In House Accounting vs. Outsourcing: Which is Best for Your Small Business?
In house accounting has been the standard approach in business for quite some time.
Many owners opt for in house accounting simply because it’s what they’re used to. However, due to technological advancements in accounting over recent years, business owners are realizing that traditional isn’t always best when it comes to managing finances.
Small businesses, in particular, are increasingly choosing outsourced solutions rather than following the traditional route. That said, both options offer unique benefits.
So how do you determine which is best for your company? Below, we’ve outlined some key differences between in house accounting vs. outsourcing to help you make an informed decision.
What’s the Difference Between In House Accounting vs. Outsourcing?
Before we look at the benefits of both in house and outsourced accounting, let’s first discuss the fundamental difference between the two.
In house accounting is when you hire an individual (or team of individuals) to perform bookkeeping and accounting tasks as an employee of your company.
Outsourced accounting, on the other hand, is when you hire a third party to handle the financial functions of your business. Outsourced accountants will work closely with you to ensure that all of your accounting needs are met without being employed by your company.
Pros and Cons of Hiring an In House Accountant
Now that you know the difference between in house accounting and outsourced accounting, we’re going to highlight some of the pros and cons of hiring an accountant to work within your company.
Advantages of In House Accounting
You may enjoy having an in house accountant on your team for the following reasons:
1. Greater Proximity & Accessibility
Because in house accountants work within your organization, they are typically easier to access when needed. The communication loop is much shorter and faster.
If you have questions or concerns regarding your business finances, your accountant is just a few steps across the office or a quick call away. Because outsourced accountants have other clients to serve and established schedules, they may not be quite as readily available as an in house team.
2. Increased Quality Control in Accounting
When you hire an in house accountant, you as the business owner have greater influence over the quality control in accounting processes. In other words, you have the power to implement the processes and adjust them as you see fit to ensure satisfactory results. Outsourced accounting firms establish their own processes for quality control, which you wouldn’t have any say in.
3. Taking On Multiple Roles
The workload for accountants ebbs and flows with the seasons. Your accountant may be overwhelmed with financial responsibilities at certain parts of the year, but then encounter slower months with little on their to-do list. During these times of the year, an in house accountant can take on additional roles as needed, such as in human resources.
Disadvantages of In House Accounting
While in house accounting does have its benefits, there are also some drawbacks you should consider before you begin recruiting.
1. Higher Cost
The cost of in house bookkeeping is greater than outsourced accounting costs. Because the accountant is employed by your company, you will have to cover their annual salary, payroll deductions, vacation time, and benefits package. You will also have to cover the associated costs of providing them with a workstation as well as the necessary resources to perform their job well.
2. Increased Fraud Risk
Small businesses that have only one person handling their financial information internally are at a much higher risk of experiencing accounting fraud. This is typically because there’s no segregation of duties.
The person who pays company bills might also reconcile the bank accounts and create monthly financial reports. And if you don’t have any checks and balances in place, they can embezzle money and cover their tracks for years without anyone noticing.
3. Software Setup
If you opt for in house accounting vs. outsourcing for your business, then you will have to purchase all necessary accounting software and set it up yourself. Not only will this require money, but it will also require time. You’ll have to do plenty of research to determine which softwares and tools are best suited for your needs, then take the time to implement it.
4. Hiring & Training
Undergoing the recruitment process for an in house accountant will also require your time and resources. You’ll want to be thorough when screening candidates, but it can be difficult to know what to look for if you’re not well-versed in the accounting field yourself.
Your new hire will also have to be onboarded and trained so they feel well supported when starting their new role. This process will take time and money, as well. And if your new hire decides to leave the company less than a year later unexpectedly, then you’ll have to go back and do it all over again.
Why Outsource Your Accounting Services?
Now that we’ve detailed the pros and cons of hiring an accountant in house, let’s take a look at four major benefits of outsourcing your accounting functions.
1. Cost-Efficient & Flexible
When comparing the cost of in house accounting vs. outsourcing, you’ll find that outsourced accounting costs are far more affordable. This is largely due to the fact that you won’t have to cover all of the fees associated with hiring a full-time employee.
Outsourcing also ensures that you’re only paying for billable work. Additionally, outsourced accounting is flexible, so you only have to pay for the services you need when you need them. And, you can always adjust your services—opting for more or less as your business evolves.
By outsourcing your accounting, you’ll have access to a wealth of unparalleled financial expertise.
Third-party accounting companies hire employees with advanced knowledge, skills, and experience across various areas of finance. They also require frequent trainings to keep their accountants up-to-speed on the latest compliance regulations and reporting tools.
Your outsourced accounting team will also provide access to new technologies and softwares that can help you manage your finances more effectively. While an in house team may not have time to research and test different accounting solutions, dedicated firms stay on top of the latest technology to streamline processes for increased efficiency.
3. Time Savings
As well as reducing costs, outsourced accounting will eliminate a significant amount of time spent on bookkeeping, reporting, and other financial management tasks.
Outsourced accountants will set you up with advanced, integrated software solutions to automate tedious tasks that could otherwise take you hours. This will allow you to focus your energy on growth initiatives and other priority areas of your business.
4. Reduced Fraud Risk
No small business owner wants to think that the person they hired to manage their finances in house would deceive them, yet small businesses are more likely to fall victim to fraud than larger corporations.
When you outsource your accounting, you put your financial information in the hands of a trusted team of experts who are more likely to notice abnormalities and unusual patterns than an internal team. Having an extra set of trained eyes on the financial workings of your business will virtually eliminate the risk of fraud in your business.
Should I Outsource My Accounting?
Outsourced accounting offers plenty of benefits for small businesses. The advantages in time savings, cost, expertise, compliance, and risk management are all important factors that you should consider when comparing in house accounting vs. outsourcing. At the end of the day, it’s up to you to decide what makes the most sense for your business.