Start with bookkeeping, not tax: how to sequence an outsourcing relationship

When a firm finally decides to outsource, it usually starts with whatever is hurting most. In February and March, that is tax returns. So the first request a provider receives is often a batch of corporate returns, due in three weeks, from a firm that has never worked with them before.

It is the worst possible place to begin, and the reasons have almost nothing to do with whether the provider is competent.

Tax returns are a bad first test

A return is the end of a process. By the time you are preparing one, dozens of decisions have already been made about coding, classification, accruals and treatment. When a provider prepares a return from a trial balance they have never touched, they are inheriting all of those decisions without context.

So the first file comes back with questions. Lots of them. Some are the provider not knowing your conventions. Some are genuine issues in the underlying records that nobody had looked at closely before. From where you are sitting, in the middle of busy season, both look identical: this is slow and it is generating work.

The relationship then gets judged on its hardest possible starting condition, at your busiest moment, with the least margin for iteration.

Bookkeeping is a better test, for both sides

Month-end bookkeeping is repetitive, low-stakes relative to a filing deadline, and enormously revealing. In one month of work you find out:

• whether they follow your chart of accounts or quietly invent their own
• whether they reconcile properly or force balances
• whether they ask good questions or guess
• whether they flag anomalies early or hand back a surprise at the end
• how they respond when you correct them

That last one matters more than the rest combined. How a provider handles being corrected in month one predicts everything about how they will handle a filing deadline in month nine.

It also builds the context tax work needs

A provider who has kept the books for six months arrives at year-end already knowing the entity, the coding conventions, the recurring adjustments and the awkward accounts. The return preparation that would have generated forty questions in February generates four.

You have also, without meaning to, built the thing that makes outsourcing actually work: shared context. That cannot be bought and it cannot be accelerated. It accumulates.

The honest version of the sequence

For our own client relationships outside Canada, we say this plainly: bookkeeping and accounting is the established service, and tax preparation is a supporting service that grows once the context is there. In Canada, where tax is our specialty, we will take return work from the start — but even there, the relationships that run best are the ones that began with the books.

Outsource in September, not in February. The work you place will be less urgent and the relationship you build will be worth more.

If you are already in busy season

Then the advice above is no use to you this year. In that case, place the smallest self-contained batch you can, insist on a named reviewer at the provider's end, and agree in advance what happens to anything that comes back unfinished.

Then plan the real onboarding for the quiet part of the year. The firms that get the most out of offshore capacity are almost always the ones that set it up when they did not urgently need it.

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