Your business requires more than numbers, it requires accurate numbers with timely compliance, increased visibility in cash-flow and financial insights that can aid in making smarter decisions.
The accounting task is more complicated for Indian businesses. Compliance with the Goods and Services Tax (GST), billing, payroll, reconciliation, accounting, e-invoicing, and tax filing deadlines can easily eat a lot of time. Although many tasks of accounting can be automated with software, outsourced accounting services offer a level of experience and expertise that is missing from software.
So, which is better—accounting software or outsourced accounting in India?
It depends on the size of your business, transactions you make, your expertise in terms of in-house resources, budget, compliance needs, and growth plans.
You can decide which option is best for your business by looking at the in-depth comparison of accounting software vs outsourced accounting in terms of cost, efficiency, accuracy, scalability, compliance, expertise, security, and business value.
What Is Accounting Software?
Accounting software is a digital system used to handle a company’s monetary transactions and accounting processes.
Depending on the solution, businesses can use accounting software for the following:
- Invoicing and billing
- Expense tracking
- Accounts payable and receivable
- Bank reconciliation
- Inventory management
- GST-related accounting
- Financial reports
- Cash-flow tracking
- Payroll management
- Tax calculations
- Financial data management
Advanced accounting software can automate repetitive accounting functions and provide business owners with instant access to monetary details.
Technology can also be a big contributor to compliance processes for businesses under the GST. For instance, e-invoicing systems can be connected to accounting or ERP system, and the information in the invoice may be passed on to the GST system and e-way bill process.
What Is Outsourced Accounting?
Outsourced accounting involves employing outsiders, such as an accounting professional, company or a specialized company services provider to take care of the accounting needs of some or all of your business.
Depending on your requirements, an outsourced accounting provider may handle:
- Bookkeeping
- Accounts payable and receivable
- Bank reconciliation
- GST accounting and compliance support
- Payroll accounting
- Financial statements
- Management reporting
- Tax-related accounting support
- Month-end and year-end closing
- Cash-flow reporting
- Accounting system management
You don’t need to have a full time in-house accounting team because you can get external accounting knowledge.
This is very advantageous for startups, small and medium-sized enterprises (SMEs), e-commerce businesses, professional service firms, and expanding businesses that require efficient financial management but do not have a substantial finance department.
Accounting Software vs. Outsourced Accounting: Key Differences
The primary difference, at a high level, is quite simple:
Accounting software provides technology. Outsourced accounting provides technology + people + expertise.
|
Factor |
Accounting Software | Outsourced Accounting |
| Bookkeeping | Automated/manual | Managed by professionals |
| Cost | Usually lower initially | Higher than basic software |
| Expertise | Depends on internal team | Access to accounting professionals |
| Automation | High | Can combine automation with human review |
| GST support | Software-dependent | Professional assistance available |
| Financial reporting | Automated reports | Reports + interpretation |
| Scalability | Good | Excellent |
| Human oversight | Limited | High |
| Data entry | Often automated | Managed/reviewed by professionals |
| Strategic insights | Limited | Can provide financial insights |
| Internal workload | Still requires staff involvement | Significantly reduced |
| Best for | Businesses with accounting expertise | Businesses wanting end-to-end support |
Benefits of Accounting Software for Indian Businesses
1. Lower Accounting Costs
The most prominent benefit of accounting software is its affordability.
Businesses can get assistance with such routine accounting tasks from accounting software without having to pay for a dedicated accounting team.
This can be a great way to cut down on accounting administration costs for small businesses with relatively simple transactions.
But companies should take into account all the cost of ownership which involves software subscription, implementation, trainings, integrations, data management, and man-hour needed to run the system.
2. Faster Bookkeeping and Invoicing
Accounting software can automate many repetitive accounting tasks.
For example, companies can produce invoices, document expenditures, follow up on payments, reconcile transactions, and also prepare monetary reports without having to do it all by hand.
This can help to save administration time and enhance operational efficiency.
3. Real-Time Financial Visibility
The biggest benefit of cloud accounting is that you’ll have access to the latest financial data.
Business owners can monitor:
- Revenue
- Expenses
- Outstanding invoices
- Receivables
- Payables
- Cash position
- Profitability
- Inventory
This will enable the management to make decisions on the basis of real-time financial information instead of waiting till the month-end reports.
4. Better Accounting Automation
Accounting software has a major edge in terms of automation.
Automation can be applied to businesses, depending on the platform:
- Recurring invoices
- Payment reminders
- Expense categorization
- Bank feeds
- Reconciliation
- Tax calculations
- Financial reports
- Inventory updates
GST/e-invoicing ecosystems are also designed to facilitate seamless integration with accounting, ERP, and government systems.
5. Easy Access to Financial Reports
An accounting software can produce reports like:
- Profit and loss statements
- Balance sheets
- Cash-flow statements
- Accounts receivable reports
- Accounts payable reports
- Expense reports
- Sales reports
- Tax reports
This is good for business owners because they will have less trouble tracking financial performance.
Limitations of Accounting Software
While accounting software is capable of great power, it can never be a replacement for accounting expertise.
1. Software Cannot Replace Human Judgment
A software platform can capture a transaction, but it might not have any understanding of the context of that transaction.
An accounting professional who is experienced can discover:
- Unusual transactions
- Reconciliation discrepancies
- Accounting errors
- Potential compliance issues
- Cash-flow problems
- Incorrect classifications
- Financial trends
Human judgment can be very helpful.
2. Someone Still Needs to Manage the System
You don’t need to do all of the accounting work with accounting software.
Someone needs to:
- Enter or verify information
- Reconcile accounts
- Review transactions
- Correct errors
- Maintain master data
- Monitor compliance requirements
- Generate and interpret reports
This can be a heavy burden for a business person, who is already occupied with sales, operations, staff and customers.
3. Incorrect Data Can Produce Incorrect Reports
Information fed into accounting software is only as reliable as the software itself.
Wrong input = wrong output.
Even if the software is operating perfectly, incorrect transactions can be categorized or reconciliations can be left incomplete and the resulting financial reports can be misleading.
Benefits of Outsourced Accounting Services in India
1. Access to Professional Accounting Expertise
The greatest benefit of outsourcing accounting is that you gain access to trained accounting professionals without having to hire a large finance team.
An outsourced accounting provider can assist you with everyday bookkeeping in addition to assist you with financial reporting, reconciling and keeping up with compliance processes and management reporting.
2. Saves Time for Business Owners
Ideally, business owners should be spending their time growing the business and not following up on invoices, reconciling bank statements or checking accounting entries.
Much of this administrative work can be delegated to professionals via outsourcing.
That enables the founders and management teams to concentrate on:
- Sales
- Marketing
- Customers
- Product development
- Hiring
- Expansion
- Business strategy
3. Better Accounting Accuracy
Typically, there are procedures in place for accounting teams to review transactions, reconcile, report and perform financial controls.
This can minimise the likelihood of errors that can be made by inexperienced employees or due to differences in bookkeeping.
4. More Effective GST and Compliance Support
GST Compliance is one of the significant factors businesses need to consider in India.
While accounting software can help with certain aspects of the GST-related workflow, there’s still a need for businesses to have professionals review their data, look for discrepancies, interpret the requirements and handle the compliance process.
E-invoicing for instance, starts with creating the invoice data, obtaining the IRN and QR code, and finally linking the invoice data with the applicable GST systems.
This is an area where technology in accounting, and professional accounting skills, can be of special benefit.
5. Scalability
The greater your company expands, the more complex your accounting gets.
You may have:
- More employees
- More customers
- More vendors
- Multiple bank accounts
- Multiple GST registrations
- Higher transaction volumes
- More complex reporting requirements
- Multiple business locations
Outsourced accounting support can also help to scale up its support as your needs change.
6. Better Financial Insights
This is where outsourced accounting can be more than just bookkeeping.
Your accounting partner can assist management to grasp:
So, where is the money going?
Who is the right customer for you?
Why are expenses increasing?
How much cash will the business need next quarter?
Which invoices are overdue?
Does the business make money when its revenues are rising?
Reports can be created using software. You can get help from an experienced accountant who will be able to help you understand exactly what those reports mean.
Limitations of Outsourced Accounting
Outsourcing isn’t perfect for every company.
1. Higher Cost Than Basic Software
For small businesses with simple invoicing and bookkeeping requirements, outsourcing accounting services might be a more expensive option than software.
But it’s not just that you have to compare between:
Software subscription vs outsourcing fee.
The overall cost, from employee salaries to training, accounting mistakes, management time and software, compliance and financial controls should be considered.
2. Choosing the Right Provider Matters
Some outsourcing service providers will provide poor-quality accounting services, while others will provide excellent accounting services.
Before outsourcing, evaluate:
- Accounting expertise
- Industry experience
- GST knowledge
- Technology stack
- Data security
- Communication process
- Reporting frequency
- Service-level agreements
- Scalability
- Client reviews and references
3. Less Direct Control
Some business owners like to keep the business’s finances all on their own.
When outsourcing you’ll need to establish processes for:
- Data access
- Approvals
- Communication
- Reporting
- Document sharing
- Financial controls
The key to a good outsourced accounting relationship is to enhance the visibility, not lessen it.
Accounting Software vs Outsourced Accounting: Which Is More Cost-Effective?
This is among the most critical questions which business owners have to consider.
Accounting software may be better if:
- You have relatively simple accounting requirements.
- Your transaction volume is low or moderate.
- You’ve already got accounting expertise on your staff.
- Your team can handle bookkeeping and reconciling the accounts.
- The key requirements are automation and reporting.
- You want to minimize recurring accounting costs.
Outsourced accounting may be better if:
- You don’t have an in-house accountant who is qualified.
- There is too much management time spent on accounting.
- Your transactions are getting more complicated.
- You should be able to get financial reports on a regular basis.
- GST and compliance are becoming difficult to manage.
- You wish to have expert supervision.
- Your company is scaling rapidly.
What About Using Both?
Not all businesses are best served by software OR outsourced accounting.
It’s software AND outsourced accounting.
This hybrid model combines the strengths of both.
Accounting software provides:
- Automation
- Data storage
- Invoicing
- Transaction processing
- Financial dashboards
- Reporting
- Integrations
Outsourced accountants provide:
- Human oversight
- Reconciliation
- Accounting expertise
- Compliance support
- Error detection
- Financial analysis
- Management reporting
They can help develop a more effective accounting system together.
In fact, the use of technology for accounting is becoming more and more practical and convenient with growing businesses, with increasing technology capabilities to support integration between accounting/ERP systems and e-invoicing systems, which in turn is helping to boost the use of GST technology.
Which Is Better for Startups in India?
The best choice for startups is dependent on the phase in which they are.
Early-stage startup
You might need to use accounting software, plus some occasional professional assistance.
The business can automate its invoices, expenses and basic bookkeeping, and only need a professional for more complex accounting and tax work.
Growing startup
As transaction amounts increase and more employees and vendors are involved, as are compliance regulations, outsourced accounting can become more appealing.
High-growth startup
A combination of sophisticated accounting technology and professional accounting and financial management is often the optimal solution: a hybrid model.
Which Is Better for SMEs?
In the case of established SMEs, outsourced accounting can offer a great benefit if the accounting complexity goes beyond a simple software solution.
For businesses with multiple GST registrations, high transaction volumes, high amounts of receivables/payables, inventory, and complex accounting, professional accounting support can become crucial.
Conclusion: Accounting Software vs Outsourced Accounting
No one is a definite winner.
Accounting software is more suited to automation, affordability and simple accounting.
The outsourcing accountants have more expertise, they are more accurate, they will help to keep up with the compliance laws and will be able to provide you with financial supervision and lessen the workload of accounting on business owners.
But for growing businesses in India, the best remedy is a mix of accounting software and outsourced accounting services.
The software will take care of the repetitive work.
The professionals handle the complexity.
And management has increased visibility of finance to make better decisions.
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FAQs
1. Is outsourced accounting better than accounting software?
Not necessarily. Accounting software and outsourced accounting solve different problems. Software automates accounting processes, while outsourced accountants provide professional expertise, oversight, and financial support. Many businesses benefit from using both.
2. Is outsourced accounting expensive in India?
Costs vary based on accounting complexity, reporting needs, number of GST registrations, size of business, transaction volume, payroll and the range of services.
Outsourcing can actually save a business a lot of money as opposed to having a full-time accounting staff.
3. Can accounting software replace an accountant?
While accounting software can help automate a lot of “routine” accounting activities, it will not remove the necessity of professional judgment, review, reconciling, interpreting compliance, and financial analysis.
4. Is outsourced bookkeeping suitable for small businesses?
Yes. Small businesses can outsource bookkeeping when they want professional support without hiring a full-time accounting employee.
5. What is the best accounting solution for a growing business?
A mix of cloud accounting software and professional outsourced accounting services can deliver a balanced approach to automation, scalability, accuracy and expertise for many growing businesses.
6. Should startups outsource accounting?
If the founders don’t have accounting skills, then outsourcing is a great option for startups, or when financial management becomes a more time-consuming business matter.