Outsourced Accounting VS In-house Accountant

There are many pros & cons to outsourced accounting services when comparing to in-house accountants. Most businesses have traditionally relied on an in-house accountant to fulfill their bookkeeping and accounting needs. However, with the advances in technology and a growing economy, businesses now have many cost-effective options to outsource their accounting and bookkeeping.

One of the common challenges that many businesses face is selecting the best option for their accounting needs. The process of finding the best in-house accountant or an outsourced accounting firm can be daunting. Accounting is quite complex even for a small business and anyone delivering work that is short of “exceptional” could mean catastrophic complications for the company.

The main differences between outsourced accounting and an in-house accountant come down to training, control, reporting, and cost. It is critical for a business to understand these pros & cons in order to find the right solution to your accounting and bookkeeping needs.

When you get down to the actual work, it’s important that the people performing accounting tasks (whether in-house or sourced out to an external firm) know their jobs well. The following are the differences in hiring and training people to do the job when you get it done in-house versus when you outsource it.

Hiring & Training In-House Accountants

Depending on the complexity of your accounting needs, you will be looking for who has at least a few years of hands-on relevant experience. One of the biggest challenges for business owners is properly evaluating someone’s accounting skills without having a deep knowledge of accounting themselves.

Interviewing for an internal accounting position means you have to be able to understand each candidate’s qualifications and whether they are the right fit for the job. While references from previous employers may help, it’s not always enough, as accounting needs may differ from one company to another.

Ideally, you would like the candidates to require minimal training and be able to do their job well from the get go. Even experienced accountants will need time to be onboarded to existing systems and processes so hiring someone who will need minimal supervision and catches on quickly is a priority.

Hiring & Training Outsourced Accounting Firms

Accounting firms that specialize in outsourcing their services to clients eliminate the challenge of going through dozens (and sometimes hundreds) of applicants, while making sure that whoever works on your accounting is a qualified expert.

Outsourced accounting firms are already staffed with knowledgeable and experienced professionals who specialize in high-level accounting, eliminating most training needs. While an onboarding process will still be required for even the best outsourced accounting firms, this time period is minimized by their experience with being a professional vendor of services.

Expert outsourced accounting companies also ensure their accountants are highly-qualified individuals who undergo continual training to stay up-to-date on their knowledge in order to provide the best level of service. This is not usually the case with internal accounting employees/teams.

Internal control is the amount of involvement you have with the bookkeeping and accounting process. It involves putting multiple layers of checks and balances in place to increase accountability.

Quality Control for In-House Accountants

Most small businesses will employ no more than one or two accountants to handle internal accounting needs. One of the key issues with this is a greater chance for honest mistakes as well as intentional fraud.

Most business owners operate based on trust but 80% of embezzlement cases occur at small businesses. The reason is simple: when one person controls your entire financial flow of information, they are in direct control of your banking and reporting. When more people are involved, the risk is significantly reduced as multiple layers of checks and division of labor makes everyone more accountable.

Quality Controlling Outsourced Accounting

With outsourced accounting and bookkeeping, the accountability lies entirely with the agency you have hired. Their only job is to ensure your books are accounted for and that the math adds up.

Since the agency’s professional reputation relies on their ability to properly and honestly service their clients, it’s completely counterproductive for them to commit fraud or engage in any other illegal activity. Most outsourced accounting firms divvy up specified duties, streamline responsibilities, and put at least two sets of eyes checking the work before the financial statements are finalized.

Financial reporting is the generation of statements which declare the company’s financial status, and it can include dozens (if not hundreds) of different items based on what is important for review & decision making.

Financial Reporting by In-House Accountants

While your employees can provide the details of financial statements and keep track of expenses, finances and investments, they may also get embroiled in other responsibilities related to accounting. For example, human resources may pull them away from their main accounting responsibilities and they may have to focus on everyday things like data entry and clearing bills.

While these may be equally important tasks for the company overall, the final financial reporting may be neglected and even inaccurate. Considering that these reports are vital for driving business forward, this can be a costly downfall.

Financial Reporting by Outsourced Accountants

Outsourced agencies allow you to retain your in-house bookkeeping staff but also provide them with more support. While your internal team members help out with important responsibilities that fall outside of financial reporting, the outsourced firm’s agents can collate relevant information about financial statements and status.

Hiring an external agency has shown to better the performance of existing employees by providing them with greater support, supervision and guidance. It also helps to increase your internal team members’ output and ensure that your business gets the best results by providing a friendly competition that sets the bar higher than before.

Any business will be concerned with the cost of doing business. Accounting needs come at a cost, and internal vs outsourced accounting costs are very different.

Cost of In-House Accounting

When you hire a bookkeeper and an accountant, you need to hire two full-time employees. You need to pay for not only their services but also added employee benefits.

The average salary of a full-time bookkeeper can start at $17 dollars per hour and go up significantly based on their qualifications. Salary is not the only consideration, as there are other overhead costs which usually include:

• Payroll taxes

• Health insurance

• Paid time off

• Cost of interviewing, hiring, and training

• Retirement plans, 401k, etc.

Cost of Outsourced Accounting Firms

When you outsource accounting needs, you will need to pay for the services but all of the overhead costs are left out of the equation. The monthly cost of hiring an external accounting agency can start as low as a few hundred dollars per month.

Cost of outsourced accounting services usually goes up based on complexity, but it is usually still far more affordable for small businesses to outsource accounting than it is to hire a full-time accountant internally.

Time is of the essence in a business. Every second spent on activities that don’t move your company forward is a second you will never get back.

Productivity of In-House Accountants

As mentioned above, your in-house employees may have other responsibilities too that may be overwhelming them and keeping them from providing full attention to the task at hand.

There may be some payment to a freelancer that is taking too long to be cleared, an invoice format that needs to be corrected, or simply too much paperwork for one or two people to handle. Time crunch and pressure is a real issue and eats into productivity.

Productivity of Outsourced Accounting Firms

When you outsource bookkeeping and accounting, it frees up your own employees to carry out other responsibilities and tasks to perfection. Once your bookkeeping and accounting responsibilities have been taken care of, you can use the extra time to introduce new aspects to your business. This is especially helpful for small or medium businesses that have fewer hands on deck.