Should I do my Finances In-House or Outsource Them?

A popular question asked by business owners all over the world. Well, as with most things there are advantages and disadvantages of both depending on the business. If you choose to do them inhouse this could be either you or another member of the team, if outsourced it could be to an individual or a firm. In this blog we’ll discuss some of the key factors to consider and the relevance to these choices.

Intangible Knowledge

‍‍When you have someone doing the business finances inhouse, they may be in the office and seeing and hearing all about what happens in the business. We call this intangible knowledge and it is extremely valuable to help make business decisions and help you understand how what you do is affecting or affected by other variables. 

This intangible knowledge is developed in cross functional meetings, at the water cooler, or in conversation with others in the business. The more complex a business is and the more volume of work involved in the finance function, the more likely it is that this intangible knowledge will add more value and therefore having an inhouse (and onsite) person/team completing finances is preferred. 

There’s no hard and fast rule, but at around £10m-£20m, most businesses should have a full in house finance function including Finance Director or CFO. However, it’s worth noting that if employees are remote anyway, then a lot of the benefit from intangible knowledge is lost unless the employee is cross-functional and is involved in other areas of the business too. 

Cost

In a like for like comparison based on hourly rates, inhouse employees will always be cheaper than outsourcing because outsourcing firms will need to pay salary and then also make a margin, so once a role is nearly full time, hiring internally is almost always more cost effective. 

However, if you hire a finance director inhouse, but have them completing bookkeeping or financial administration then this is not so cost effective. This is where outsourcing can be more cost effective so financial tasks can be split across various roles. Some tasks might only require an hour a month or several hours a week which is very hard to hire for. In contrast, you can hire an outsourced finance function where you take advantage of using part of many employees' time, whether they act as bookkeepers, financial controllers, payroll clerks, finance directors or another finance role. You will generally pay a different rate or a package price for support that takes into account using different employees at different rates.

So in the early days of a business, when there is relative simplicity and low transaction volume, and when there is not enough work for a full, or nearly full time employee, outsourcing can be more cost effective. 

In addition, your relationship with an Outsourced Finance Function should be able to be flexed over time as your business requirements change, adding in or removing services depending on the business requirements. 

Expertise and Skills

Having in-house accountants dedicated solely to your business offers the advantage of a deeper understanding of your company's financial intricacies. On the other hand, outsourced accounting firms typically boast a team of specialised professionals, granting access to a wider array of skills and expertise. This can be especially beneficial when certain financial tasks require specific expertise, allowing businesses to tap into the collective knowledge of the outsourced team. Moreover, the flexibility of an outsourced finance function enables businesses to adjust the scope of services as their requirements change over time, ensuring cost-effectiveness and tailored support.

Time and Resource Allocation

Managing in-house accounting entails significant investment in time and resources for activities like recruitment, training, and team management. In contrast, outsourcing liberates the business to concentrate on its core competencies, as financial matters are entrusted to external experts. By offloading the accounting responsibilities to specialised professionals, you can  focus more on core operations and strategic growth, while relying on the expertise of outsourced providers to handle financial tasks efficiently. 

Scalability

With the growth of a business, accounting needs inevitably evolve, requiring adaptability and scalability. Here, outsourced accounting holds a distinct advantage, as it can readily adjust to changing requirements. The flexibility offered by outsourced providers can allow you to seamlessly accommodate increased transaction volumes, complex financial reporting, and additional regulatory compliance. Rather than being constrained by internal resources, outsourced accounting can efficiently scale up or down to meet the demands of your growing business, ensuring continuous support, hopefully without compromising accuracy and efficiency. This adaptability makes outsourced accounting a strategic choice for businesses on a trajectory of expansion and development.

Data Security and Confidentiality

In-house accounting offers the advantage of direct control over sensitive financial information, providing businesses with a sense of security and oversight. Despite this, reputable outsourced accounting firms equally prioritise data security and confidentiality, implementing a range of stringent measures to safeguard their clients' valuable financial data. And because many firms now use cloud technologies, most of the data is held securely and backed up in the same way by both the outsourced firm and yourself.

Compliance and Regulations

Maintaining compliance with tax laws and financial regulations is of utmost importance for businesses. Whether employing in-house or outsourced accountants, it is essential that they possess comprehensive knowledge of the relevant regulations to ensure precise reporting and prevent potential legal complications. In-house accountants should stay updated on the latest tax codes and financial guidelines, while outsourced accounting firms must also demonstrate a deep understanding of the regulatory landscape. An inhouse employee would need time allocated to keeping up to date with these matters, whereas there is an expectation that an outsourced firm will keep up to date with this knowledge at their own cost. 

Technology and Tools

 In-house accounting allows businesses to use specific accounting software and tools of their choice. Some outsourced firms may use different systems, so compatibility and ease of communication should be considered. For example, if you have an inhouse system that is desktop based it may be difficult for an outsourced team to support this, or you may need to consider a server environment. Having said this, cloud software is becoming more abundant and there is now a cloud option for almost every desktop competitor.

Speed of Response

Having an in-house accounting team can provide immediate responses to financial issues, where an outsourced firm may only work certain hours or may work with many clients and will therefore need to prioritise contact depending on service level agreements/requirements. On the other hand, if a finance function consists of 1 or 2 key inhouse individuals it may be difficult to react quickly to issues if they are on holiday, this is where an outsourced finance function can offer a team of people to support, rather than just one.

Hybrid Approach

Of course, you don’t necessarily have to choose one or the other option; it may be relevant to combine an inhouse and outsourced approach. For example, you may have a lot of transactions that require manual support, at first you’d want to look at your systems and processes for efficiency gains, but if there is still a lot of manual work then you may hire a bookkeeper in house, but leave the rest outsourced. A good outsourced finance function can advise of the right timing for moving a particular task inhouse.

Conclusion

In general, an outsourced or hybrid approach will be better for early stage, simple and scaling businesses, whilst a business that has high transaction / task volumes or has a high requirement for inhouse knowledge should opt for at least some inhouse finance support. Generally at around £10-£20m a business will want to have a mostly internal finance function as this is when the volume and complexity arise. If you would like to discuss your business needs in more detail, please contact us today!