As a business grows, its financial requirements increase accordingly. As a result, managers/owners (often without accounting expertise) often face a difficult decision about whether to hire an in-house accountant or opt for outsourcing to a professional accounting firm.
The size of a business is a key factor in understanding the financial and accounting challenges it faces.
For large businesses (100 or more full-time employees)
Large, cumbersome systems always struggle to maintain business efficiency, necessitating the adoption of technology to optimize operations. For large businesses, organizing accounting using software or centralized data technology streamlines processes, saves costs, and thus achieves and maintains efficiency.
For medium-sized businesses (10 to 99 full-time employees)
Medium-sized businesses face various challenges, including:
- Attracting and retaining talent;
- Develop a business development plan;
- Comply with relevant laws and regulations.
Therefore, owners of medium-sized businesses expect their accounting department to be able to:
- Financial consulting and planning for growth projects;
- Financial consulting and planning to enable businesses to implement superior compensation policies that help recruit and retain talent;
- Strict control over compliance with relevant laws and regulations is essential to support future development goals.
For small businesses (fewer than 10 employees)
Small businesses face a range of different challenges, including:
- There isn't enough time to handle financial and accounting matters;
- Unstable cash flow;
- The need to optimize management costs.
Therefore, business owners expect the accounting department to be able to:
- Controlling compliance with relevant laws and regulations is a way to free up time for entrepreneurs to focus on stabilizing their revenue streams;
- Help them optimize their management costs.
Choosing between in-house accounting and outsourced accounting services to meet your objectives can be challenging. Therefore, to understand the differences and advantages and disadvantages of both and make the right choice, please read this article.
1. Cost factor
Costs, obviously, become a major concern when making business decisions. Hiring an employee requires significant funds and ensuring a reasonable return on investment.
Overall, hiring a full-time accountant is more expensive. It's not just about the money you pay them in salary, but also the additional benefits including insurance, bonuses, allowances, etc., and the facilities to work with. In this case, the alternative – outsourcing accounting – can save you up to 65% in costs.
2. Quality Assurance Factors
Having an in-house accounting team and bookkeeping services offers many advantages; you can meet with them directly whenever you want, and in case of any urgent accounting tasks, you can have them completed immediately. However, you may not reap as many benefits if you lack the financial resources for an accounting department.
Conversely, when you outsource services, you gain access to a complete team of experts with the necessary knowledge, skills, and detailed experience. As a result, the quality of work completed for you is significantly higher.
3. Consistency
Having an in-house accountant might offer some reassurance, but their mistakes may go unnoticed. According to the Vietnamese Accounting System, organizations are held accountable for inaccurate tax filings and financial reporting by their own accountants. Meanwhile, outsourced accounting firms often have a supervisory team that evaluates their accountants' work, preventing errors and ensuring more consistent and accurate reporting than in-house accountants.
Secondly, if your sole accountant leaves the company without prior notice, you may have to scramble to find a replacement and, in addition, dedicate effort to familiarizing them with your accounting accounts or processes. This can impact your own efficiency and that of your business.
Unlike traditional accounting, outsourced accounting eliminates such risks. If one of your outsourced accountants leaves, they can assign your work to anyone on their team of experts. With outsourcing, businesses can be assured of consistency in operations.
4. Questions about loyalty and the confidentiality of business information.
This is one of the most overlooked factors in the business world. According to one study, 22 to 28% of businesses have experienced employee fraud. Furthermore, corporate fraud is more likely to affect smaller businesses, where older employees have more opportunities to commit fraud, and the scale of the fraud tends to be larger. Additionally, the complexity of the process can make it easier for someone to prevent fraud.
On the other hand, internal employees may have knowledge of trade secrets.
Such cases are less common with outsourced accounting for several reasons. They typically have auditors to ensure no fraudulent activity is taking place. They are very concerned about reputation. They lack in-depth knowledge of trade secrets, understanding only the surface of their professional work. They do not have the means or incentive to commit fraud or access trade secrets.
Therefore, loyalty and reliability are two major reasons to consider outsourcing instead of hiring internal staff.
5. Professional qualifications, experience, and sharpness.
While you can certainly hire experienced professionals for your accounting work, outsourcing accounting is the most effective solution to obtain experts with diverse expertise, relevant experience, or the sharpness of a professional consultant at a lower cost than in-house accounting.
On the other hand, with the limited financial resources of most small and medium-sized enterprises (SMEs), you can only use accounting for basic functions (Work Groups 1-2).
5.1. Transactional works
- Bookkeeping
- Manage payment activities (Accounts payable/bill pay)
- Manage Accounts Receivable
- Payroll
- Transaction processing
Financial closures
5.2. Compliance works
- Prepare tax reports.
- Prepare various types of financial reports.
- Payroll compliance reporting
Meanwhile, large and professional accounting service providers can offer you essential accounting services (Workgroups 3-4-5):
5.3. Consulting works
- Tax consulting
- Tax planning
5.4. Performance Works
- Cash flow analytics
- Data analytics
- Financial performance analysis
- Internal control
5.5. Strategic works
- Business Budgeting
- Financial Planning
- Determining business value and investment plan (M&A & Funding)
Situation 1
You are considering hiring a full-time accountant for your office.
It's precisely small and medium-sized businesses that maintain a balance between income and expenses, a positive cash flow. As an entrepreneur, you must know that an accountant can add significantly more costs to your business accounts. The most notable disadvantage here is that you may have to expand your office space, purchase a computer system, buy accounting software (to keep up with trends), and pay for employee benefits.
Advantage:
- Promptly address requests.
- Give employees more control.
Disadvantages:
- Expensive
- Experience is limited.
- We do not provide support for resolving accounting issues.
- Unable to resolve complex problem situations.
Situation 2
You are planning to handle your business accounting yourself or delegate this responsibility to an employee while using accounting software.
Assigning an employee the role of a bookkeeper, especially for a potentially growing business, can be somewhat risky for several reasons. The biggest risk is that the employee will lack knowledge of accounting procedures and be unable to assist you with financial planning.
Advantage:
- Cost-saving
- No complicated hiring process.
Disadvantages:
- Lack of accounting knowledge and experience
- Unable to provide detailed financial information.
- Increased risk of costly mistakes.
Situation 3
If you are planning to expand your business, you need a financial expert to assess and provide financial data to support your decisions.
Hire a specialist with a fairly high salary or hire a large, professional accounting firm for advice.
Advantage:
- Promptly address requests.
- Give employees more control.
Disadvantages:
- The cost is too high compared to outsourcing.
- You are not qualified to assess the accounting knowledge and experience of the expert.
- Increased risk of making mistakes that could harm the development plan.
There are many significant benefits you can reap from leveraging the skills, expertise, and experience of accounting professionals at your outsourced partner firm.
They can help you run your business smoothly; you'll benefit because they'll take care of your finances and accounting in a consistent and organized way, reducing your tax burden and providing personalized accounting services.
Each accounting outsourcing company will have different service fees, policies, work schedule models, etc.
It's important to consider what you're getting from your outsourced accounting partner.
You need to check their service details, including:
- Were your questions answered promptly?
- Do they offer a fixed-price plan?
- Are they committed to providing quality services?
- Are they willing to provide complete accounting services?
- Are they willing to provide you with professional financial advice?
- Will they represent you in the event of a tax audit?
- Will they represent you in the event of a financial audit?
You need to check the service providers' authorities and their board of directors, including:
- You are only protected when you hire a qualified service provider; check if they are qualified to practice accounting.
- Does the management team have sufficient expertise in your industry?
- Is the management team always available to support you?