In-house Accounting vs. Outsourced Accounting: the Pros and Cons

A strong accounting infrastructure is crucial for the financial health of any business. Accurate, well-organized financial records give you a clear view of your company’s performance and the confidence to make strategic decisions that enable your company to scale. When it comes to ensuring the right accounting foundation is in place, business owners face a key choice: build an in-house accounting department or outsource your accounting functions. Each approach comes with unique advantages and challenges, and determining the best fit depends on a number of factors including your company’s size, industry, budget, and long-term growth objectives.

In this post, we’ll break down the pros and cons of an in-house versus an outsourced accounting solution so you can make an informed decision that aligns with your business strategy and long-term goals. Whether you’re seeking cost efficiency, specialized expertise, or more control over financial operations, we’ve got the insights to guide you to the decision that’s right for your business.

When is the Right Time to Hire an Accountant?

An accounting team has a wide range of important responsibilities within an organization. From overseeing your company’s financial systems and ensuring tax compliance to preparing financial statements, accounting is instrumental in developing, monitoring, and managing the company’s budgets and cash flow.

Generally, a business is ready for an accountant when their financial operations become more complex and require detailed reporting, analysis, and accurate, timely financial statements. A good accountant has in-depth knowledge of accounting standards, tax laws and regulations, and is proficient in accounting software and spreadsheets.

For detailed insights on the qualifications to look for in an accounting resource, check out our Comprehensive Guide for Businesses post which covers the different financial roles your company may need at various stages of its growth and how to choose the right expertise at the right time.

What is In-House Accounting?

In-house accounting involves hiring and training accountants to handle the company’s financial tasks, such as bookkeeping, generating financial statements, and tax preparation. In-house accounting is the traditional way of handling a company’s finances, where the accounting team is an integrated part of the organization rather than an external firm. By keeping accounting in-house, businesses can maintain direct control over their financial data and processes, ensuring that all financial operations align closely with the company’s specific needs and goals.

What Are the Pros of In-house Accounting?

Managing your accounting functions internally with dedicated staff has several advantages for businesses. Below are the biggest benefits to keeping your accounting in-house.

• Control & Oversight: By managing your accounting functions in house, you have full visibility and control over your company’s financial processes. This allows for real-time adjustments and close monitoring of your financial data.
• Tailored Processes: An in-house accounting department gives you more flexibility over your processes and procedures so that they can align with the specific needs of your business.
• Immediate Availability: An in-house accounting department means that you have a team readily available to answer questions, address urgent financial concerns, and collaborate directly with your leadership team and other departments.
• Cultural Alignment: Having your own accounting department means that your team members are more closely aligned with the company culture and strategic goals. This can result in better collaboration with other departments.

While in-house accounting offers control and oversight, it can also be expensive and require careful management. The financial implications of hiring full-time or part-time accountants, along with the potential quality variations and management challenges, need to be carefully considered. 

What are the Cons of In-house Accounting?

Solely relying on in-house accountants can come with some drawbacks including the following:

• Limited Expertise: Smaller in-house accounting teams may lack the depth and specialization found in outsourced firms, potentially leading to gaps in knowledge. In addition, businesses that rely on a single in-house accounting resource can face delays and other issues if the employee is out of the office unexpectedly.
• Resource Constraints: During peak times like tax season or audits, in-house accounting staff may struggle with capacity, leading to potential burnout or errors.
• Technology Investments: Managing your accounting function in-house could mean that you need to invest heavily in accounting software and systems upgrades along with training and continuing education for your staff which could mean added expenses and loss of productivity.
• Higher Costs: The human resources side of an in-house team such as competitive salaries, benefits, training, turn-over, and overhead expenses can make an in-house accounting team significantly more expensive compared to outsourcing.

Now that you have an understanding of the advantages and disadvantages of having accounting in-house, let’s look at the benefits and drawbacks of outsourcing your accounting function to a third party.

What Does it Mean to Outsource Your Accounting?

Generally speaking, outsourced accounting means that you delegate all of your accounting responsibilities to a third party that handles all of the normal accounting services such as basic bookkeeping, financial reporting, payroll processing, accounts payable and accounts receivable, budgeting and forecasting, tax preparation, and regulatory compliance, among other functions.

Accounting services can be outsourced to an individual accountant or an outsourced accounting firm that offers all levels of support based on the business’s needs. Complete control of accounting tasks are handed off to the outsourced partner who bills an hourly rate or a fixed monthly fee or retainer depending on the scope and complexity of services provided.

Examples of Outsourced Accounting Services

Outsourced accounting services cover a broad range of services. Some examples of accounting services that can be handled by a third party include:

• Financial Statement Preparation: Creating accurate and timely financial statements to provide a clear picture of the company’s financial health.
• Budgeting and Forecasting: Developing budgets and financial forecasts to guide business planning and decision-making.
• Accounts Payable and Accounts Receivable Management: Handling the processing of invoices and payments, as well as managing incoming payments from customers.
• Payroll Processing: Managing employee payroll, including calculating wages, withholding taxes, and ensuring timely payments.
• Tax Preparation and Planning: Preparing and filing tax returns, as well as developing strategies to minimize tax liabilities.
• Financial Analysis and Reporting: Analyzing financial data to provide insights and recommendations for improving financial performance.

The Pros of Outsourcing Your Accounting Services

Outsourced accounting services provide businesses access to a broader pool of knowledge and expertise, and is especially beneficial to small and midsize companies that do not require and often can’t afford full time accounting experts.

Below are the primary benefits to outsourcing accounting services to a third party.

• Access to Expertise: With an outsourced solution, a business can access a wide range of specialists with deep knowledge in various areas of accounting, tax compliance, and financial strategy as well as expertise in cash based and accrual based accounting methods.
• Scalability: With an outsourced provider, businesses can increase services as they grow and pull back during slower times without the hassle of hiring or firing full time employees. Working with an outsourced accounting firm can also provide access to different levels of expertise from accountant to controller, to CFO services so that the partner can grow with the business.
• Focus on Core Business: Outsourcing accounting to an external firm frees up management time and resources so they can focus on strategic goals and core business functions, rather than dealing with time consuming accounting tasks.
• Latest Technology: Outsourced accounting providers often use advanced accounting software and stay up to date with industry trends, reducing the need for companies to invest in costly tech upgrades and training.
• Cost Savings: Outsourcing accounting services is typically more affordable than hiring in-house accountants, as businesses only pay for the services they need without the overhead of salaries, health insurance, holidays, sick time, or other overhead costs.

Now that we’ve covered some of the benefits of working with an outsourced accounting service provider, let’s take a look at some of the disadvantages.

The Cons of Outsourcing Accounting

Outsourced accounting has many benefits but may have some drawbacks when compared to an in house accountant. Among the biggest disadvantages are the following:

• Less Immediate Access: With an outsourced accounting process, communication and response times may not be as immediate as with an in-house team, particularly for urgent financial issues that may arise.
• Potential Security Concerns: Sharing sensitive financial information with an external provider may increase the risk of data breaches, requiring strict security protocols.
• Less Control: Businesses may have less oversight of their company’s finances and financial processes and may need to adjust to the outsourced accounting provider’s established workflows.
• Cultural Disconnect: External accounting firms may not have a thorough understanding of the business’s accounting needs nor align with the company’s culture, values, or specific business strategies.
• Dependency on Vendor: Relying on a third party firm means the business may be vulnerable to service disruptions if the provider experiences issues or if the relationship ends unexpectedly.

To mitigate these risks, businesses should:

• Establish Clear Communication Channels: Set up clear protocols for data sharing and communication to ensure transparency and accountability. Ideally you’ll have access to a team, not just one individual for better coverage and faster response times.
• Implement Robust Security Measures: Use encryption, access controls, and other security measures to protect sensitive financial data.
• Conduct Thorough Research: Investigate the outsourced accounting firm’s security measures and reputation to ensure they have robust protocols in place.
• Interview Multiple Providers: While overall reputation and experience are important, it’s equally important to find a partner that aligns well with your company culture and values. Speaking with three to five firms will ensure you find the right cultural fit.
• Regularly Review and Audit: Periodically review and audit the outsourced accounting firm’s work to ensure compliance with security standards and accuracy.

Is Outsourced Accounting Right for Your Business?

While outsourcing comes with some challenges, partnering with an external accounting expert is often a smart move for growing companies. Rapid growth, for instance, often comes with increased financial complexity and requires more advanced financial management than an in-house accounting team can provide. Businesses also turn to outsourced accounting expertise when navigating complex financial decisions or regulatory hurdles, where specialized knowledge is essential. Additionally, companies with seasonal fluctuations or unpredictable workloads benefit tremendously from outsourcing, as service levels can be scaled up or down as needed—something a single in-house accountant or team simply can’t offer.

Choosing the Right Outsourced Accounting Partner

Once you’ve decided that outsourcing is the right decision for your business, selecting a partner that can provide reliable and timely services tailored to meet your specific business requirements is crucial. Below are some key considerations to aid your search.

• Expertise & Specialization: Ensure that the outsourced accounting firm has experience working with businesses of your size and industry and can provide insights and recommendations that support your strategic goals. 
• References & Reputation: Research the provider’s track record, read reviews, and ask for client references to gauge their reliability, service quality, and responsiveness.
• Technology & Tools: Make sure the accounting firm uses modern, secure accounting software that integrates well with your existing systems and offers real-time access to financial data.
• Communication & Availability: Assess how the firm communicates and how accessible they are. You’ll want a partner who is responsive and offers multiple layers of support and clear lines of communication.
• Pricing & Service Flexibility: Understand the firm’s pricing structure and make sure it’s transparent and aligns with your budget. Look for flexibility in services so you can scale up or down as your business evolves. And remember, price should not be the main determining factor.
• Alignment with Company Values: As mentioned above, it’s important to choose a partner who understands your company’s culture and goals, and who will act as a strategic ally in supporting your long-term vision.

Key Takeaways

Deciding whether to hire in-house staff or outsource to a professional accounting firm is a significant decision that requires careful consideration. We hope this article has shed light on the advantages and disadvantages of in-house vs. outsourced accounting, helping you make an informed decision that best supports your company’s financial health and growth.

Partnering with AURA means tapping into a powerhouse team of accounting professionals, fractional controllers, and CFOs dedicated to supporting your business at every stage of growth. With a deep specialization in the marketing and communications industry, we understand how to streamline your operations, deliver precise and timely financials, and position your marketing agency to seize new growth opportunities.

If you’re a marketing agency looking to scale, please reach out to the outsourced accounting experts at AURA for a complimentary consultation.