The Pros and cons of In-house vs. Outsourced Accounting


Outsourced accounting is when a business uses or commissions an external company or organisation to perform the accounting and finance functions. Outsourced accountants often handle all the accounting, finance and financial functions for a company including payroll, management accounts, bookkeeping, financial reporting, tax, accounts payable and receivable, dealing with debtors and creditors and all other accounting issues.

In-house accounting is the traditional method for an organisation to manage its financial function and usually involves employing at least one person in the role of accountant or bookkeeper and in larger organisations, a financial director and a team of qualified accountants and financial specialists around them.

As companies look to manage costs and resources more effectively, outsourcing the finance function of the business to financial experts who only work for the business when required, has become more and more popular and as the economic future for many businesses is still not clear with the ongoing Covid pandemic, outsourcing the finance function is seen as a very good solution for many organisations.

The reason why outsourcing has become so popular with organisations of all sizes is that there are many benefits with outsourcing and those benefits outweigh any downsides, for many businesses.

The key benefits of outsourcing are:

Reduced costs
Recruiting full time accountancy staff for a business is usually more expensive than using a third-party accounting service. The cost of recruitment, office costs, computing and software, human resources, salary package and benefits, tax, and time off, for each member of staff that are recruited will always be more than using an external service provider for a set amount of time at a pre-agreed cost. Using a third-party accounting firm will also give a business access to the accounting company’s resource base of specialist and generalist accountants and financial specialists for specific tasks. It will be virtually impossible for any employee to have a complete grasp on all areas of the accounting and financial mix, however experienced and talented they are.

Increased productivity
There are two ways in which an external financial service organisation will help productivity. Firstly, by taking the fulfillment of an organisation’s financial responsibilities away, the organisation can concentrate on what it does best, create products and services, drive revenues, and increase profits. The external accounting company also provides reports and analysis of the businesses’ performance, which can help the business improve and keep moving forward. A third-party accounting organisation can investigate every part of an organisation’s financial performance and structure and has the expertise to provide information and give advice that an internal resource might not have the skill, time, or access to see.

As well as reducing costs, outsourcing the accounting and financial functions will eliminate the vast amount of time and effort a business needs to spend on regulatory reporting and compliance and the required financial work on tax, payroll, bookkeeping and creditors and debtors. This will result in business owners and managers having more time to concentrate the organisation’s key functions and achieving the targets and goals the organisation has set for itself. Outsourcing the financial and accounting functions gives business owners and managers valuable time back to concentrate on the important organisational and business targets, challenges, and goals.

By outsourcing to an accounting and financial specialist company, businesses can access a wealth of financial expertise across numerous areas, that they simply wouldn’t have exposure to, if they had to recruit for every area of knowledge required. This is especially true with the increasing level of compliance and regulation companies face, which is changing quickly and requires expert knowledge and skill, as well as the latest software and financial reporting tools.

Resource when it is needed
Outsourcing the accounting function gives organisations a huge advantage when they are growing quickly and need to increase the amount of financial and accounting resource they need, without the inconvenience of having to recruit more staff, with all the costs and risks that entails. Also, many organisations find themselves needing increased levels of accounting resource during key reporting times. For example, the end of year tax return, quarterly BAS returns, audits, end of period reporting or quarterly projections, to name a few. There are also going to be quieter periods for organisations, and it is a huge advantage to be able to scale back resources when they are not needed, rather than have paid members of staff, with little to do. The great advantage of an outsourcing the accounting function is the ability to only pay for the resource that is needed at any given time. Most third-party accountancy suppliers are highly flexible in how they are used and how they charge, so planning a schedule of work based on expected requirements is easy for organisations and often, the costs of the work can be spread equally over the year, even if the actual work is not.

A Guide to outsourcing your Accounting and Payroll

Some of the downsides of outsourcing are:

Unexpected cost
It is easy for agreed tasks to become bigger and the need for further analysis goes from ‘must have’ to ‘want to have’. As with any outsourcing, costs are based on work done and what may start out as a specific task can balloon into a much bigger job that requires significantly more time from the external accounting business.

Equally, a job may require far more technical, or specialist knowledge than originally expected which means more external resources being needed to complete the task. If the business owner or management can keep extra work to a minimum and have a pre-agreed schedule of tasks that are the same every month and can be costed in advance, then additional costs won’t become an issue. However, it is worth carefully considering how to manage an external resource to keep costs to the budgeted and expected level.

Volume of face-to-face contact
For some business owners and managers this represents a significant disadvantage over having somebody along the corridor or always on the other end of the phone, who they can chat to whenever the situation demands it. Company owners and managers will need to agree the level of contact available to them in the contract of engagement with the outsourced financial organisation, so if they want regular meetings and all-day availability, they know the costs and can budget accordingly.

Alternatively, a structured approach to the financial function of the business by a business owner or manager, will allow them to work with an outsourced accounting company efficiently and cost effectively. It may mean reducing expectations on how often contact with the accounting company happens and for how long and being more disciplined in how the business finances are managed and when time is allocated to them. This more organised approach may not work for everybody, but for business owners and managers who don’t believe it will work for them, it might be a good move to think through how efficiently they are currently operating.

Loss of control
It is important to be able to trust the accountant or bookkeeper taking over these roles as you might get the feeling you are having less control over your financial information and the confidential data associated with it. 

However, if there is trust between the two organisations and the business owner or manager see the upside in outsourcing and can modify their behaviour to make the relationship work within the agreed financial parameters, then control shouldn’t be an issue. However, if the business owner can’t relinquish the day-to-day operational control over the finance function, it is hard to see outsourcing as a viable solution. Again, business owners and managers need to be honest with themselves when assessing the downside of handing a level of control of a key business function to an external organisation.

Risk of choosing the wrong resource
There's always a risk of choosing the wrong firm who's not the right fit for your business. It is important to research many accounting services before deciding. Different accountants specialise in different types of accounting. For instance, some accounting firms focus on large-scale businesses, and they may have their outsourced centres overseas - that may be no use to you if you are an SMB (small-to-medium-sized business). You need to be able to identify your business needs to know exactly what is needed from their service. Be honest, set long and short term goals and check that they are not only efficient but effective. The transition period should be stress-free and streamlined. If not, that could be a sign you need to choose another accounting business to work with. It is better to try a few to get the right one than settle for the first you contact because it's 'easier' and saves you time. 

How to transition from In-House Accounting to Outsourced Accounting?

In conclusion, outsourcing the accounting function makes a great deal of sense for any business. The advantages in time savings, cost, peace of mind, expertise, compliance and focusing on what matters for a business, are significant and important factors that organisations should consider when deciding whether to outsource or not. The increased pressure on businesses to allow more and more remote working, to be increasingly technology reliant in compliance and reporting and to reduce their environmental footprint are all further pressures to outsource as much as possible and accounting and finance is an obvious early step down the outsourcing road for businesses.

The growth in remote working has also put enormous pressure on recruitment, in terms of finding quality accounting staff, managing them, and absorbing them into the organisation’s culture, which again points towards outsourcing the accounting function as a positive move.

The other great advantage of outsourcing the finance and accounting function is that it doesn’t matter what the business does, how it is managed or where it is based, outsourcing will work for any organisation regardless of size or location. However, some business owners and managers will have to change the way they work. The advantages of outsourcing are so compelling that it could be argued that all business owners and managers should change their working practices to be able to manage their businesses with both outsourced and internal functions working together harmoniously.

Why Azure Group as your outsourced service provider?
If you’re thinking of making the switch from in-house to outsourced accounting, seek advice and 
get in touch with us. We are here to help and to make this process as smooth and comfortable as possible.

Azure Group have a specialist Business Accounting team, all located in Australia who manage the outsourced accounting function for a myriad of businesses. Our team consists of highly talented and experienced accountants led by senior finance executives who each have substantial commercial background and have worked with various sizes businesses across a wide range of industries.

Related: Your weekly Accounting must Do's and Dont's

Have you noticed our #FridayExpertTips... here's one that relates to #Accounting

“Not dealing weekly, or even daily, with accounting tasks is like piling up the stock in the warehouse and then trying to find the one item you need a month later. Tackling your accounting tasks daily and weekly will make the business financials flow more smoothly, and give you more energy to work on the business instead of in it. Get in touch to find out more about our Outsourced Accounting Services.”

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Azure Group
Azure Group

Azure Group is the leading Chartered Accounting, Business Advisory and Strategic Advisory firm supporting the growth & success of fast growing entrepreneurial businesses.

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