As a business grows, its accounting work gets much more complicated. It can include many different types of transactions, payroll processing, keeping up with tax laws, providing financial reports, and various compliance issues. A simple bookkeeping system may be enough for a small company, but the growth of the company usually makes a simple arrangement insufficient in just a few months.
Business owners have many times experienced this dilemma when they ask: which option do we choose, an in-house hire for an accountant or choosing outsourced accounting services to a third party?
There is no right decision just in matching the salary cost of an employee against the fee of outsourcing. Other associated costs like providing benefits, software for the work, recruitment efforts, training employees, the time management is devoted to it, and not forgetting the expense of making a mistake or suffering a delay have all to be factored into. In fact, some recent cost analysis studies reveal the main advantage of outsourcing accounting is the flexibility to have a team of expert services without actually needing to create a complete finance department of your own.
In-House vs. Outsourced Accounting: What Is the Difference?
When a company keeps its own accounting in-house, it employs people exclusively to manage the financial operations of the company.
Based on its dimension, this could be a simple job of a bookkeeper with an accountant and then eventually a controller or the chief financial officer (CFO).
In an in-house accounting department you can usually get:
- Immediate control over the accounting operations.
- Employees solely working for the company.
- Quick access to confidential financial data.
- More influence in running of activities and setting priorities.
Outsourced accounting services offer the business to:
- Connection with expert accountants
- Reduce operational costs
- Vary the volume of services at low cost
- Make adjustments when transaction volumes change
- Save manpower and hiring-related responsibilities
Making the correct decision will be largely based on the business's dimensions, scale of transactions, level of complexity, together with the company's financial goals for a few years.
The Real Cost of In-House Accounting
Payroll cost is just one of the several components accounting personnel cost comprises.
Employers need to factor in:
- Payroll and fringe benefits: Payroll taxes, insurance retirement fund contributions, sick/annual leave, and other payroll related costs, are additional compensation to the basic salary.
- Manpower/Recruitment costs: getting accounting specialists is not a quick process and might also necessitate recruitment fees.
- Education & Development: Staff will have to attend training sessions for change or upgrading in accounting software, understanding of new tax regulations, reporting methods, or the company's internal procedures.
- IT/Computers: organizations might require accounting software for payroll processing and other business-related systems like desktops laptops internet cybersecurity, and a range of other hardware/software solutions
- Operating costs: Office, furnishings equipment, access to the web, and other facilities contribute to the total cost.
- Employee Turnover/Replacement: if an accountant resigns, the employer might bear the recruitment, hiring, and knowledge transfer costs among others.
- Time & Energy to be Invested/Management: the owner has to appoint someone in house who can handle and direct the whole accounting department and at the same time, monitor the staff's output.
It is often the case that U.S. businesses comparing their costs across the industry estimate that the fully loaded cost of a fulltime accountant who works for only that employer can easily be two to five times the salary part if one were to add up benefits and overhead costs.
What Does Outsourced Accounting Really Cost?
The Accounting Outsourcing cost Services price will greatly depend on the size of your company and the services being outsourced.
For instance, a small company with only the need to do daily postings and to reconcile accounts every now and then would not be asked to pay a big price.
But a company that is growing might require some of these:
- Record all the company transactions on a daily or a weekly basis
- Debtors and creditors
- Cheque and credit-card reconciliations
- HR services and payroll
- Balance sheets, revenue statements and profit and loss accounts
- Monthly closing accounts
- Management of budgets, sales forecasts
- Audit preparation and tax filing
- Managing the company accounts or a CFO equivalent
The flexibility that a company enjoys when outsourcing is a big plus point. Instead of going for employing several in-house personnel as the company grows, the company just needs to scale-up on the already signed outsourcing agreement that covers the added services.
When Does Outsourcing Make More Sense?
Outsourcing has become an efficient strategy in the business world where a fast-growing business does not require having a whole-time accountant team but yet needs a good financial backup.
If you are thinking of outsourcing, you may need it because:
- Your account books workload is expanding exponentially.
- Your accountant is spending most of his time only on routine bookkeeping tasks.
- You are looking for improved financial monthly reporting.
- Taking extra accounting staff is not the right decision from a business perspective.
- You are facing financial challenges.
- Your employees are highly experienced accountants.
- It also works that you can prevent the loss of productivity when employees are off or leave their positions.
- The business has different phases of financial workload that change from time to time.
Many companies opt for a combined model of using in-house and outsourcing. For instance, having an employee or finance manager internally, and using bookkeeping, tax guidance, monthly reporting, the controller function, other specialized services of outsourced accounting companies is one of the popular options for them. By doing this, the business will have good control over its finances, and on the other, be able to tap extra talent whenever they are short-handed.
When Is In-House Accounting the Better Choice?
Outsourcing might not be the best choice every time a company faces a situation and they can't decide between hiring an internal team or going the outsourcing route.
Keeping an internal team maybe even better for the company at times when:
- The company has a high daily processing volume.
- Financial activities demand continuous presence/attendance onsite.
- The business deal is so involved that it can be represented best by a full-time finance officer who understands the business inside-out.
- Management desires direct, instant control over the situation.
- The business has grown big enough to support a full-time finance department.
- Involvement of finance is highly intertwined with different business departments.
As a company grow bigger, the option of mixing internal and external teams will also be more appealing. In such scenarios, the internal finance department might continue to keep an eye on the regular business financial activities while the external provider, a company or individual, can be tasked with providing specialized support like accounting taxation auditing or advising services.
How to Calculate Your Business's Real Accounting Cost
Prior to deciding on employee recruitment or outsourcing, you shouldn't stop short of examining the salary or the service quote only.
Think about the:
Entire in-house expense = Salary + benefits + payroll costs + recruitment costs + software + equipment + training + management time + turnover costs
After that, you would be able to see the difference with:
Total cost of outsourced = Monthly service fee + additional services + software or other agreed expense
In addition, reflect on the importance the work is bringing. Sometimes cheaper providers who deliver incorrect books or delay reports might be more problematic than a dependable accounting partner in the run.
The goal should not simply be to find the lowest price. It should be to find the most efficient accounting model for your stage of growth.
Accounting cannot be considered solely as back office work for a business in expansion. Maintaining clean and up-to-date books allows an entrepreneur to monitor cash flow, manage costs and plan for investment, and improve decision-making capabilities.
Outsourcing accounting will cut the costs that an internal finance function would incur, as well as give access to the skills required.
An in-house team would be closer at hand to ensure greater direct control over the business's finance, and would make more sense for a bigger, more financially complex business. It might be that the best solution is not purely internal nor purely external for some growing business.
The right blend of internal monitoring and outsourcing with Accounting Outsourcing Services would give you an all-round service without losing financial control.
