Accounting services are the most common business process which gets outsourced by businesses. The tedious and human-intensive nature of these services makes them a burden. Outsourcing these services can have different reasons for different firms; however, many aims to avail cost efficiency and a higher level of productivity. It raises the inquiry of whether the cost of outsourcing is worthy or not.
Every firm has unique needs, and addressing them requires different levels of expertise, attention, and knowledge. When deciding whether to keep an in-house team or outsource the accounting services, companies need to compare the costs and output. Such comparisons facilitate intelligent and financially sound decisions for the company. Here is a detailed analysis of in-house vs. outsourced accounting costs.
The cost of outsourcing Vs. The cost of in-house hiring-
Many companies prefer outsourcing accounting and bookkeeping services to save money and resources. However, it is essential to understand which alternative costs less and delivers more. Let us consider the actual cost of hiring personnel to manage your books and accounts.
1. Salaries and wages:
In-house- A small or mid-sized business employs covers different accounting functions to handle its books at various stages. An established company has many positions in its accounting department. These include:
- An accountant
- A full-time bookkeeper
- An accounting manager
- A CFO (Chief Financial Officer)
- A controller
On average, the salaries charged by proficient accounting professionals in the US include:
- A staff accountant earns $52,000 on average yearly
- A full charge bookkeeper charges $40,000 annually
- A controller receives $105,000 yearly
Apart from the basic salary, in-house employees must receive benefits like paid leaves, sick pay, vacation pay, etc. Over time, health insurance and other overheads add to $13,000 on average in a year for the company to pay. Their tax liability also falls on the company’s shoulders.
Outsourcing- Under outsourcing accounting services, companies draft a contract with the outsourcing firm stating the fees for all the benefits for a defined time. Businesses do not have to pay and maintain wages, withholding taxes, etc., in the case of an outsourcing firm. Average outsourcing costs for accounting are $30,000- $60,000 in the US.
These costs cover the entire accounting team- staff accountant, bookkeeper, controller, CFO, etc. The company pays the outsourcing firm a flat fee every month, simplifying the budget allocation process. They increase when firms’ needs and demands expand.
2. Cost of hiring or finding suitable personnel:
In-house hiring: While employing people in-house, a business has to incur various costs to attract prospective employees. It involves advertising in media, spreading the message through employees, etc. The process from recruitment to selection is cumbersome and resource-intensive. Thus, the costs of hiring suitable employees in-house increase.
Outsourcing- Under outsourcing, the business does not have to fill individual positions. It has to incur costs in finding a suitable outsourcing firm that hosts a team of proficient and expert accountants, bookkeepers, CFO, controllers, etc. Therefore, these costs may be relatively minor.
3. Costs of maintaining personnel:
In-house: Maintaining an in-house accounting team requires businesses to have a proper infrastructure to support the operations. Also, the payroll and taxation overheads apply to the maintenance of the in-house staff.
Outsourcing: There is no need to maintain infrastructure, IT setup, payroll, etc. Thus, these costs get eliminated.
What factors impact the price of outsourcing?
Outsourcing accounting services providers base their prices on the following factors:
- Revenue: If a business deals with high transactional volume (high sales), the accounting team will have to do more work. However, there may be more accounting work without any additional revenue in some cases, like a funded startup.
- The number of employees: Human resource requirements may vary depending on different industries. While some human-intensive businesses need more employees to grow, others rise rapidly with little human involvement. Accounting complexity and volume come into view based on the number of employees. It affects the outsourcing accounting services rates.
- Services needed: Accounting isn’t just managing books. It covers various functions like invoicing, accounts payable, payroll, budgeting, financial analysis, project accounting, etc. Therefore, businesses must decide what accounting services they want to outsource to accounting professionals.
- Industry: Every sector does not have exact accounting needs. There may be inherent complexities in their nature. For example, e-commerce businesses focus on inventory to scale while manufacturing firms prefer job-costing.
- Location: The outsourcing partner’s place (onshore, offshore) also affects the prices. The former category costs more than the latter. However, it depends on the country you outsource accounting services to, the legal rules, labor rates, etc. A blend of onshore and offshore can be beneficial in mitigating risks and costs.
- Scalability: Outsourcing accounting firms allow businesses to manage the increase or decrease in work without affecting the quality. However, charges for it may vary for every firm.
Outsourcing companies charge on a different basis and have various packages for their clients. Businesses can choose what suits them the best. Let us know about their pricing methods:
- Hourly rates- The outsourcing partner can charge hourly rates when the work is less or does not require full attention. However, it can cause inefficiency if they delay their work or cause unnecessary lags.
- Monthly charges: Modern outsourcing accounting services providers charge a fixed flat rate every month. Businesses can set targets and view these firms’ progress and ensure the payment’s worth.
- Ballpark pricing: If a business earns around a million or more, outsourcing firms may charge a percentage of their revenue. These percentages can rise or fall on an income basis to make their services more affordable and widespread.
In-house vs. outsourcing accounting services has been an ongoing debate for a long time. An overview of the costs of both alternatives shows outsourcing to be 40-60% cheaper. However, the case may vary based on different companies’ needs, demands, and situations. Whiz Consulting is one of the leading firm in the USA that can handle accounting services in the minimal price.
Although cost isn’t the only factor affecting the choice between the two, it is equally crucial as the others. Firms need to know their needs and why they want to outsource. It allows them to do a cost-benefit analysis of in-house vs. outsourced accounting services and choose the right fit.