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  • Writer's pictureSamuel Lai

Outsourced vs. In-House Accounting: What is right for your business

Updated: Dec 7, 2021

Having a bad accountant = Bad for your business

Accounting is an essential part of any business, so it is important to find a good accountant that fits your company’s financial needs. Obviously, you have an option to choose either hiring an in-house accountant or outsourcing.

For small business and startup companies, outsourcing can cost wise but less control. Hiring an in- house accountant could be costly, but you will more control, and you will always have help when you need it. Therefore, we will look at the benefit and drawbacks of each. Last but not least, we will calculate and compare the cost of each.

Source and Training

When hiring for an in-house accountant, you need to do some screenings to find the right person that qualified for the job. After you found the right person for the accounting position, then you will need to provide training for the overall business and your accounting needs. Ideally, you would like the in-house accountant to work under minimal training, but even for an experienced accountant will still need time to be on-boarded to the existing system and understand the overall business environment.

There are some accounting firms specialized in serving a particular industry. For example, you are in the legal services industry, you should look for a firm that is specialized in the legal services industry. If they called themselves specialized in the legal service industry, they must have a lot of knowledge and experience in handling the books for legal services companies. Therefore, you can eliminate most training needs by outstanding to the right accounting firm. However, the on-boarding process will still be required for even the best-outsourced accounting firms, but the time period is minimized by their experience in that particular industry.

Internal Control – Check and balance

One of the key issues for an in-house accountant is that will be a greater chance for honest mistakes as well as intentional fraud. For instance, when one person controls your entire financial flow of information, that person is in direct control of your banking and reporting. He/She can steal from you and cover the tracks with some complex journal entries, and you will never find out until the book is audited by a third party.

Outsourcing can help you reduce the risk of fraud. Since the accounting firm’s professional reputation relies on their ability to properly and honestly service their clients, committing fraud or engaging in any other illegal activities could be permanent damage to the firm’s overall business. Also, most accounting firms have two sets of eyes reviewing each step with different levels of staff working on one account. Furthermore, when more people are involved, the risk and error will be significantly reduced as multiple lays of checks.

Financial Reporting

While you have an in-house accountant, you have more control and management on the financial reporting process. Your employees can provide you with the details of financial statements and keep track of expenses, revenue, and report to you on a daily basis. For a decision maker in the company, these daily financial reports are vital to cash flow and to help make decisions that impact the business.

You may not be able to talk to your outsourced accountant day to day to keep track of your business activities, but you will receive a monthly or quarterly financial report in summarized of all financial transactions within that time period. For some accounting firms, they may review the financial statements with the business owners and provide recommendations based on the data.

Cost of in-house vs. outsourced accounting

For many small business and startup companies, the cost is a big determining factor when choosing an accounting service. Accounting needs come at a cost, and internal vs. outsourced accounting costs are very different.

Cost of In-House accountant

Assume you are a small business, and you want to hire a staff accountant. You need to pay for not only his/her salary but also added employee benefits as well as required payroll taxes. The average salary of an entry-level staff accountant can start at $20 dollars per hour and go up significantly based on their qualifications. Salary is not the only considerations, as there are other overhead costs which usually include:

  • Medical benefit packages

  • Retirement plan

  • Vacation/ Sick days

  • Placing ads for hiring, screening interviews, and training

If all the overhead cost adds up approximately 20% of the employee’s annual salary, it would be $8,320 (annual salary of $41,600 x 20%). In total, you will need to pay $4,160 per month for hiring an in-house accountant.

Cost of outsourcing accountant

Your business will not need to pay overhead costs when using outsourced services. You just need to pay a retainer fee for every month for your accounting services package. Obviously, the pricing is different for every outsourced accounting firm. Depend on the size of your company, and the number of financial transactions you have on a monthly basis, the average services fee would in range of $1,500 to $3,000 per month. Sometimes it will be lesser if you are a new company with fewer transactions.

Bottom Line

There is no right or wrong answer to choosing either an in-house accountant or an outsourced accountant. If you are financially affordable to hire more than one in-house accounting professionals, it will lower the chance of risk and fraud. On the other hand, choosing the right accounting firm and services is a tough decision to begin with. If you ended up with a cheap outsourced accountant with poor services quality, your business will suffer more in the long term. Finally, you, as a business owner, should look at all different factors before you decide whether you want to choose an in-house or outsourced accountant.

For information regarding your particular situation, contact an attorney, or a tax or financial adviser. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information.

This article is not intended to give advice or to represent our firm as qualified to give advice in all areas of professional services. Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

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