Written by Rene Mallari
Many companies depend on in-house bookkeepers or accountants for their financial recording and processing needs. They can be key to your financial success, ensuring that all your finances are on track.
But with the rapid progress in trade and technology making the world interconnected, businesses should consider outsourcing their accounting and bookkeeping.
This article explains the four differences between outsourced and in-house bookkeeping and accounting: hiring and training, financial reporting, fraud risks, and costs.
Let’s check out the details.
1. Hiring and Training
You need bookkeepers and accountants who know what they’re doing, whether they are your in-house employees or contractors who are experts in this type of back-office outsourcing. The following are the recruitment and onboarding differences between outsourced and in-house bookkeeping and accounting.
When hiring a full-time bookkeeping or accounting employee, you need someone with relevant experience. The candidate should also know some accounting and financial tools such as Intuit QuickBooks, Sage 50cloud, MYOB Administration, Xero, and Microsoft Excel & Access.
A good hire is hard to find. You have to determine which of your candidates is reliable, on the same page as you, and familiar with your industry. You will have difficulty assessing an applicant’s bookkeeping and accounting skills if you lack accounting knowledge.
During the interview, check the candidate’s skills, experience, qualifications, and personality to see if they are a good fit for the role. Character and job references are helpful but insufficient because accounting requirements vary from one company to another.
You must also spend some time onboarding your accountant or bookkeeper once hired. You expect that your new employee will do the job well from the start.
When you outsource your bookkeeping and accounting, you no longer need to deal with tedious activities such as advertising the job vacancy, screening and interviewing applicants, touring new hires around the office, and training them in company policies and procedures. A business processing outsourcing (BPO) company has tried-and-tested procedures to perform hiring and training tasks.
The BPO company guarantees that the bookkeeping and accounting team comprises experienced professionals specialized in different types of accounting. They undergo regular training to update their knowledge and skills to maintain high-quality back-office outsourcing services.
You must still conduct onboarding to familiarize the BPO team with your accounting and bookkeeping operations. But the process is straightforward because the BPO team will share their efficient system and policies with you. The orientation period is also shorter, allowing them to collaborate with you ahead of schedule.
2. Level of Quality Control
Quality control in accounting means that employees comply with your standards and those of the industry. Explore the quality control differences between outsourced and in-house bookkeeping and accounting below.
If you run a small business, you employ no more than two bookkeepers or accountants (or one finance manager and one bookkeeper) who manage your financial records and processes. The issue with having a small accounting team is the possibility of unintentional mistakes because of a heavy workload, time pressure, distractions, or other related reasons. But a more serious issue is intentional fraud.
Many fraud or embezzlement cases take place in small businesses. When you, as the owner, start to trust your accountant, you tend to let them handle all your company finances. When a single accountant takes charge of your financial records, they have access to your banks and funds. Such access increases the risk of fraud.
In addition, bookkeeping and accounting are complicated processes. Accountants and bookkeepers must keep up with the latest industry procedures and accounting skills. If the accounting capabilities of your few employees are limited, problems with work quality can arise.
Most service providers have a system of checks and balances to ensure that no single person has total authority over your entire financial transactions. The system calls for the approval and permission of each individual assigned to one accounting aspect (payroll, disbursements, purchases, fund transfer, to name some).
Outsourcing companies focus on accurate accounting and emphasize accountability. They don’t commit malpractice or involve themselves in questionable or illegal activities. They focus on improving and maintaining their reputation to retain existing clients and attract new ones. They can achieve this by delivering timely, accurate, and transparent service all the time.
Most third-party vendors maintain quality control by distributing and facilitating tasks among accounting team members. They also designate two persons to review the work and check the financial transactions or processes.
BPO companies make sure they provide high-quality work. They hire seasoned accountants who know Generally Accepted Accounting Principles, or GAAP, which the Financial Accounting Standards Board uses as the foundation for US accounting. Add to that the training, certifications, and technology they invest in for their accounting team.
3. Financial Reporting
Financial reporting refers to producing statements and documents that show your business’s financial status to your partners, investors, shareholders, and the public. Learn below how outsourced and in-house bookkeeping and accounting differ in financial reporting.
Your in-house bookkeeping and accounting team can monitor and document finances, expenses, investments, sales, and other items. But the team occasionally gets involved with other departments to take on accounting duties.
For instance, the human resources (HR) team who prepares employee salaries and compensation may request that your finance team double-check, analyze, and clear their data. These additional tasks take time and distract your accountants and bookkeepers from generating financial reports and other critical documents.
Your accounting team working with other departments is important for your business to ensure continuous productivity, consistency, and efficiency. However, financial reporting, which is vital for decision-making and planning, can lead to inaccuracy and errors when not done properly.
Inaccurate information results in misguided decisions. Such poor options can have adverse effects such as incorrectly pricing your products or services or unjustly terminating employees.
Furthermore, financial reporting errors can be costly when penalties and fines are involved. The Internal Revenue Service can penalize you if an audit shows that you have not paid your appropriate taxes because of mistakes in financial reports.
An outsourcing firm can work with your in-house accounting and bookkeeping team to provide support. When your in-house staff is busy with other vital duties, the third-party finance specialists can pick up the slack.
Providing accurate and detailed financial reports is not an issue with a third-party vendor. It excels in such tasks because its name is on the line. Generating and submitting erroneous financial reports can be costly and harm its reputation.
Outsourcing your bookkeeping and accounting functions can also help minimize delayed, unreliable, or erroneous financial reporting. With outsourcing, you can select only what your business requires. You can retain your in-house bookkeeper or accountant to do other tasks.
Tapping into the services of an external service provider can improve your accounting employees’ efficiency. The outsourcing firm can share with your team its efficient procedures and train them to hone their skills.
Additionally, many third-party vendors have a controller who is a financial veteran. Their expertise and experience can help your team deliver financial reporting quickly and accurately.
4. Explicit and Hidden Costs
Explicit costs include employee wages, rent, raw materials, supplies, and other tangible expenses and have a monetary value. Hidden costs are indirect, irregular, and complicated to compute. Read on to know the cost differences between outsourced and in-house bookkeeping and accounting.
Your small business needs at least two full-time finance employees: an accountant (or a finance manager) and a bookkeeper (or an accounts clerk).
In the U.S., the average salary of a bookkeeper as of 2022 is about $21 per hour or approximately $3,300 per month. The average salary of an accountant is roughly $58,000 per year or around $4,800 per month. The rates can increase depending on the employee’s experience, qualifications, and work tenure.
Aside from salary and additional hourly charges, there are other overhead costs. These comprise the cost of hiring and training, paid time off, payroll taxes, health insurance, and retirement plans. Add to that the expenses for office space, computers, supplies, and other equipment.
There are hidden costs when operating an in-house accounting team. These include employee turnover or the loss of talent, accounting fraud (embezzlement, personal purchases, skimming, fake suppliers, and more), and fines and penalties.
Other costs consist of wasted work hours resulting from prolonged informal conversations among employees and mistakes that inexperienced accountants make.
With outsourcing, you pay for the services you need rather than paying for a full-time salary and benefits. You can opt for a monthly service plan for one accounting process—bookkeeping, accounts payable and receivable, payroll, and more.
This approach will save you a great deal of money every year. You know what you pay for, and there’s no extra charge for services you don’t need.
Your accounting operations can scale as your business expands through the years. Your in-house employee can work for only eight hours a day and five days a week. When the work capacity is limited, you must hire more personnel to help you expand, which entails additional costs.
You can always access a full team of accountants when you expect business growth in outsourcing. The cost of a BPO provider’s accounting and bookkeeping services varies depending on the task complexities. But you will still find outsourcing more affordable especially if you’re a startup.
The Bottom Line
Now that you’ve learned more about the differences between outsourced and in-house bookkeeping and accounting, what to do next is up to you.
While outsourcing has many benefits that you can take advantage of, you should exercise caution when you decide to use this business strategy. Its advantages don’t necessarily mean they will work wonders on your company immediately.
The good part of outsourcing is that you don’t need to eliminate your in-house accounting team. You can use this approach to complement and support your current operations.