Outsourcing Accounting Services vs. Hiring Internally: Which Is Right for You?

Are you building a legacy business but feel your accounting department (or lack thereof) is hindering your growth? Having the right individuals in the right positions is essential to your company’s financial success. But should you hire in-house employees, or does outsourcing accounting services make sense? Keep reading to learn the pros and cons of accounting outsourcing and tips for making the best decision for your business.

Accounting Outsourcing: What Does It Mean?

Outsourcing is the process of using a service provider outside of your business to provide accounting functions. For example, you can outsource specific team members and hire others internally or hire a fractional CFO to manage all aspects of your accounting department on a contract basis. 

Accounting Outsourcing: Why Do It (or Not)?

Some companies outsource because the cost of outsourcing accounting services is less than hiring internally when the accounting functions of a small business are part-time. Outsourcing allows you not to hire a full-time employee and pay them a full-time large annual salary. You also don’t have to provide health insurance benefits or pay employer payroll tax for contractors, which can be a big money saver. Other companies may not need an entire in-house accounting department, depending on the size and complexity of their business.

One limitation of outsourcing accounting is that it might not provide business owners and managers direct or immediate access to their accounting team. An accounting contractor likely has multiple clients and can’t provide the same level of “service” as an internal employee. Because they aren’t fully dedicated to you, you simply can’t expect dedicated service.

Accounting Outsourcing vs. Hiring Internally: Which Is Right for You?

At Brady CFO, I’ve worked with numerous businesses generating $1-$30 million in annual revenue in industries such as food production, warehousing and distribution, manufacturing, professional service firms, and more. Based on firsthand experience, here are my recommendations for outsourcing accounting services vs. hiring internally. 

When Outsourcing Accounting Services Makes Sense

Hiring an outsourced contractor to perform your bookkeeping/accounting can make sense if… 

• Your business generates less than $5 million in revenue

• You have a straightforward business model that doesn’t involve much inventory accounting and fixed assets tracking

• You’re a single-entity business that doesn’t require consolidations

Having a lot of inventory, fixed assets, or consolidations requires more complicated accounting that may be out of the scope of an outsourced bookkeeper. Because your company operates without these elements, you can take advantage of the reduced cost of outsourcing accounting services without compromising your accounting function.

When Outsourcing Accounting Services Doesn’t Make Sense

As your business expands, outsourcing your entire accounting function is not recommended. With business growth comes complexity growth–and the more complex the accounting function, the more beneficial it is to have an in-house team at your disposal.

As you grow and add employees, you add new compensation models, new benefits packages, new revenue streams, different amounts of inventory, etc. Each of these complexities should add value to the business beyond the cost of accounting. To that end, you will grow out of the capacity of a single bookkeeper or bookkeeping agency. You will need to begin hiring internally. 

If deciding between outsourcing vs. hiring internally makes you want to pull your hair out, stop here and schedule a call with Brady CFO. I will take a detailed look at your current financial performance, accounting structure, and goals and help you develop a plan for building your accounting department with less stress, overwhelm, and confusion. 

2 Options for Outsourcing Your Entire Accounting Function

If you fall into the “makes sense” category, here are your options for outsourcing accounting across the board.

1. Hire a Single Bookkeeper

Hiring a bookkeeper is as easy as going to Upwork and searching “bookkeeper.” You’ll instantly be presented with hundreds of potential contractors who work and access your accounting software remotely. Outsourced bookkeepers typically bill clients hourly and provide a set amount of hours weekly or monthly. 

While the cost of outsourcing accounting services like a bookkeeper is a benefit, the drawbacks are you lack sustainability and may compromise on customer service. For example, your accounting is at a standstill if your bookkeeper goes on a two-week vacation. Still, this is a good route for business owners that don’t have the budget to hire a full-time person but want a bookkeeper dedicated to their accounting and available to answer questions throughout the week.

2. Hire a Bookkeeping Agency or Firm

If you like the idea of outsourcing accounting but want something a bit more established than a single bookkeeper, hiring a bookkeeping agency is a reliable option. When you outsource to a firm, you are hiring a “system” with multiple team members and well-defined processes for their client onboarding, bookkeeping, financial review, customer service, etc. Additionally, larger firms can perform your bookkeeping, even if your assigned bookkeeper is out of the office because they have a full team and standardized processes and systems to handle this. 

While the cost of outsourcing accounting services through a firm is often higher than the cost of a single bookkeeper, it is a great option for business owners that like a consistent monthly process but don’t need daily or weekly updates. I’ve found that bookkeeping agencies are able to achieve standardization in their systems and processes when they target clients with similar needs and problems. It is the only way they can grow and scale efficiently. To that end, if your business has a lot of unique complexities, you probably are not a good fit for a bookkeeping firm. 

Strategy Development Services for Accounting Team Build-Out

As the founder of Brady CFO, I aim to help family-owned businesses make smart financial decisions–like whether to hire internally or outsource accounting. And while we scratched the surface here, there’s a lot more to discuss, like which accounting team member to hire first, when to hire a Controller, and what positions I never recommend outsourcing. 

If your business currently generates <$30 million annually and you want a strategic plan for building your finance department, Brady CFO is the solution you’ve been looking for. Get in touch today, and I’ll share my process for providing financial leadership to your finance and accounting function.