Outsourcing accounting services vs. hiring an in-house accountant: Which is better for your small business?

As a startup founder, you may be trying to single-handedly take care of every aspect of your business, including managing your finances. However, research from the American Psychological Association shows that multitasking could take a toll on productivity — in fact, even brief mental blocks created by shifting between tasks can cost as much as 40 percent of someone’s productive time.

Let us compare the pros and cons of outsourcing accounting services to hiring an in-house accountant, empowering you to determine which option best suits your small business.  

Cost considerations.

Outsourcing accounting services allows small businesses to access experienced professionals without the need for a full-time worker. This helps you save money by eliminating expenses such as salary and benefits like retirement, vacation time and health insurance — outsourced workers usually cost less than regular full-time workers. In addition, there is no need to spend money on software and the equipment essential for handling the accounting and finance processes.

Employing an in-house accountant, on the other hand, gives you the benefit of having someone dedicated to your business’s specific financial operations. However, it calls for several fixed costs associated with salaries and wages, benefits and office space.

Additionally, finding and hiring a qualified accountant can be a time-consuming and competitive process. Retaining this employee may also be a challenge, as they may seek career advancement opportunities elsewhere.

Experience and expertise.

Accounting mistakes can have disastrous repercussions on a business, such as penalties, cash flow issues and even an investigation by the Internal Revenue Service (IRS). Outsourcing accounting services gives small businesses access to a team of highly qualified and trained accounting professionals, who specialize in various areas such as tax preparation, bookkeeping or financial analysis.

These experts bring a wealth of experience and knowledge, ensuring accuracy and compliance with regulations. They also use the latest technology and processes to ensure that your data is accurate and secure. Since accounting provides a platform for maximizing cash flow, driving profits and growing your business, it can also influence such things as the number of employees you need to — and can — recruit, pinpointing the most and least profitable product lines to your future expansion plans, and so on. 

In-house accountants may possess a broad understanding of accounting principles, but they may lack specialized expertise in certain areas. This can be a disadvantage when dealing with international accounting standards, complex tax regulations or industry-specific financial requirements. 

Scalability and flexibility.

Outsourcing accounting services offers flexibility, as it allows small business owners to scale the services of the outsourcing firm according to their business needs. This adaptability allows you to access the right level of expertise without the burden of hiring and managing additional personnel.

While hiring an in-house accountant may offer a more personalized approach, especially if your company needs constant communication and collaboration, this approach may lack flexibility during slower periods or when specialized expertise is needed on an ad-hoc basis. 

Technology and tools.

Outsourcing accounting services gives small businesses access to advanced accounting software and tools. Outsourcing providers stay current with the latest technology, which can improve accuracy and efficiency in financial processes. This eliminates the need for you to invest in expensive software and ensures compliance with changing regulations.

With an in-house accountant, you have control over the choice of accounting software and tools that align with your business needs. However, purchasing and maintaining the necessary (and, often, expensive) software can add to your expenses, and ensuring the accountant is proficient in using the tools may require additional training. 

Key takeaway

The decision to outsource accounting services or hire an in-house accountant will ultimately depend on your specific business requirements, budget, expertise required as well as the flexibility you desire. Therefore, before making a decision that aligns with your business objectives, it is important to carefully evaluate your budget, business size and complexity, scalability needs, expertise requirements, compliance concerns, risk factors and overall long-term goals. A thorough analysis of these elements will help you choose the best option that suits your company’s unique needs and maximizes financial efficiency and accuracy.  

Want more? Escalon has helped over 5,000 companies across a range of industries to utilize the experience and knowledge of financial experts to tailor their financial strategies and solutions. Talk to an expert today.