Is your accountancy department helping your business grow — or secretly holding it back?
Over the last year, the rising cost of labor, the ongoing lack of talent, and the increasingly accepted practice of working from home have pushed companies to reconsider how they conduct the most fundamental financial activities.
According to recent industry reports, more than 60% of small and medium-sized enterprises now contract at least one finance or accounting service due to cost-effectiveness, scalability, and access to specialized expertise (Accountancy Age).
The decision on whether to in-source or outsource accounting is no longer a decision based on operations; it is a strategic decision. The in-house teams have control and proximity benefits, but they also entail fixed salaries, training expenses, compliance costs, and turnover risk.
Conversely, outsourced accounting has gone beyond simple bookkeeping, and its trend has been characterized by cloud-based solutions, talent pools spanning multiple countries, and on-demand knowledge tailored to meet business needs.
The widespread use of work-from-home and hybrid work has also blurred the boundary between internal and external teams even further. The field of accounting, especially, has been very flexible in its ability to be performed remotely.
Location is less important than capability and reliability when using secure cloud platforms, real-time reporting tools, and standardized processes. The change has allowed corporations to access international accounting skills, which, in many instances, are much less expensive than hiring locally, without sacrificing accuracy or compliance.
That said, outsourcing is not a smooth ride (Growth Force). The issues of data security, communication distances, cultural alignment, and loss of control are justifiable, particularly for owners of business departments accustomed to traditional models. It is necessary to learn the pros and cons of all strategies to commit to them in the long run.
The blog presents an objective, practical perspective on the in-house versus outsourced accounting debate, outlining the pros and cons of each model and how a business owner can make a sound decision that supports financial stability, efficiency, and long-term growth.
Learn with EA what both accounting models offer and whether they are the right choice for your business.
What is In-House Accounting?
In-house accounting is the traditional method of hiring an accounting professional to work from the office under the company’s payroll. The accountant is considered an employee of the business and is paid accordingly, with any additional benefits. Beyond that, they have their own office space and a work machine assigned to them.
What is Outsourced Accounting?
Outsourced accounting is an alternative hiring method in which businesses contract a specialized third-party firm to handle the responsibility instead of directly onboarding a professional.
For example, if your business needs an outsourced accountant, they will contact a firm like Expertise Accelerated. If an agreement is reached, Expertise accelerated will take up your accounting workload and delegate it to its roster of accounting professionals. In turn, EA will charge a fee for managing your accounting.
In-House vs Outsourced Accounting: 5 Key Differences
1.Cost-Efficiency
In-house accounting is not cost-efficient. Before we even discuss the skyrocketing wage demands from local US accountants, we must address the cost of hiring a professional. According to the Work Institute’s 2023 Retention Report, it costs 33% of an employee’s annual salary to replace them.
Furthermore, the 2023 Training Industry Report concludes that, on average, a company spends 57 hours and $954 to train each employee. Couple this with the fact that the hired employee takes an average of 12 months to start adding value to the business, and you can see the bills racking up.
Also, add the cost of HR professionals and the hours executives spend conducting interviews. Overall, hiring in-house can be one of the biggest expenses a business incurs.
That is nothing of the fact that your hired accountant may just give notice a few months or a year into the job and throw you back into the vicious hiring cycle.
Outsourced accounting, on the other hand, is incredibly cost-efficient. The main selling point of outsourced accounting is that it saves you all the time, effort, and money needed to hire in-house.
Instead, you pay a contractually agreed-upon fee to a firm and have their accountants do the accounting work. In some specialized forms of outsourcing, such as offshore staff augmentation, businesses can even onboard remote professionals directly, with the firm acting as an intermediary to connect the two.
Outsourced accounting is far more affordable for businesses, no matter how you slice it. They remove the long, drawn-out, overly expensive hiring process from the equation and do the same job at a fraction of the cost of in-house hiring. Offshore outsourcing can bring costs even lower, and if businesses want a closer relationship, they can opt for nearshore outsourcing.
2.Flexibility
For many businesses, accountants are not a consistent requirement. Small, local businesses and even medium-sized organizations can get by with simple bookkeeping and accounting for the most part. Accountants are usually necessary when a company is scaling up and needs dedicated support to handle the workload, or during critical assessments such as audits and tax season.
An in-house accountant is a rather unappealing proposition for such businesses. Aside from regular bookkeeping and record-keeping, an in-house accountant can offer more complex services, such as financial planning and budgeting. Still, even those activities are done on a monthly or even quarterly basis (Paperchase). This makes it difficult to justify calling in a high-paid professional every day when you realistically only need them a handful of times a year.
This rigidity in in-house accounting directly contributes to the costs discussed previously. Outsourced accounting, on the other hand, is flexible. If your daily accounting workload adds up to a couple of hours, that’s what you will be charged for.
If you need more complex tax and audit services, you can pivot to longer hours and pay as you go. If, for some reason, you really need to halt operations, you can terminate or freeze the contract and restart it when it’s more feasible or required.
3.Expertise
Accounting is a complex responsibility, with many niches and specializations. An accountant can be a master at tax management, for example, and know nothing about auditing. They may be experts in financial planning and budgeting, but they fall flat when it comes to tax management. Like doctors, most accountants specialize in one area.
In the case of in-house accounting, this means that every time you need expertise your accountant lacks, you must contact a specialized consultant to help you. This is common during audits, when external consultants come in to help prepare and ensure everything goes smoothly.
With outsourced accounting, you are hiring an entire firm to manage your accounting. Every employee under that firm becomes accessible to you, and you can retain their services for a great price when needed. Being able to seamlessly draw on the collective expertise of the global talent pool allows businesses to tackle any financial situation with the best possible minds on the case (Clutch).
4.Security and Control
As far as security and control are concerned, it is undeniable that in-house accounting is preferable to outsourcing. There are far fewer potentially problematic variables at play in in-house accounting. The work computers, for example, are all connected to the business network, and the business has control over how data flows through the company. They can set up protocols that prevent anyone from sharing or downloading the data for nefarious ends.
Beyond that, in-house professionals are known to you locally. You have all of their information available and can pursue them legally for any malfeasance. This threat alone deters many from using their position for ill purposes.
While it is completely untrue that outsourced accounting is unsafe and your financial data is at risk with a trusted firm, there are nuances to the conversation. Firstly, the quality of the outsourcing firm matters a lot.
There are many firms out there that are either scams presenting too-good-to-be-true offers, or falsely advertise their internal security protocols. Trusted firms like EA or anyone in the big 4, meanwhile, have security systems in place that far outshine in-house systems.
On the subject of malfeasance, it is an unfortunate truth that there will always be a greater risk of malicious actors succeeding. While security systems are highly robust, it is impossible to claim that they are foolproof. While firms like EA have a presence in the US and are accessible for complaints, many outsourcing firms are not. Their firms are headquartered in different countries, making it impossible to recoup any damages.
The bottom line being that security and control are consistent in in-house accounting and inconsistent in outsourced accounting. You need to thoroughly research outsourced accounting services and firms to make sure they meet your security standards. Not all firms are the same, and many exist that give outsourcing a bad name with their shady practices.
5.Communication
It is also true that communication is a major reason in-house accounting remains so prominent. If there is a pressing accounting issue, you can walk over to the next table or cabin and have your accountant take a look. Similarly, if there is an emergency, you can immediately get in touch and sort it out before things escalate.
In outsourced accounting, this becomes a real problem for some entrepreneurs who prefer to have direct access to their accountant. Remote professionals in an outsourced firm are a hair’s breadth away from being completely cut off from you should a communication issue occur. Your hired professionals may not be available during off-work hours, while an in-house accountant may clock in to help out in emergencies.
The communications gap is a risk you have to take when outsourcing your accounting. While it is not a problem in most cases, it may be a deal-breaker for some, despite the benefits of outsourcing accounting.
How to Find the Best Accounting Outsourcing Partner:
Outsourcing of accounting may bring in cost savings, scalability, and specialized expertise- but only when an appropriate partner is selected. Other businesses in the last year have resorted to outsourcing accounting to address rising labor costs, a talent shortage, and the growing complexity of compliance.
Nonetheless, ineffective vendor selection is among the main causes of outsourcing project failure. To select the correct accounting outsourcing company, it is necessary to go beyond price and conduct a critical evaluation of experience, systems, controls, and the company’s long-term compatibility with your business objectives (Virtual Latinos). These 10 tips will help you make a competent, confident decision.
1.Define Your Scopes first, and then Start Searching:
Before giving any outsourcing company, it is important to clearly state what accounting processes you require to outsource, i.e., what it is you want to be handled by the outsourcing company, i.e., bookkeeping, payroll, accounts payable, tax support, financial reporting, or complete cycle accounting.
Most companies commit the error of outsourcing without a clear definition of expectations, resulting in a mix-up and off-course deliverables. A concise scope helps you determine whether a given provider has the skills and capabilities to handle your immediate needs and grow with your company.
2.Value Industry Experience:
Not every accounting provider is aware of the specifics of each industry. By hiring a company with experience in your field, you can be assured of industry-specific knowledge of rules and regulations, financial expertise, and documentation (Virtual Latinos).
As an example, e-commerce companies must understand inventory and sales tax, whereas professional services companies must track effective revenue recognition and utilization. Industry experience reduces onboarding time and lowers the cost of costly mistakes.
3.Test Technology and Accounting Tools:
The outsourcing partner must have expertise in using modern accounting platforms such as QuickBooks, Xero, NetSuite, or other cloud-based accounting systems. In addition to their familiarity with the software, evaluate their ability to automate workflows, enhance accuracy, and provide real-time reporting. Firms that rely on a manual approach might not be able to handle scaling and real-time requirements as your business expands.
4.Evaluate Data Protection and Controlling Measures:
Financial information is highly sensitive, and when outsourcing, it poses an additional risk if controls are weak. Inquire about the specifics of data security measures, access controls, encryption measures, and adherence to the regulations. Your financial information will be secured by a reliable provider that has established policies, implemented audits, and disaster recovery strategies (Vintti).
4.Look Beyond Cost Savings
Though cost is usually a reason to outsource, choosing the lowest-cost offeror may be costly. Low prices can be a sign of staffing shortages, incompetence, or poor quality assurance. Rather, emphasize value, accuracy, reliability, responsiveness, and strategic support. A small additional investment in a competent partner can often lead to improved financial transparency and reduced downstream problems.
5.Know How They Organize Teams:
Enquire about who will be attending to your account and what the distribution of responsibilities is. Some companies have a specific accountant, and others rotate. Make clear the team members’ experience, the supervisors’ or managers’ positions, and the continuity. Having a stable, well-organized team minimizes mistakes and ensures consistent quality of service.
6.Assess Attentiveness and Receptiveness:
In outsourced relationships, strong communication is essential. Delays in response, vague reporting, and intermittent updates may easily damage trust. At the assessment stage, determine the rapidity and clarity with which the provider conveys information. Approve reporting schedules, meeting schedules, and escalation protocols to enhance transparency and accountability.
7.Cases, References, and Case Studies:
Good outsourcing companies must be able to provide client references or case studies demonstrating measurable results (Vintti). Convincing words to current or former customers provide information about the quality of the services, their reliability, and the ability to solve problems. This measure helps legitimize marketing claims and assess the provider’s performance under real-world conditions.
8.Assure Scalability and Flexibility.
Your accounting requirements will change as your business develops. The outsourcing partner must be able to expand and contract its services without interruption. Flexibility is required, whether expanding into new areas, adding entities, or needing more advanced reporting. The service model of providers might restrict your adaptability.
Advice:
The correct accounting outsourcing partner will ensure financial control and efficiency, and allow leadership to concentrate on growth. Nonetheless, it is only successful when chosen wisely. He should be balancing expertise, technology, security, communication, and strategic fit. These tips can help businesses avoid the pitfalls of outsourcing and create a partnership that will help maintain stability, adherence, and long-term success.
Conclusion
This blog post concludes our deep dive into the in-house vs outsourced accounting debate. Each side has a valid argument, and there are risks and rewards on either end of the discussion (DHJJ).
Regardless of what you choose, so long as you pick the right people and firms to work with, your accounting will be in good hands. We hope that the perspective we have offered here helps you make the best decision for your business and find your ideal accounting solution. Good Luck!
