Outsourcing Versus In-House Accounting Solutions

 

Business leaders should consider an outsourced accounting solutions. Why? Simply put, times are changing. Business leaders have responsibilities to owners, customers and employees. Navigating the decision process of outsourcing accounting versus in-house accounting solutions is part of that responsibility.

Let’s look at some of the factors involved in making that decision.

Personnel

Having the right people on the bus and in the right seats is a key factor in every business’s success. Imagine starting your Monday morning with the resignation of your in-house accountant or bookkeeper. Depending on the size of your business, you may have the ability to promote from within. But even so, this sets the process of recruiting, hiring, onboarding, training and monitoring into motion.

Consider the costs of filling this important position.

  • How quickly can you post and recruit for the open position?
  • Do you have up-to-date job descriptions and responsibilities?
  • Who will lead the search?
  • What is a reasonable time-frame for the process?
  • How will you know if candidates have the technical skills to be successful in the position?
  • Is there a well-defined and proven process for successfully recruiting, screening and interviewing candidates?
  • Are your compensation, benefits and culture in line with the target candidates?
  • What is the process for making a job offer?
  • Does your company have a well-defined onboarding process?
  • What are the hard and soft costs of filling this key position?
  • How will the success of the process be formally determined?

Hiring for any position is time-consuming. The cost of making a bad hire can be significant for any company, but especially for small organizations.

Choosing an outsourced accounting solution doesn’t eliminate turnover risks. However, it can minimize the risks. When choosing an outsourced accounting solution, ask what measures are in place when there is a change in personnel? How will your outsource partner manage a change in personnel on your account?

While there are pros and cons to both in-house and outsourced options, outsourcing offers transitional and long-term stability. This allows owners and managers to focus on business operations.

Quality

When consumers choose a product, quality is a factor in the selection process. In the auto industry, the quality of products across all price ranges has evolved dramatically over the years. Brands that were once perceived as poor quality and cheap, are now built with the fit, finish and amenities that once were only available in the top-of-the line luxury vehicles. Consumers expect quality for all types of products and services across all price points.

Quality varies within outsourced accounting dramatically. Customers of outsourced accounting services may place high value on certain attributes while the service providers are focused on meeting professional standards that may not matter to the customer.

Like other professions and industries, outsourced accounting has evolved dramatically over the past several years. The days of businesses dropping their “stuff” off at the accountant and waiting for a financial statement are long gone. Processes and technology for an entry level accounting service are well beyond what was available just 5 to 7 years ago.

When it comes to quality, define your needs and objectives first. The scope of services and expectations of your agreement should be defined to meet those needs and objectives.

  1. What are the responsibilities of each party?
  2. When are tasks scheduled and completed?
  3. How is data accessed and exchanged?
  4. What are the methods of communication and their frequencies?
  5. What other services can be provided as the company grows and its needs change?

Quality of professional services is generally defined as being timely and accurate. However, businesses should take the following into consideration:

  1. Does the proposed process/technology fit into the business’ capabilities and culture? In other words, can my staff do their part to follow the processes established by the accounting solution?
  2. Look at the scope of work and determine if it is appropriate for your needs. Outsourced accounting starts with the Company’s cash accounts and reconciliations, but there are many more aspects of the bookkeeping and accounting process to provide accurate books.
  3. Beyond the books and payroll, how and how often will you interact with the provider?
  4. Does the scope of work include monthly meetings and reviews of Key Performance Indicators (KPIs) such as breakeven analysis, EBITDA, comparisons to prior periods, and budgets or targets?

There are many services that are low priced and limited scope. We have found that customers coming from such a service may have had their “books reconciled”, but didn’t have the information necessary to manage the business.

Risks

Business owners evaluate and take on risks daily. When it comes to accounting and finance, I once had a business owner tell me, “We don’t need to look at these controls; we hire degreed accountants and CPAs to take care of these things.” My response was “and those are the people that will steal from you.” You would never hire an employee that you didn’t trust and yet employees commit fraud in organizations of all sizes.

According to a 2018 report in the Journal of Accountancy, the median loss for businesses with fewer than 100 employees was $200,000 or nearly double the median loss of $104,000 for businesses with over 100 employees. It is estimated that only 29% of frauds at small businesses are actually detected.

Outsourcing mitigates the risks of fraud in a small business. Business best practices/processes combined with the right technology applications afford small businesses many internal controls. In our approach to transaction processing, we utilize third-party apps to capture and match transactions from source documents. Taking it a step further, we remove owners from the transaction processing, allowing owners and managers to approve and release supplier payments.

Keeping the bookkeeping and accounting in-house exposes the business to many risks: fraud, lagging behind in technology, inefficient and inconsistent processes, turnover risks, etc.

Accessibility

Over the past decade or so, cloud-based technologies have rapidly replaced desktop or server-based applications. Many small businesses have clung to the “tried and true” desktop versions of accounting software. Even when utilizing a hosting service for a desktop software, access requires additional steps and costs.

Outsourced solutions work best when placed in the cloud and integrated with other applications in the cloud. Most cloud-based apps also have mobile apps for your phone or tablet. This give business owners the ability to travel and move about while still being in touch with the business. Take your iPad to the beach and approve and pay bills in a few minutes, rather than lagging that laptop around and having to connect back to the office.

Innovation and Technology

Staying in-house risks the possibility of innovation and technology stagnation. Employees may or may not be driven to keep up with the latest improvements and innovations in technology and business practices. Owners should not be burdened with driving this area of the business.

A good outsourced solution keeps up with the changing technologies and modifys the business processes to take advantage of the continuously changing technology landscape.

Costs

Owners should always be considering the fixed and variable costs of their business. When it comes to hiring an in-house bookkeeper or accountant, the owner should put together a detail of the cost of the position to compare with the cost of outsourcing. The costs of recruiting, training and developing a new hire should be taken into account. Keep in mind other costs that may be included with the outsourced solution such as software subscriptions and other fees currently paid by the business.

Depending on the size and complexity of the business, outsourcing is often a cost-effective solution versus in-house bookkeeping and accounting.

Summary

While every business is different, the evaluation of outsourced versus in-house accounting solutions should consider:

  • The cost and burden of hiring an in-house bookkeeper/accountant and supporting that position.
  • Are the expectations of quality and depth of services of the outsourced solution aligned with the needs and objectives of the business?
  • Can your business accept the risks associated with in-house solutions versus the mitigation of risks provided by on outsourced solution?
  • Are you ready to cut the cord and move to cloud-based solutions giving you remote access versus maintaining in-house computers and servers?
  • Can your business effectively keep up with the technology and innovations needed to stay current and mitigate risks versus that offered by the outsourced solution?
  • Apples to apples, which is the more cost-effective solution? In-house or the outsourced solution?

We hope this article has been helpful in describing some of the factors to consider in the decision to engage an outsourced accounting solution. If you would like to learn more about our COMPASS – Complete Outsourced Monthly Processes and Accounting Service System, call us at 844-309-4930 or contact us via our website.

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