Today’s businesses are facing growing challenges as they seek to comply with government regulations and meet the public’s demand for greater transparency. As a result, many businesses find themselves juggling accounting, tax preparation, internal auditing, and risk management.
While some firms have met these demands by hiring additional financial personnel, others have outsourced a number of duties to accounting firms.
Which is better? In this article, we’ll look at the pros and cons of outsourced accounting and discuss situations in which a business might consider outsourcing vs. hiring accounting personnel.
What is Outsourced Accounting?
Traditional accountants work on staff for a firm to collect a regular paycheck. But today, there are multiple accounting firms staffed by professionals who offer specialized skills and services. Businesses have the option to pay for the services of these firms, allowing them to handle select accounting duties and eliminating the need for staff personnel to handle these obligations.
Advantages of Outsourced Accounting
Outsourced accounting has distinct advantages, including:
Lower Overhead Costs
Hiring a staff accountant means that you’ll need to provide a salary and benefits. There are also some tax considerations associated with a new hire.
Outsourcing your accounting lets you sidestep all of these things, while providing you with professional services.
Access to Specialized Skills
Due to increased regulations, many accountants have developed highly specialized skills. For example, outsourcing may grant you access to the in-demand skills of a forensic accountant for auditing or tax preparation.
Compliance with Regulatory Requirements
Government regulations change over time, and your on-staff accountants may be too preoccupied with their regular duties to become completely familiar with these changes. Outsourcing, on the other hand, offers a greater probability that you can find a professional who will understand these regulations inside and out.
Disadvantages of Outsourced Accounting
Outsourcing may sound like a great option, but there are some disadvantages that you’ll need to keep in mind, including:
Costs Can Add Up
Outsourcing accounting for specialized projects (such as audits) can be a wise investment, but if you outsource your regular financial needs, you may find that costs can accumulate over time.
When it comes to keeping your regular books and managing your ongoing records, it may be wise to have an employee on staff who understands your company’s needs.
Many businesses ask their employees to sign a non-disclosure agreement (NDA) to ensure privacy. But when it comes to outsourcing, privacy issues aren’t as clear. You may find that you don’t get the same level of privacy assurance with an independent firm as you would when handling an individual employee at your own company.
Conflicts in Methodology
Unless you outsource all of your accounting needs, you will need to integrate your existing staff with the outsourced team. This doesn’t guarantee a smooth relationship, as accountants can have slightly different methods for achieving the same results.
If these methods don’t align, outsourcing your accounting could create friction, which may leave you with some disgruntled accountants.
When to Choose Outsourcing Over Staffing
Outsourcing offers some distinct advantages, but these advantages must be measured against potential drawbacks. Who stands to benefit the most from outsourced accounting?
Startups and Fast-Growth Companies
Startups and fast-growing companies may outsource many of their accounting needs so that their teams can focus on the business at hand, rather than accounting practices.
Outsourced accounting can serve ad hoc projects that may come up relatively infrequently. For example, while your accounting staff may handle your books, you may hire an accounting firm to handle tax preparation or risk management on an as-needed basis.
If you have any suspicion about negligent or criminal behavior within your company, it could be imperative to hire a forensic accountant to perform a rigorous, independent investigation.
Finding the Right Candidate
Today, fewer CPAs and other financial professionals are joining the workforce, a trend that has hardly been helped by the 2020 pandemic. If you need an accountant, you may discover that it’s difficult to find an applicant with just the right array of professional qualifications.
Rather than sifting through resumes to bring an accountant on staff, you may find it to be beneficial to consult an external accounting firm instead.
A New Trend: Interim Professionals
On the other side of the job search, there are a collection of fresh CPAs and other financial professionals eager to join the workforce. But the destabilization of the industry has impacted them, as well.
Many new CPAs find it more advantageous to join an accounting firm and manage a portfolio of clients, rather than expecting to serve as a financial employee at any one particular company.
As a result, accounting professionals have shifted from being generalists to specialists, which may only fuel the demand for outsourced accounting in the years to come.
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Hiring an In-House vs. Outsourced Accounting Team (Easier Accounting)