Bookkeeping: In-House or Outsource?
Updated: Jul 7, 2022
If you are like many business owners, you’ve wondered if you should keep your company’s bookkeeping in-house or hire a bookkeeping firm to do it for you. This article will explore the pros and cons of each to help you make the decision that’s right for your business.
In-house Bookkeeping is the term used to define an arrangement where the bookkeeping for the company is done by the owner or an employee of the company.
Outsourced bookkeeping is where an outside firm or individual is hired, not as an employee of the company but on a contract or service agreement basis, to meet the company’s bookkeeping needs.
Both are completely valid methods of managing your business finances, but which is right for your company? Let’s dive in.
How Closely Do You Want to Manage?
In-house bookkeeping can be a great way to keep your finger on the pulse of your business on a daily basis. It can give you up-to-the-minute accuracy on income and expense figures as well as asset and liability management. This could be beneficial to high volume businesses that need to keep close tabs on things like sales, inventory or labor distribution.
An outsourced bookkeeper can be arranged to work on your books on a month, weekly or even daily basis. This gives you the flexibility to have the work done with as much or as little detail as you would like. Bookkeeping services can range from light duty monthly entry and reconciliations to in-depth daily procedure development and training of your staff, and anything in between. For this reason, outsourcing your bookkeeping to a professional makes it easy to choose the exact level of service that’s right for your business.
Additionally, a professional bookkeeper may be able to guide you on certain things, such as the benefit of categorizing certain transactions one way over another, or ways to cut costs or avoid legal or tax issues. Bookkeeper are not the same as CPAs and a CPA should always be consulted regarding tax advice, but bookkeepers are in the trenches and can guide you in the right direction. And a good one will always let you know when it’s time to consult a CPA for professional tax advice.
What’s Most Cost Effective for Your Business?
In the case of a very small business (under $200k per year), it can be a money saver to keep the bookkeeping in-house. For a company this size the volume of bookkeeping work is usually low enough that it fits in with the functions of another position, such as the office manager or the owner. For example, if you average 2 hours of the office manager’s time per week is spent on bookkeeping, a total of 104 hours per year at a salary rate of $20 per hour equals $2,080 per year in bookkeeping expenses. If you paid a bookkeeper at a rate of $85 per hour that would be $8,840 per year. Granted, we are comparing apples to oranges here, as a professional bookkeeper would most likely take less time to complete the work. However, if you’re paying your office manager $20 per hour for full time work anyway and he/she has the time and training, it just makes good business sense to keep it in-house.
Larger small businesses (above $10M per year) that employ several people may find it less expensive to keep their books in-house as well. At this point, for a business, the bookkeeping needs tend to increase and become more intricate. Additionally, at larger sizes it often becomes necessary to increase the level of detail required, which can be tricky for an outside service to manage. For these reasons, it usually works out to be more cost effective to hire a full-time bookkeeper or accountant.
Depending on many variables, a full-time, in-house bookkeeper may cost you anywhere from $15 to $45 per hour. Let’s take the median rate of $30 per hour. A full-time employee at $30 per hour will cost you $62,400 in salary. Add to that an approximate payroll tax expense of $4800.00 and you get a total expense per year of $67,200. If you were to hire a bookkeeping service to do the same functions at $85 per hour, even in half the amount of time, would cost $88,400.
Most small businesses fall somewhere in between the sizes described above. For these middle-of-the-road sized small businesses outsourcing is often the best option, as it gives the owner the information needed to run the business while taking hours of work and stress of his or her plate. Often businesses in this range have a higher volume of bookkeeping work than can be squeezed into a couple of hours per week, yet it’s also not so much that it warrants hiring a full-time staff bookkeeper. These are the types of businesses that will benefit the most from outsourcing their bookkeeping, as it will keep costs lower in the long run while providing maximum stress reduction for the business owner/manager.
Midsized small businesses also have the most to gain by hiring a professional bookkeeper because as your business grows, the bookkeeping services can be cultivated to facilitate that growth and help expand your business in a number of ways such as providing data for analysis, helping to ensure software integrations, upgrades or conversions go smoothly with minimal loss of data, and helping to establish protocols and procedures for your workflow and staff.
Another point to consider is your income cost. What is it costing you in lost revenue to spend your time doing your bookkeeping? Could you be making more than the bookkeeping is costing you by outsourcing? How long is your bookkeeping taking you each month?
Other Variables to Factor In
Training is concern for some business owners as bookkeeping is not exactly one of those innate abilities that comes naturally to most people. Even very sharp, quick learners can experience difficulty when it comes to certain finance principles or in using the software. If you’re one of these people you may find it easier to just get it off your plate entirely.
However, for those business owners who love to learn new things, many bookkeepers offer QuickBooks training. And don’t discount the plethora of “How To” videos available on YouTube.
If you’re unsure where you land on this particular point, hire a bookkeeper for an hour or two of training. See how it goes. If you take to it easily, maybe just set up a few more training sessions to get yourself up to snuff. If not, it’ll be that much easier to turn over now that your bookkeeper has had a chance to get familiar with your accounts.
Stress is another factor. Some business owners would just rather not have the problem of the bookkeeping, this is valid reason to outsource. Business owners start their businesses so they can provide a product or service to their community. This is what business owners should be focused on. If the bookkeeping is taking away from that, it can do your business more harm than good to try to juggle it all.
You can always start doing it yourself and if it becomes to much, hire someone later. Or vice versa.
There is no on-size-fits-all solution to whether you should outsource your bookkeeping or keep it in-house. You have to weigh the options and do what’s right for you and your business. What is most important to you as a business owner? How do you like to manage, with detail down to the transaction level, or broader picture? Which do you value more, time or money? Are you looking for ways to reduce stress or are you eager to take on more challenges? These are some of the questions you can ask yourself when making this decision. Ultimately, it all comes down to what you think is best.
I hope this article has been helpful to you in making the right decisions for your business.
If you have any questions about bookkeeping or are considering hiring a bookkeeper for your business, please feel free to contact us at firstname.lastname@example.org.
About the Author I have been doing bookkeeping for about 20 years and concurrently held a position as the head of HR for a small management firm for 14 of those years.
Currently, I am an owner of Peggy’s Bookkeeping Service with my partner and mother, Peggy. Peggy’s Bookkeeping is a small, family-owned bookkeeping service based in Clearwater, FL. You can visit our website at www.peggysbookkeeping.com.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.