As a small business owner, you’re no stranger to wearing multiple hats. From driving sales to managing operations, your to-do list is endless. One critical area that often demands significant attention is accounting. As your business grows, you might find yourself wondering: Should I handle accounting internally or outsource it? The following article will help explore both options, laying out the pros and cons and other major considerations, to help you make an informed decision.
Keeping Accounting In-House
The Pro’s
Control & Consistency
In-house accounting can be beneficial particularly for businesses that value control and consistency. With an internal team, you have direct oversight of financial processes and real-time access to data, enabling quicker decisions and immediate adjustments. This is especially important for businesses that operate in fast-paced industries where agility is key.
Operational & Cultural Alignment
In-house staff also bring a deep understanding of your business’s operations and culture. This familiarity allows them to provide tailored insights and solutions that align closely with your goals, something that can be difficult to achieve with an outsourced provider. They’re also readily available to answer questions or address concerns, eliminating the potential communication delays of working with an external partner.
Flexibility & Privacy
Additionally, an in-house team can serve as a flexible resource during quieter financial periods, taking on other operational tasks or providing ad hoc support where needed. Further, an in-house team handling sensitive data can also bolster privacy & security (a key factor for many business owners). This can help reduce the risk of data breaches or unauthorized access, offering greater peace of mind.
The Con’s
Capacity Demands
One major issue is the time and energy it demands from business owners or managers. Even with an in-house team, overseeing their work, reviewing reports, and ensuring compliance with tax laws and regulations can become overwhelming—especially if accounting isn’t your area of expertise. This often diverts your attention from strategic priorities like growing your business or serving customers.
Talent Development & Retention
Additionally, retaining qualified staff can be difficult. The demand for skilled accountants is high, and small businesses may struggle to compete with larger companies offering higher salaries or more attractive benefits. If a key employee leaves, the time and effort required to hire and train a replacement can disrupt your operations.
Potentially More Costly
Hiring qualified staff and investing in accounting software and training can also be costly. The median annual wage for bookkeeping, accounting, and auditing clerks was $44,720 as of November 1, 2024.1
On top of this is the cost of providing benefits. According to the U.S. Bureau of Labor Statistics, as of June 2024, employer costs for employee compensation averaged $46.21 per hour worked for civilian workers. This total includes wages and salaries averaging $31.80 per hour and benefits averaging $14.41 per hour, indicating that benefits constitute approximately 30% of total compensation costs.2 This can mean that for a bookkeeper earning $50,000 annually, an extra $15,000 in costs may be incurred, bringing the total to $65,000 per year. And this doesn’t include the cost of accounting software, training, or office space.
When In-House Works Best
Simple Financial Needs: Your processes are straightforward, requiring only basic bookkeeping or occasional financial reporting.
Full-Time Financial Staff: You already have a qualified bookkeeper or accountant on staff who can handle your needs effectively.
Desire for Control: You prefer direct oversight of financial processes and real-time access to data for immediate decisions.
Cultural Alignment: Your team values having financial staff embedded in the business to provide personalized insights and understand operational nuances.
Long-Term Stability: You’re looking for predictable, stable costs rather than variable outsourcing fees.
Privacy Concerns: Keeping sensitive financial information in-house is a priority to reduce data-sharing risks.
Outsourcing Accounting & Finance
The Pro’s
Access to Expertise & Scalability
When you outsource your accounting, you gain access to a team of experienced professionals who bring specialized skills and knowledge to your business. These experts stay up-to-date on the latest tax regulations, compliance requirements, and best practices, ensuring your financial processes are accurate and efficient. Additionally, outsourcing provides scalability. As your business grows, you can easily adjust the level of support you need – whether that’s expanding services or cutting back during slower periods.
Cost Savings & Predictability
Outsourcing often proves more cost-effective than hiring full-time, in-house staff. Instead of covering salaries, benefits, and overhead, you pay for only the services you need. For example, a monthly retainer of $2,500 equates to $30,000 annually – significantly less than the $65,000+ cost of employing a full-time bookkeeper with benefits. Furthermore, outsourcing eliminates the need to invest in accounting software, office space, and ongoing training.
Time Efficiency
By entrusting your accounting functions to a professional firm, you can focus on running and growing your business. Outsourcing removes the burden of day-to-day financial tasks, giving you back valuable time to dedicate to strategy, customer relationships, and other high-impact priorities.
The Con’s
Loss of Immediate Control
One potential downside of outsourcing is the reduced level of control over financial processes. While you gain access to expertise, you may find that you’re less involved in the day-to-day details of your finances. This can be uncomfortable for business owners who prefer to have their finger on the pulse of every transaction.
Communication & Transparency
Another challenge can be communication. Working with an external provider may lead to delays in receiving updates or resolving issues, especially if the outsourcing firm is managing multiple clients. Ensuring a clear communication plan and regular check-ins are critical to mitigating this issue.
Privacy & Security Risks
Outsourcing involves sharing sensitive financial data with a third-party provider, which can raise privacy and security concerns. While reputable firms take extensive measures to protect your information, the risk of data breaches or unauthorized access cannot be entirely eliminated. It’s essential to vet your outsourcing partner thoroughly to ensure their security protocols meet your standards.
When Out-Sourcing Works Best
Complex Financial Needs: Your business requires expertise in areas like tax compliance, payroll, cash flow analysis, or financial forecasting.
Lack of In-House Expertise: You don’t have the resources to hire or retain qualified accounting staff internally.
Focus on Growth: You want to free up time to concentrate on strategic goals, like growing your business or serving customers, rather than managing day-to-day finances.
Scalability: Your financial needs fluctuate, and you need a solution that can grow or contract with your business.
Cost Efficiency: You’re looking to reduce costs associated with salaries, benefits, training, and accounting software.
Need for Accuracy: You want access to professionals who stay updated on regulations and best practices to ensure compliance and minimize errors.
Short-Term Solutions: You need immediate financial expertise but aren’t ready to commit to a full-time hire.
Privacy Controls in Place: You’re comfortable working with a trusted third-party provider with robust security measures.
The Hard Truth
There are also some challenges that haven’t been discussed that exist both in-house and externally.
One such challenge is the always-present risk of inefficiency and/or errors. Without a seasoned accounting professional at the helm, in-house and outsourcing teams can struggle to implement best practices, leading to missed opportunities for optimization or costly mistakes. These errors can hurt cash flow, compliance, and decision-making.
On top of this, we’ve seen before how our high-growth clients often find themselves outpacing their existing accounting firm or accountants and have to look elsewhere to fill the void. As their business grows, their financial processes become more complex, leading to the inevitable need for better adaptability. This is where Filan has been able to step in and offer a more scalable solution.
Navigating Your Situation
What a lot of people in the accounting industry don’t like to talk about but is crucially important is the fact that not all accountants are created (or trained) equal.
Many view professionals throughout the industry homogenously, but this can lead to costly mistakes. You wouldn’t ask a heart surgeon to perform brain surgery on you, right? Or a general practitioner to replace a disc? In the same way, it’s important to get the right accountant for the right job.
At Filan Advisory, we specialize in helping small businesses that are growing quickly. We understand the unique challenges our clients face, and whether you’re looking to outsource your accounting entirely or need help with specific functions, we provide tailored solutions to fit your needs. Our goal is to free up your time, simplify your finances, and empower you to focus on growing your business.
Looking Forward
There’s no one-size-fits-all answer to whether you should outsource your accounting or keep it in-house. It depends on your business’s specific needs, financial complexity, and growth plans. By evaluating your current processes, future goals, and resources, you can make the best decision for your business.
If you’re unsure which path is right for you, let’s chat! We’d be happy to walk through your organization’s current situation and provide a free consultation on the best way forward for your specific needs.
References
1 https://www.salary.com/research/salary/benchmark
2 https://www.bls.gov/news.release/pdf/ecec.pdf
