How to Choose an Outsourced Accounting Firm in India

Choosing the wrong outsourcing accounting company is an expensive mistake that goes beyond dollars and cents. It includes delays in filing your GST returns, erroneous financial records, fines, and a period of time spent correcting other people’s errors.

Many accounting companies are operating in India that claim to be the “best.” How can you distinguish between them? Use this 12-point checklist.

Quick Answer: Here are the 12 key criteria to consider when selecting an outsourced accounting company in India: Compliance with Indian regulations; GST handling skills; Account management; Software used; Pricing; Data protection policies; Client references. All 12 items on this list need to be considered; missing any one of them can lead to serious errors.

Why Your Choice of Accounting Firm Matters More Than You Think

The majority of business owners consider outsourced accounting a commodity; whoever is cheaper wins the deal. This mindset will result in poor bookkeeping, filing delays, and unexpected cash flow management problems.

The right outsourced accounting company does not just track expenses. It helps you stay compliant, offers financial transparency, and becomes your growth partner. The wrong outsourced company does the least required and vanishes when there is a deadline.

But before choosing which company to hire, you should also pose a more important question: Is it the right time for your business to outsource its services? Learn more from In-House Accounting vs Outsourcing: The Key Comparison. We discuss the pros and cons of each model.

Once you are certain outsourcing is the solution for your business, use the list below while evaluating all the companies that approach you.

The 12-Point Checklist to Choose an Outsourced Accounting Firm in India

Point 1: India-Specific Compliance Expertise

No discussion here; compliance is mandatory, and accounting in India is GST, TDS, PF, ESI, ROC, MCA, Income Tax, etc. An agency that doesn’t know Indian law inside out will quickly land you in trouble.

Things to consider:

• How many Indian clients do you serve?
• What kinds of GST filings do you handle (GSTR-1, GSTR-3B, GSTR-9)?
• Do you handle TDS calculations, quarterly filings, and 26AS reconciliations?
• Do you deal with ROC and MCA annual filings?

If any of these are answered negatively, then it’s time to move on.

Point 2: Industry Experience Relevant to Your Business

General accounting experience does not necessarily mean being familiar with the business sector. A restaurant and an online retailer have different accounting considerations. The accounting needs of a real estate developer differ from those of a healthcare facility.

Look for:

• Case studies or testimonials related to your particular industry
• Awareness of particular tax exemptions and compliance rules specific to the industry (GST exemptions are different for healthcare
• compared to manufacturing, etc.)
• Familiarity with the business model – project accounting, subscription-based income, inventory accounting, and so forth

Ask: “Have you worked with businesses like ours? What kind of accounting issues did you deal with?”

Point 3: Personalised Account Manager, Not Shared Support Desk

Another common complaint related to outsourcing of accounting is that each time you call, you reach a new person who knows nothing about your business, causing misunderstandings and mistakes.

What you need to ask for:

• Personalised account manager assigned to your case
• Contact phone and email, not only the helpdesk system for sending tickets
• Response time guarantees (24 hours are a standard; any more than this should be considered suspicious)
• At Lekhakar, you get a personalised accountant for handling your books.

Point 4: Proficiency in Cloud Accounting Software

Gone are the days of exchanging Excel sheets between each other. An outsourced accounting firm of the present day must have its operations on cloud-based platforms that help you see your accounts in real time from your smartphone whenever you want.

Software to inquire about:

• Zoho Books – best for GST compliance in India and automation
• QuickBooks – most used by small businesses and start-ups
• Xero – loved by multinational companies and e-commerce
• Tally Prime – used by many Indian SMEs
• Odoo – for companies needing an ERP

Questions to ask:

• On which platforms are your team members certified?
• Will you be able to use the software that I am currently using?
• Do you provide real-time dashboards and MIS reports?

In case your outsourced accounting firm works only on Tally and does not provide any cloud facilities, your business mobility would be hindered.

Point 5: Transparent, Written Pricing — No Hidden Costs

The cost of accounting outsourcing in India can vary significantly. As per our guide on the costs involved in accounting outsourcing in India, basic bookkeeping costs ₹650–₹1,100 per hour, whereas the full-service monthly packages start at ₹40,000-₹2,10,000 per month for small businesses.

Red flags for pricing:

• Quotes being given without knowing your transaction volumes and/or scope of services
• “Starting from” pricing without any information on when and why extra charges are incurred
• No written service agreement or scope of work
• GST filing, bank reconciliations, or MIS reporting additional charges even though they are part of the basic package

What good pricing looks like:

• Fixed monthly package based on your transaction volumes and scope of services
• Documentation of what is included in the package and what is not
• Signed engagement letter prior to starting work

Always insist on having the price in writing. The sweet talk of the salesperson will prove useless when you receive the bill.

Point 6: Proven Track Record and Verifiable References

Anyone can put “over 100 clients” or “10 years of experience” on their web page. The real question is whether you can prove that.

Here’s what to do:

• Request two or three client referrals in your industry or of a similar business size
• Really call them — do not just read the reviews
• Ask the referral: “Do they file timely? Do they miss errors? How responsive are they?”
• Look up their ratings on Google Reviews and Trustpilot

Identify any trends in the reviews. One bad review about being responsive is understandable. If there are ten bad reviews about missing deadlines, then this is an indicator.

Point 7: GST Expertise and Automation Capability

Compliance with GST in India is not an option and is not straightforward. It includes GSTR-1 filing, GSTR-3B filing, matching with GSTR-2B, dealing with ITC, reverse charge, and e-invoicing. Compliance with these rules is mandatory; else one risks attracting penalties, withholding of ITC and attention from the authorities.

Points to inquire:

• Do you have expertise in full end-to-end GST management including filing, matching and notice response?
• Do you understand e-invoicing requirements for companies that exceed the GST limit?
• How do you deal with GST notice response?

If the company outsources its own GST management to a Chartered Accountant (CA), then it is better not to rely on such a partner.

Point 8: Payroll and Statutory Compliance Coverage

When you have employees, your accounting firm must do much more than just the accounting. Payroll is salary management, PF (Provident Fund), ESI (Employee State Insurance), TDS on salary, issuance of Form 16, and monthly/quarterly filing. All of them have stringent deadlines and late fees for non-filing.

What you must ensure:

• Do they do PF and ESI registration and monthly challans?
• Do they do salary slips and Form 16 issuance for your employees?
• Do they have the capability to manage multi-state payroll for your team in India?

Our payroll management services work in tandem with the bookkeeping so salary expenses and TDS always reconcile with your books.

Point 9: Data Security and Confidentiality Protocols

You are providing them with your most confidential information — profit margin, salaries, and payments to vendors. The security measures taken by them should reflect the confidentiality of the information.

Points to check:

• Is there a Non-Disclosure Agreement before any business interaction?
• What security measures do they take? Do all junior-level employees get access to all the client information or only the necessary information?
• Is your data stored in an encrypted cloud system or in locally saved systems which may be misplaced or stolen?
• What is the plan in case of a data breach?

If you get concrete responses to all of the above questions, then it indicates a genuine firm; otherwise, not.

Point 10: Scalability as Your Business Grows

The accounting requirements of your business now are different from what they will be in one year’s time. An accounting firm for a small firm that processes 200 bills monthly will be different from what it will require when it processes 2,000 bills. Your accounting firm should grow along with you without requiring you to break off the relationship.

Things to ask:

• Can you cope with increasing volume of transactions without a reduction in service quality?
• Do you provide other levels of service such as Virtual CFO as my business evolves?
• Have you ever dealt with businesses similar to the one I aspire to be?

An ideal outsourcing firm should be able to grow alongside with its clients. Should an outsourcing firm cater only to small firms, then you will have to find another firm at a critical time when you can least afford it.

Point 11: Turnaround Times and Service Level Commitments

Late accounting is practically as good as inaccurate accounting. Month-end reports provided 25 days after the month ends are useless for managing your business. GST filing on the very last day of the deadline means that there is no scope for any mistakes.

Things to get clarified before you sign:

• When are the month-end accounts and P&L statements provided? (Ideal scenario: Within 5-7 days from month end)
• How quickly do you get your day-to-day questions answered? In 24 hours? 48 hours?
• How far ahead of the deadline do GST and TDS returns get filed?
• What if there is a failure to file on time? Is there a penalty clause in the contract?

Put these into the service agreement.

Point 12: Strategic Financial Reporting, Not Just Data Entry

The difference between an average and an excellent accounting firm is if they make sure you know your numbers, not just if they capture them. Monthly reports should be understandable to someone without accounting skills. Forecasts of cash flows should be useful for planning. MIS dashboards should inform you when your business is in trouble before that happens.

What you should be looking for:

• Do they provide you with monthly MIS reports with an analysis, and not just statements?
  Are they able to compile investor-quality financials if you require funds?
  Do they offer Virtual CFO services?
  Do they identify financial risks for you, and not just tell you what happened?

If all you hear about reports is “P&L and balance sheet” – then it is just a data entry firm.

Quick-Reference Checklist Summary

Use this table when evaluating any firm:

Red Flags That Rule Out a Firm Immediately

Even if the firm clears most of the checklist below, here are signs that should make you back off:

• No written contract or scope of work – a handshake does not cut it after things have gone sour
• They do not tell you what accounting system they will use on your account
• No non-disclosure agreement presented before disclosing your business details
• Unwritten promises of quick turnaround times
• Only references from companies of sizes far removed from yours
• Unbelievably low rates – cheap accounting is bad accounting

In-House vs Outsourced: Still Deciding?

If you are still considering whether or not to outsource at all, then it is up to you to determine this based on the size of your company, transaction volumes, and budget. It pays to outsource from a financial perspective for most new businesses and small and medium-sized enterprises — you will find the difference in costs between outsourcing and working in-house.

FAQs: Choosing an Outsourced Accounting Firm in India

How do I know if the outsourced accounting firm is trustworthy?

Ask them to show Google and Trustpilot reviews; get references from the industry that you can reach out to; ensure they have an agreement of service; and check if they are GST-compliant. A trustworthy outsourced firm will never have a problem in providing these pieces of evidence to you.

Is it safe to give my financial information to the outsourced firm?

Yes, so long as the firm agrees to enter into an NDA with you, use encryption on cloud services, and has proper access control measures in place. Ensure everything related to data safety is put down in writing.

What all services must be available in an outsourced accounting package?

A decent package must contain bookkeeping, GST compliance, bank reconciliation, TDS management, payroll processing, and MIS reporting. Anything more than that – Virtual CFO services, yearly accounting, etc., must be paid for separately.

What is the cost of outsourced accounting for a small business in India?

Monthly costs vary between ₹40,000 and ₹2,10,000 depending on the number of transactions and other factors. You can view the entire costing here at how much does accounting outsourcing cost in India.

Would it be best if my outsourced accounting firm used the same software that I use now?

Certainly. It is not wise to switch software in the middle of outsourcing. Make sure that your outsourced firm explains their reasoning for suggesting that you switch software.

Would it be a good idea for a small business that only has 5 employees to outsource their accounting services?

Definitely yes. Indeed, small businesses stand to gain the most as they get all the benefits of having a complete finance department of a bookkeeper, GST consultant, and payroll person at a fraction of the cost of hiring even a single accountant.

How does outsourced accounting differ from offshore accounting?

Outsourcing your accounting services involves hiring an external firm which can either be nearby or far away. Offshoring your accounting services means hiring a firm from another country.