When Should a Business Outsource Its Finance Function? 9 Signs You’ve Outgrown Your Current Setup

There is no single turnover figure that tells a business when to outsource finance function.

A company can generate substantial revenue and still have relatively simple finances. Another business can be much smaller but already be dealing with payroll, VAT, multiple revenue streams, overdue customers, project costs and difficult cash-flow decisions.

The real trigger is usually complexity.

As a business grows, the finance work required to keep it under control often grows faster than the finance capability behind it. The bookkeeping may still be getting done, but reports arrive late. Nobody owns credit control. The founder is checking invoices. Hiring decisions are based on the bank balance rather than a forecast.

That is normally the point at which the question changes from:

“Do we need an accountant?”

to:

“Do we now need a proper finance function?”

When to outsource finance function

A business should consider outsourcing finance function when its existing accounting setup can no longer provide the financial information, controls and day-to-day support management needs to run the company confidently.

That does not necessarily mean the bookkeeping is wrong.

It may simply mean the business has moved beyond bookkeeping alone.

Typical warning signs include:

• monthly figures arriving too late to influence decisions;
• cash being managed from the current bank balance;
• unclear profitability by customer, project or service;
• founders spending too much time on finance administration;
• disconnected bookkeeping, VAT and payroll processes;
• increasing overdue invoices;
• recruitment or investment decisions made without forecasts; and
• a growing need for finance management without enough work to justify several full-time hires.

The right time to outsource accounting therefore depends less on turnover and more on whether your finance capability has kept pace with the business.

Bookkeeping vs a finance function: what is the difference?

The distinction matters because many growing businesses initially assume that better bookkeeping will solve every finance problem.

It will not.

Bookkeeping records what has happened.

A wider finance function records, controls, closes, reports, forecasts and helps management understand what needs to happen next.

Good bookkeeping is the foundation. Transactions need to be recorded correctly, bank accounts reconciled and financial records maintained consistently. If that foundation is weak, everything above it becomes less reliable.

You can read more about Path’s bookkeeping services if getting the underlying records under control is the immediate problem.

But a growing finance function goes further.

It may include:

• bookkeeping and reconciliations;
• supplier payment processes;
• customer invoicing and credit control;
• payroll;
• VAT;
• month-end close;
• management reporting;
• cash-flow forecasting;
• budgeting;
• KPI reporting; and
• Finance Director or CFO-level input.

For businesses that need several of these capabilities working together, a complete outsourced finance function can provide a more joined-up approach than adding separate providers whenever a new finance problem appears.

9 signs you’ve outgrown your current finance setup

You do not need to experience all nine problems before making a change.

One serious bottleneck may be enough. More commonly, several smaller issues begin appearing at the same time.

1. Your monthly numbers arrive too late

A month-end report has limited management value if it arrives when the business is already well into the following month.

Imagine a digital agency that has a strong month for sales but discovers six weeks later that subcontractor costs and project overruns significantly reduced its margin.

The information may be technically accurate, but it arrived too late.

By then, the agency may already have:

• quoted similar projects at the same margin;
• committed to additional contractors;
• paid bonuses based on revenue rather than profit; or
• hired another employee.

As businesses become more complex, financial reporting needs to move closer to the decisions being made.

That may mean introducing a proper month-end process and regular management accounts rather than relying almost entirely on annual statutory accounts.

2. You manage cash flow from the bank balance

Your bank balance tells you how much cash you have today.

It does not automatically tell you what your cash position will look like after the next payroll run, VAT payment, supplier batch, tax liability and several slow-paying customers.

Consider a recruitment business with £120,000 in the bank.

On the surface, cash looks healthy.

But the company may also have:

• a large payroll due next week;
• VAT approaching;
• commission payments falling due;
• several major invoices still unpaid; and
• plans to recruit two new members of staff.

The important question is not simply “How much money is in the bank?”

It is:

“What will happen to cash over the coming weeks and months if our current assumptions are correct?”

Once those questions become important, the business needs cash-flow reporting and forecasting rather than balance checking.

3. You don’t know profitability by client, service or project

Revenue growth can hide weak margins. A consultancy might know that it generated £150,000 during a quarter but still be unable to answer:

• Which clients were actually profitable?
• Which service produced the best margin?
• Which projects exceeded their planned delivery cost?
• Are larger clients more profitable or simply larger?
• Which work should the business stop selling?

This becomes especially important where different services require different levels of staff time, subcontractor cost, software or materials. A business can grow revenue while accidentally concentrating growth in its least profitable work.

The finance setup therefore needs to move beyond producing a total profit figure and start giving management information that reflects how the business actually operates.

4. The founder still handles finance administration

In many small companies, finance starts with the founder.

They raise invoices, approve bills, chase customers, send payroll information, check the bank and answer the accountant’s questions.

That is understandable when the company is small.

It becomes a problem when the same founder is also responsible for sales, recruitment, customer relationships and strategy.

For example, the owner of a growing professional services company may spend every Friday afternoon:

• checking who has paid;
• chasing outstanding invoices;
• approving supplier payments;
• forwarding receipts;
• correcting invoice details; and
• answering bookkeeping queries.

None of those tasks is individually enormous. Together, however, they can consume a significant part of the owner’s working week. Outsourcing finance can create clearer ownership of routine financial processes while allowing the founder to retain approval over the decisions that actually require their involvement.

5. Payroll, VAT and bookkeeping are disconnected

Finance problems often appear between processes rather than inside them.

The bookkeeper may maintain one set of records.

Payroll may be processed separately.

VAT information may be reviewed quarterly.

Management reporting may happen somewhere else again.

Each individual task can appear to be working while the overall finance process remains fragmented.

For example, payroll changes may not be reflected in reporting quickly enough. VAT treatment may need correcting because the bookkeeping records were incomplete. Reimbursements may be processed without a consistent approval process.

As employee numbers and transaction volumes increase, those gaps become harder to manage informally.

A connected finance function should define:

• who provides information;
• who checks it;
• who approves it;
• when each process happens; and
• how the information flows into the wider accounts.

Businesses with growing teams may also need more structured payroll services rather than treating payroll as an isolated monthly task.

6. Debtors are growing without proper credit control

An increasing sales ledger can look like growth.

It can also become a cash-flow problem.

Suppose a B2B company increases monthly sales from £80,000 to £120,000.

That sounds positive.

But if customers start paying later and outstanding debtors increase from £70,000 to £180,000, the business may find itself funding that growth from its own cash.

The founder may know that several invoices are overdue but have no consistent process for:

• identifying overdue accounts;
• sending reminders;
• escalating older balances;
• resolving invoice disputes;
• tracking promised payment dates; or
• reporting collection performance.

At that point, credit control is no longer simply an administrative nuisance. It is part of working-capital management.

A wider finance function can create a repeatable process around invoicing, debtor reporting and collections.

7. Hiring decisions happen without financial forecasts

A new employee is not just a salary figure.

There may also be employer costs, pension contributions, software licences, equipment, recruitment costs, management time and a delay before the employee becomes fully productive.

Yet many growing companies make hiring decisions largely because:

“We’re busy and there seems to be enough money in the bank.”

Consider a business planning to recruit three people over the next four months.

The useful finance questions include:

• How does this affect monthly cash?
• What additional revenue is required?
• When is each employee expected to become productive?
• What happens if revenue growth is slower than expected?
• Does the business still have enough cash under a more cautious scenario?

Those questions require forecasting rather than historical bookkeeping.

This is often where a business begins asking whether it needs a Finance Manager, Finance Director or CFO rather than simply more accounting administration.

8. Your accountant mainly appears around filing deadlines

An accountant who prepares annual accounts and tax returns may be doing exactly what they were appointed to do.

The problem occurs when the business now expects much more from a service that was originally designed primarily around compliance.

A growing company may need monthly answers to questions such as:

• Why has gross margin changed?
• Can we afford another hire?
• Which customers are generating the best profit?
• Why is cash falling despite increased sales?
• Are costs growing faster than revenue?
• What does the next six months look like?

Annual accounts are important, but they are primarily historical. If management needs regular financial information to make operational decisions, the finance model needs to evolve accordingly. That may mean adding operational finance and reporting alongside the existing accountant rather than assuming the accountant should automatically be providing a completely different service.

9. You need better finance capability but aren’t ready for a full internal team

Eventually, many businesses reach an awkward middle stage.

They need more than a bookkeeper.

But they may not yet need or want to recruit all the finance roles required to cover:

• bookkeeping;
• payroll;
• accounts payable;
• credit control;
• management reporting;
• forecasting;
• finance management; and
• senior financial decision support.

Recruiting one person does not automatically solve the problem either.

A strong bookkeeper is not necessarily a Finance Director. A Finance Director is unlikely to be the right person to spend large parts of the week processing transactions.

This is where an outsourced finance team can make sense: the business can build access to several levels of finance capability around the work actually required rather than trying to force every requirement into one hire.

Do you need a bookkeeper, Finance Manager, FD or CFO?

Before deciding whether to outsource a finance department, identify the capability that is actually missing.

What you need	Best fit
Transactions, reconciliations and day-to-day records	Bookkeeper
Month-end, reporting, controls and finance operations	Finance Manager
Budgets, forecasting and financial leadership	Finance Director
Strategy, funding, scenario planning and senior decision support	CFO
Several of the above at the same time	Outsourced finance function

A company with unreliable records does not necessarily need a CFO.

It may need better bookkeeping first.

Similarly, a company with accurate bookkeeping but poor financial visibility may need Finance Manager-level reporting and control.

A company considering acquisitions, funding, major investment or complex growth decisions may need senior FD or CFO input.

The advantage of a wider outsourced finance function is that several gaps can be addressed without pretending they are all the same job.

Outsource your finance function or hire internally?

Neither model is automatically better.

The right answer depends on the size of the workload, the skills required, the company’s plans and how much day-to-day finance capability needs to sit inside the business.

Factor	Outsourced finance function	Internal finance team
Recruitment	Can reduce the need to recruit several separate finance roles immediately	Requires recruitment, onboarding and retention
Employment costs	Agreed service cost based on scope	Salary plus employer costs, pension, benefits and related employment costs
Range of skills	Can combine bookkeeping, reporting and senior support	May require multiple hires to cover the same range
Continuity	Responsibility sits with a wider service team	Can depend heavily on individual employees
Management overhead	Provider manages much of the finance delivery process	Internal staff require recruitment, management and development
Ability to scale	Scope can be reviewed as requirements change	Capacity often changes through further recruitment
Senior expertise	Senior input can be added when required	Experienced finance leadership may require a dedicated senior hire
Internal presence	Usually remote or hybrid depending on the arrangement	Greater day-to-day internal presence

There are situations where recruiting internally is the better option.

A company with enough recurring work for several full-time finance employees, complex internal systems or a strong need for constant onsite finance involvement may benefit from building its own team.

Other businesses use a hybrid model: internal staff handle certain processes while an external team supplies additional reporting, technical or senior capability.

The question should not simply be:

“Which option is cheaper?”

It should be:

“Which structure gives the business the finance capability it now needs?”

What should you outsource first?

Trying to redesign the entire finance function overnight is rarely necessary.

Start with the biggest bottleneck.

If the books are messy

Begin with bookkeeping, reconciliations and improving the underlying records.

Without dependable financial data, better reporting will be difficult.

If monthly reporting is late

Focus on the month-end process and management reporting.

Define when the books close, which reconciliations are required and when management receives the final reporting pack.

If cash visibility is poor

Introduce cash-flow reporting and forecasting.

The goal is to understand expected receipts, payments and pressure points before they appear in the bank account.

If the owner is overloaded

Move routine operational finance away from the founder.

This may include invoicing, supplier administration, bookkeeping queries, credit control and reporting preparation.

If growth decisions are becoming harder

Add more senior finance support.

Budgets, forecasts, scenario modelling and FD/CFO input can help management assess the financial impact of decisions before committing to them.

Outsourcing should therefore follow the problem rather than a generic service checklist.

Can you outsource finance without replacing your accountant?

Yes.

Outsourcing the finance function does not automatically mean replacing the accountant currently preparing your year-end accounts or tax returns.

A business might retain its existing accountant while bringing in additional support for:

• bookkeeping;
• accounts payable;
• invoicing;
• credit control;
• month-end close;
• management accounts;
• cash-flow forecasting; or
• finance management.

This can work well where responsibilities are clearly defined and information passes between providers efficiently.

The risk is fragmentation.

If the bookkeeper, payroll provider, operational finance team and year-end accountant all work separately, management can end up acting as the person responsible for connecting everyone.

For that reason, some businesses prefer a single connected provider for more of the finance function.

Path also provides outsourced accounting services for businesses that want to combine several accounting processes within an agreed service scope.

The right structure depends on what is already working and where responsibility currently breaks down.

What does an outsourced finance function include?

An outsourced finance function can cover some or all of the activities that would otherwise sit across an internal accounts department.

Depending on the business, that may include:

Bookkeeping

Recording transactions, reconciling accounts and maintaining the financial records.

VAT

Maintaining suitable records, preparing VAT information and supporting the return process where included in the agreed scope.

Payroll

Processing payroll information and maintaining a consistent payroll timetable.

Accounts payable

Managing supplier invoices, approval workflows and payment information.

Accounts receivable and credit control

Raising invoices, monitoring debtor balances and maintaining a process for overdue accounts.

Month-end close

Creating a defined monthly timetable for reconciliations, adjustments and reporting.

Management accounts

Providing recurring information on profit, balance-sheet positions and business performance.

Cash-flow reporting

Showing how cash is moving and where pressure may arise.

Budgets and forecasts

Translating business plans into financial assumptions that can be reviewed against actual performance.

KPI reporting

Tracking the measures management needs to understand what is driving financial results.

Finance Director or CFO support

Supporting leadership with forecasts, scenarios, investment decisions, growth planning and other higher-level financial questions where required.

Not every business needs every item.

The purpose is to build the right finance capability around the company’s current requirements rather than paying for layers of work that are not yet useful.

If several of these areas are becoming difficult to manage separately, Path’s Virtual Finance Office is designed to bring the required finance work into a more connected operating structure.

What does outsourcing a finance function cost?

There is no meaningful single price for an outsourced finance function because the workload can differ substantially between businesses.

Two companies with similar turnover can require very different levels of finance support.

Cost can be affected by factors including:

• monthly transaction volume;
• number of bank and payment accounts;
• quality of existing records;
• number of employees on payroll;
• VAT requirements;
• accounts payable workload;
• number of customer invoices;
• credit-control requirements;
• reporting frequency;
• number of companies or entities;
• accounting software and integrations;
• complexity of management reporting;
• budgeting and forecasting requirements; and
• the amount of Finance Director or CFO-level involvement required.

A business needing bookkeeping and monthly reporting should not expect the same scope as a company requiring payroll, credit control, weekly cash forecasts, budgeting and regular CFO support.

The better approach is to define the finance responsibilities first and then price the resources required to deliver them.

How to prepare before outsourcing your finance function

You do not need a perfect finance department before speaking to an outsourced provider.

In fact, identifying where the current process is failing is part of the exercise.

It is useful, however, to collect some basic information before the conversation.

1. Current accounting software

Which accounting platform does the business use?

For example, Xero, QuickBooks, Sage or another system.

2. Bank and payment systems

List the main bank accounts, credit cards and payment platforms that feed into the finance process.

3. Monthly transaction volume

Estimate the number of incoming and outgoing transactions being processed.

4. Payroll headcount

Record the number of employees and how frequently payroll runs.

5. VAT position

Confirm whether the business is VAT registered and how VAT is currently managed.

6. Current reporting

Identify what management currently receives each month.

This might include a profit and loss report, balance sheet, debtor report, cash-flow forecast or nothing beyond the accounting software dashboard.

7. Existing finance responsibilities

Write down who currently handles:

• bookkeeping;
• invoicing;
• supplier payments;
• payroll;
• VAT;
• credit control;
• reporting; and
• forecasting.

This exercise alone often exposes gaps.

8. Existing accountant or bookkeeper

Clarify what they currently do and what falls outside their agreed scope.

9. Your three biggest finance problems

Do not begin with a long wish list.

Begin with the three problems creating the greatest operational difficulty.

For example:

“Our reports arrive six weeks late.”

“We cannot predict cash reliably.”

“The founder spends a day every week on finance administration.”

Those problems provide a much better starting point for designing an outsourced finance function.

The right time to outsource finance is usually before the finance problem becomes a crisis

Businesses rarely wake up one morning and suddenly need a complete finance department. The transition normally happens gradually.

There are more transactions.

Then more employees.

Then VAT becomes more complicated.

Then customers take longer to pay.

Then management needs monthly reporting.

Then someone asks for a forecast before a hiring decision.

Eventually, a finance setup built for a smaller business is being asked to support a much more complicated one.

That is the real answer to when to outsource finance function.

It is when the business needs more financial control, visibility and decision support than its current setup can consistently provide.

The objective is not necessarily to outsource everything.

It is to make sure the right finance capability exists before weak processes begin affecting cash flow, management time or important growth decisions.

Frequently asked questions

When should a small business outsource finance?

A small business should consider outsourcing finance when the financial workload or complexity begins exceeding its internal capacity.

Typical signs include late bookkeeping, limited cash visibility, growing debtors, increasing payroll or VAT responsibilities, poor management reporting and founders spending too much time on financial administration.

The trigger is normally complexity rather than a particular turnover level.

At what size does a company need a finance team?

There is no fixed employee number or turnover at which every business needs a finance team.

A company with relatively simple transactions may operate effectively with external bookkeeping and accounting support for longer than a business with project accounting, payroll, multiple entities, high transaction volumes or complicated reporting requirements.

The better test is whether management receives reliable financial information quickly enough to operate the company properly.

Is outsourced finance cheaper than hiring?

It can be, but outsourcing should not automatically be described as cheaper.

An internal employee involves salary as well as employer costs, pension, recruitment, management and other employment-related costs.

An outsourced model may also provide access to different levels of finance expertise without requiring a separate employee for each role.

However, businesses with enough full-time finance workload may find that internal recruitment makes more sense.

The correct comparison depends on the work required.

Can I keep my existing accountant?

Yes.

An outsourced finance team can work alongside an existing accountant where responsibilities are clearly defined.

For example, the outsourced team might handle bookkeeping, operational finance, month-end reporting and forecasting while the existing accountant continues providing annual accounts or other agreed services.

Some businesses instead prefer one connected provider to reduce the number of handovers.

What is the difference between outsourced accounting and outsourced finance?

Outsourced accounting usually describes assigning accounting processes to an external provider. That could include bookkeeping, payroll, VAT, accounts and tax work.

An outsourced finance function can go further by combining operational accounting with recurring management reporting, cash-flow forecasting, budgeting, controls and senior finance support.

The terms can overlap, so the important point is to define exactly which responsibilities are included.

Do I need a Finance Director or CFO?

Not necessarily.

If transactions are not reconciled and reports are unreliable, the immediate need may be better bookkeeping or Finance Manager-level control rather than a CFO.

Finance Director or CFO support becomes more relevant when management needs budgeting, forecasts, scenario planning, funding support or senior financial input into significant business decisions.

The level of finance support should match the problem being solved.

Can an outsourced finance team work with Xero or QuickBooks?

Yes. Outsourced finance teams can commonly operate with cloud accounting platforms such as Xero and QuickBooks, although the right workflow depends on the wider systems used by the business and the scope of the engagement.

Before outsourcing, it is useful to review the current accounting software, bank feeds, payment tools, payroll systems and reporting processes so responsibilities and access can be agreed clearly.

Has your business outgrown its current finance setup?

If bookkeeping is only solving part of the problem, the next step may not be another isolated finance service.

You may need bookkeeping, reporting, cash-flow management and senior financial support working as one connected function.

Path Accountants’ Virtual Finance Office can be structured around the finance capability your business needs now, with scope agreed around your existing team, systems and priorities.

Explore the Virtual Finance Office →