternative solution to your client which helps prevent your client from seeking assistance from a competing firm.
4. Less HR footprint. Finding and keeping accounting professionals is tough. Minimizing your HR footprint in your firm certainly makes things easier. These options allow you to do so. In fact, Botkeeper advertises on their partner page that their service will be, “your last bookkeeping hire.”
Reasons Why You Might Not Want to Partner
1. Less control. There is a risk when you send your work elsewhere. It may not get done the way you want it and when you want it. This past tax season there was a bit of investigative work done by David Leary on Twitter that looked into what appears to have been a capacity issue happening at Visor where tax returns weren’t going out on time with many complaining.
Remember, these tech startups are there to scale things as fast as possible. As these services have a human component to them, with scaling can come capacity and quality control issues which can present a risk for your firm. In this case, while you can outsource accounting services elsewhere, the risk may be steep depending on your partner.
2. You are already in the cloud. If you’re a shop setup with products such as Xero, QBO, Receipt Bank, Hubdoc, etc. then many of the reasons for partnering above are not applicable in your case and as such, this may only be a lateral move.
3. Risk of going upstream. Right now, players like Botkeeper and Bench are only offering bookkeeping services. But what happens if they decide to flick the switch and add-on a tax service as Pilot just did recently? I am not saying it will happen, but it certainly could happen down the road, which may come as a threat to your firm.
4. Inconsistent customer experience. If you offer tax and books in-house, for instance, a customer is working with the same team, same way of doing things, same systems, etc. When you outsource one aspect of what you do, now you have inconsistency in how things get done between different kinds of services. The customer may prefer a more consistent approach.
5. They don’t all use the most robust systems. When it comes to cloud accounting, players like Intuit & Xero have dumped a ton of money into their product to make it as robust as possible. While these tech startups will handle your bookkeeping for you, some aren’t setup on the most popular global systems which in my view is a disadvantage as it limits your flexibility down the road. In order to keep this article brief, I won’t elaborate on this point, but just contact me if you have questions.
Isn’t This Just Another Outsource Accounting Service?
Outsourcing services have existed for years, but what we are starting to see are heavily backed tech-startups jumping into the ring that focus on automation (and also happen to have some snazzy marketing). While there are other smaller players that can do the same thing if you search around, some of the ones listed in this article will be more in your face due to their marketing budgets.
The above is not an elaborate or exhaustive list of reasons why you should and should not outsource to some of these accounting tech startups, but it does serve as a starting point for the discussion if you are serious about modernizing your offering and moving your firm into a direction that sees far more automation.
Ryan Lazanis, CPA, CA founded Xen Accounting in 2013, a 100% cloud-based accounting firm. Following its acquisition in 2018, Ryan started Future Firm which provides resources & consulting to firms looking to setup an online, automated and modern firm of their own. He...