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In-House vs. Outsourced Accounting

In-House vs. Outsourced Accounting

Wondering what the difference is between in-house and outsourced accounting? Read our guide to decide which option is best for your business.

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In-House vs. Outsourced Accounting

Are you paying 65-150% more for your in-house bookkeeper compared to an outsourced solution? 

After joining Decimal, A recent client said, “finding a single person that knows all of the accounting needs we have, the guidance needed, and someone that understand the software and all the technology that goes into that, plus setting it up and then running it. I'll just say, that’s a needle in the haystack.” 

Bringing an in-house bookkeeper into your organization might make sense on the surface level. But suppose the organization is looking to scale, improve processes, and lean on the best technology for their needs. In that case, finding someone who can cover all those bases becomes incredibly challenging. In most cases, a ton of work still falls on the owners and CEO’s to verify, check, and follow up on the information they need. Often, it isn’t going to be just one person accomplishing this, but multiple full-time employees. 

Recently, Boeing announced that they were shifting their accounting operations to India to improve their process, save on costs, and offload the manual work so their remaining staff could focus on more significant priorities. This isn’t just some simple business, we are talking about one of the most complex businesses in the world. When the largest businesses in the world are realizing the advantages of outsourcing, it raises the question of why anyone would continue to pursue this in-house. Furthermore, what cost efficiencies are they gaining with this approach?

Intro:

Accounting is, of course, a necessity for all businesses. Traditionally, in-house accounting and bookkeeping were the default option for many companies — particularly small ones. CEOs and business owners felt this was the best way to keep control over the process. However, thanks to recent advancements in technology, outsourced accounting has become the new go-to for companies that want to scale efficiently.

With outsourced bookkeeping and accounting services, you have access to top-notch professionals who can perform the jobs more efficiently, quicker, and at a much better price. In reality, many business owners and CEO’s feel trapped by an in-house bookkeeper. They normally setup their own processes, own the data set, and don’t provide access to other team members that need data readily available. Still, making the decision to switch can be a tricky one at first. In this article, we’ll lay out the pros and cons of outsourced bookkeeping services to help you make the right choice for your business and whether you should look up “bookkeepers near me.”

What does in-house mean in accounting?

Let’s start by breaking down the basics. What is in-house accounting? This means accounting services are performed by internal employees. Typically, in-house accountants will handle a broad range of financial operations that go beyond crunching numbers — they must also deal with technical support, human resources, and bookkeeping all in one. Finding a single person to take on all of these tasks, who also has the skill set to accomplish each and every task at a high level, is quite challenging. 

Some companies prefer that their numbers be done by a team with inside knowledge, though this process has its disadvantages. Oftentimes, instead of being able to focus on the strategic initiatives, employees are asked to continue performing manual activities such as transaction categorization and reconciliation to address month-end close. This is also why there is a high turnover in the in-house model. This leads to quite a bit of employee burnout. 

Is in-house accounting cheaper?

Cost is always the big question when it comes to whether you should hire an accountant. And, with an internal team, you have a lot of costs to consider. Let’s get fiscal. 

First up is the salary for your accountants. The U.S. Bureau of Labor Statistics puts the median salary of accountants at $45,560 a year. The Bureau also reported that benefits made up an additional 31% of this cost beyond the cost of the salary. That is an all-in cost of $59,683 per year or $4,973.58 per month. Plus, you can’t forget additional expenses that arise from mistakes or clean-up when it comes time to prepare for taxes. If this is starting to sound more expensive than initially though, you’ll want to see the comparison to the lower outsourced costs. 

As your company grows, you’ll eventually have to hire new accountants to help with the workload. Not only is that another salary to worry about, but you’ll also have to dedicate time to training, often performed by other bookkeepers. That’s not to mention the time, money, and resources it takes to undergo the recruiting and interviewing process itself. Generally speaking, this might work at a small scale, but as the needs of the business grow, how will all these activities be split among the team? And will they be growing with the most efficient processes? 

Finally, you’ll have to consider the possibility of turnover. Considering the bookkeeping role can be very manually intensive and lead to burnout, people generally aren’t staying in this position too long. The risk of training someone just to leave for another role is tied to the direct costs of replacing a professional staff member, which can be upwards of 50-60% of the employee’s annual salary. On a $46,000 salary, that’s anywhere from $23,000 to $27,000. 

For example, if an accountant was to work with your company for a year and leave, based on the example above where the all-in cost is $59,683, you would be looking at approximately $86,683 in expenses before the next accountant could join the team. When most companies are evaluating in-house accounting, they rarely take the business and personal time lost and additional expenses into the picture. Once these additional expenses are considered, the in-house option looks much less preferable. 

Pros of in-house accounting:

While the costs of in-house accounting can be high, companies see value in the following:

  • You have complete control of all financial activities performed but also the responsibility to make process improvements
  • You can easily reach out to your team with any questions or changes as long as they are responsive and collaborative
  • You can develop trusting relationships with accountants and ensure confidentiality

Cons of in-house accounting:

Of course, with the advantages of in-house accounting come the disadvantages:

  • You’ll often face higher operating costs, including paying the salaries and benefits of your accountants 
  • Your team will be focused on prepping books, not on finding new technology to improve the process 
  • No resources to support your bookkeeper when process changes or best practices require updates or reviews. 
  • You are paying incredibly higher amounts for a single employee compared to a team to support your entire accounting operations. 
  • Your company will be liable for paying the consequences of financial errors, including legal fees or penalties. 
  • Scaling the operations won’t be as straightforward as the first hire.

Examples of in-house accounting:

Around 60% of small businesses still use in-house accountants. That number tends to decrease for small businesses as they grow older — just 43% of these businesses, that have been under the same management for five years, use in-house accountants. With more choosing to outsource as they grow over time. 

Many companies will choose to outsource activities but the software developer ISBX has chosen to keep activities in-house. What’s their reasoning? As their president, Arthur Linuma, stated, “With our own accountant, we are able to be very specific about the tasks that need to be done and the process we prefer.” 

While pursuing control over the operations is something that some businesses like ISBX want to embrace, it doesn’t bring in a broader set of expertise. The question arises, is the person in control of the operation the most knowledgeable about improving processes and scaling the effort? If the answer is yes, then an in-house solution might make sense. But if the answer is no, the company could benefit from the combined expertise of an outsourced accounting provider. To take the point a step further, the biggest question most avoid answering or even considering is whether or not the person they have brought in-house is doing it correctly in the first place. With no external oversight and a “we’ve always done it this way” mentality, there is no room for improvement or even validation that things are done correctly. 

What does it mean to outsource accounting?

Next up is understanding what it means to hire accounting services from an outside team. Essentially, you are paying a third-party service provider to perform accounting and/or online bookkeeping services. For example, the third-party provider can handle your payroll processing, accounts receivable, accounts payable, expense reporting…and pretty much everything in between. Quite simply, they work their assets off. 

For some businesses, this may be a big jump. That’s why it’s worth considering both the pros and cons.

Is it cheaper to outsource accounting?

In a nutshell, yes, it’s easier and cheaper to outsource accounting. It all comes back to the expenses that come with hiring and training your own staff, as well as the risk of turnover. When you put your accounting needs in the hands of a professional outsourced team, you often benefit from much more experience and expertise. Moreover, there’s a huge reduction in the risk of mistakes that take time (and money) to rectify. 

To put it into numbers, let’s think back to those turnover rate numbers. As stated previously, replacing a professional staff member who makes $46,000 a year could easily cost you $23,000. Coincidently, for around that same price, you could outsource your accounting needs to an accounting bookkeeping service like Decimal. You’ll have access to accounting, technology specialists, and entrepreneurial experts straight away who are equipped to handle all of your financial needs — without doing the work yourself. When you compare this to the all in cost of $59,683, compared to outsourcing at $12,000 to $24,000, you are looking at a savings of $35,683 to $47,683. That’s a new salesperson, office manager, marketing campaign, you name it! By the way that's an annual saving! In some cases for smaller businesses with low complexity, the dollar savings alone can be even greater.  

Additionally, as a company scales, the right outsourced accounting solution will have a system in place to enable growth. It’s important to pay attention to the process being used by third-party solutions. If they are just picking up the manual activities on your behalf without the process improvements, cost efficiencies won’t be easily gained. 

Pros of outsourced accounting:

Beyond offering you a better cost, when you hire the right bookkeeping services, you also get the following benefits:

  • Access to the latest accounting technology, increasing automation and reducing manual efforts. The right partner will assess and review your entire operation to streamline the overall business.
  • The ability to easily adapt to ever-changing rules and regulations, allowing you to capitalize on best practices for your evolving industry needs
  • Have the right people doing the right job, ensuring your staff is focused on essential priorities
  • Split responsibilities to remove the conflict of interest 
  • An easier time scaling up operations as your business grows 
  • Zero turnover

Cons of outsourced accounting:

Then there are the worries many have when they hire a bookkeeper, which is also worth considering: 

  • The wrong outsourced accounting solution might have surprise fees and flexibility on deliverables if they are resource constrained. 
  • Traditional CPA firms offering outsourced bookkeeping will focus more on the preparation for tax season than on the detailed visibility you need to make business decisions. 
  • Some companies will maintain the status quo without any process improvements
  • If there isn’t a fixed rate, there might be hourly charges that could fluctuate greatly depending on the time of the year

Examples of outsourced accounting:

Market research by Global Industry Analysts Inc. found that the accounting outsourcing market will reach a staggering $53.4 billion by just 2026. This is proof that more and more companies are choosing to outsource, with large corporations seeing it as a strategic move.

One big example is Boeing. In September 2022, the aerospace titan announced it would start outsourcing its accounting to a partner in India. Their reasoning? Outsourcing “simplifies processes, improves efficiency and streamlines operations.” 

Walmart did the same back in 2018 when it announced they were outsourcing its finance and accounting services to Genpact. Like Boeing, Walmart also said outsourcing would streamline operations. In addition, Walmart sees outsourced accounting as necessary for their growth and improving the customer experience overall. 

What are the benefits of outsourced accounting? 

Hiring a small business accounting service offers your business numerous benefits. Just like large corporations, you can streamline your operations, increase productivity, and enjoy a more efficient process. 

One other great benefit of hiring bookkeeping services for small businesses is this — you can repurpose talent towards more strategic initiatives for your business. More often than not, accounting and bookkeeping activities are passed off to other roles, forcing their focus and time away from bigger-picture tasks. Even the controller role often bears the burden of bookkeeping. 

That’s why it’s worth looking into “small business accountants near me.” Not only are you easing the load off of your team, but you’re building a strategy toward better growth for your employees and for your business as a whole. You will also be marching towards a stronger cost structure for your business, which will only help in the long run. 

Outsource Accounting for Small Businesses

Luckily, there’s no need to Google “bookkeeping services near me.” Decimal offers simple bookkeeping for small businesses with an actually fixed price. You can always count on our accountants. 

Gain the advantages of outsourced accounting as well as operational improvements with Decimal. We go beyond traditional bookkeeping to look at the total business operations in order to build the best accounting process to support your business. We won’t just take over what was done previously — we’re going to actively look for ways to improve, all for a fixed monthly price. If you’re ready to learn more about the benefits of outsourcing your accounting operations, Decimal is here and ready to help. 

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