Making a choice between in-house versus outsourced accounting is crucial. It can make a big difference on the firm’s financial stability and operational efficiency.
Small business communities stand to gain significantly from this discussion, particularly in the context of shifting to a WFH model for roles that can easily adapt to it. Accounting is a prime example of a role that can be effectively performed remotely.
Like app developers, all accountants need is a computer and access to financial data, and their job can be done virtually anywhere. Outsourced accounting firms have seized the moment to come into the limelight and bring remote accounting professionals from across the globe to Western economies. For many, the cost of hiring an accountant from Asia is far more feasible than hiring from a limited local talent pool. Thus, outsourcing has gained significant momentum in the accounting space.
There has also been much dissent against the proposition of outsourced accounting, not wholly without reason. Many old-school business owners are highly skeptical of the change and even more doubtful of the communications and online platforms that make it possible.
This blog will present a holistic view of in-house and outsourced accounting, including the good, the bad, and the ugly. Business owners deserve to know what they are getting into when contemplating in-house vs. outsourced accounting.
Learn with EA what both accounting models offer and whether they are the right choice for your business.
Table of Contents
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 paid as such, with any additional benefits. Beyond that, they have their own office space and work machine assigned to them.
What is Outsourced Accounting?
Outsourced accounting is an alternative hiring method where businesses will 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, EA 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 talk about the skyrocketing wage demands by local US accountants, we must address the cost of hiring a professional itself. 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, in the grand scheme of things, can be one of the biggest expenses a business can take on.
That is to say 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, like offshore staff augmentation, businesses can even directly onboard remote professionals, with the firm acting as an intermediary bridge 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 in-house cost. Offshore outsourced accounting can bring the 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 the business is scaling up and needs dedicated support to handle the workload, or during critical assessments like audits and tax season.
An in-house accountant is therefore a rather unappealing proposition for such businesses. Aside from the regular bookkeeping and record maintenance, an in-house accountant can offer more complex services like financial planning and budgeting etc., but even those activities are done on a monthly or even quarterly basis. This makes it difficult to justify calling in a high-paid professional every day when you only realistically need them a handful of times in a year.
This rigidity in in-house accounting directly contributes to the costs discusses 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 services for taxes and audits, 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 needed.
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 an expert in financial planning and budgeting, but fall flat in the face of tax management. Like a doctor, most accountants only 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, where external consultants come in to help prepare and make sure 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.
4- Security and Control
As far as security and control is concerned, it is undeniable that in-house accounting is preferable to outsourcing. There are simply far less 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 business. They can set up protocols that prevent anyone from sharing or downloading the data for nefarious ends.
Beyond that, in-house professionals are known locally to you. 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 false advertising 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 it is foolproof. While firms like EA do have a presence in the US and are approachable for any complaints, many outsourcing firms are not. Their firms are headquartered in different countries, and trying to recoup any damages can become impossible.
The bottom line being that security and control is 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 big part of why in-house accounting is still so prominent. If there is a pressing accounting issue, you can simply 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 hairs 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 for the vast majority of cases, it may be a deal breaker for some despite the benefits of outsourcing accounting.
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 debate. 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!
