In versus out: bookkeepers and outsourcing

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Should SMEs outsource their bookkeeping or keep it in-house?

Being able to understand the pros and cons of each will help bookkeepers tailor their services to clients.

“One of the key benefits of outsourcing your bookkeeping is the expertise and experience that an independent bookkeeper will bring to an organisation,” says Brian Munjanja, Managing Partner at Broadwing Accountancy Services. “There can be a knowledge gap if you stay in-house.” For example, if there is a particular problem that can be hard to solve, “you either have to struggle along, or you go outside anyway to fix it.”

The cost benefits of outsourcing

Secondly, there are significant cost benefits to outsourcing. “Your costs are variable when you outsource – it can be on an as-and-when basis when you need it, or expand as transactions increase and you need the extra bookkeeping requirement.” This is in contrast to having a full-time bookkeeper on the payroll – that person is being paid even if you don’t always need them.

Flexibility also helps with scaleability. “If the company grows unexpectedly quickly, then you’ll be looking to outsource your bookkeeping (and maybe other parts of the business too) in order to cope with the increased demand.” That gives you decisions to make. “Do you get a bookkeeper and financial controller? Do you have an interim Finance Director? Or do you have a controller and ask them to do interim bookkeeping? They might not want to go up and down the chain in that case.” All these decisions have to be given time and thought when the business is taking off, at the very moment the SME should be focusing on the business – not the bookkeeping. “If your outsourcing is in place already, you avoid all these problems.’

Alleviate financial reporting

As well as the obvious salary costs, Stephen King of accountancy firm GrowthForce reckons that overhead costs “add an additional 20% on top of an employee’s base salary,” once benefits packages, pensions contributions, holidays, sickness, recruitment costs and training costs are all taken into consideration: “your business won’t pay overhead costs when using an outsourced service.” Outsourced bookkeeping can also “help alleviate late, inaccurate or meaningless financial reporting,” he says.

Thirdly, there is the management time that an in-house bookkeeper will occupy. “This is not to say managers will be doing the bookkeeping – it may be an employed person – but that person will still require management time,” Munjanja argues.

There’s a legal benefit to outsourcing as well. According to Naren Arulrajah, CEO of Ekwa Marketing, “Outsourcing accounting duties can greatly decrease the likelihood of serious mistakes or fraud,” because “duties are segregated. Strong measures are also taken by outsourced companies to produce financial statements for their clients — many providers have at least two reviews of every step of the financial process.” For Arulrajah, “some companies even have procedures where one employee has to review another’s work to eliminate financial discrepancies.”

SMEs might also find that in-house bookkeeping makes day-to-day issues simpler and quicker to resolve

In-house advantages

What about the reverse – are there cases where keeping your bookkeeping in-house is preferable? “The greatest argument in favour of in-house is control,” Munjanja says. “Knowing that operations are managed internally means that can get your hand quickly on the pulse and feel the directions things are going in; that’s a powerful advantage.” SMEs might also find that in-house bookkeeping makes day-to-day issues simpler and quicker to resolve. “If the bookkeeper is at a desk across the room for you, processes might be easier to change and adjust. And every business has some operational quirks – in-house, you can be attuned to the special handling needed by an awkward client, shall we say, for example!”

There are “some great in-house bookkeepers,” Munjanja says, and Stephen King recognises that “choosing a bookkeeping and accounting service for your business depends on which can support the needs of your business the most. In-house bookkeeping and accounting might be right for some businesses,” he acknowledges, but “many businesses find outsourcing their financial needs is easier and more cost effective.”

Technology matters

As technology helps bookkeeping become more and more flexible, it makes outsourcing an even more attractive prospect. “Cloud bookkeeping and accountancy packages make it easier to outsource because there are no longer standalone computer systems – you can offer bookkeeping remotely and the company can log in and see that the agreed work has been done,” Munjanja says. It’s true to say that perhaps until relatively recently, most organisations would cope with their own bookkeeping until it reached a certain level, and only at that point would they consider outsourcing. “But now, you can be at your desk and I’m at mine and we can both see the records. Data flows electronically – most invoices are electronic now – so I can see what’s happening on a weekly basis and it limits friction. It makes it easier for SME owners to scale the business and grow, from day one, without having to worry about numbers.”

And ultimately, outsourcing offers objectivity. “You’re not caught up in the day-to-day business. You can raise points and questions that you might not see in-house. It gives the organisation an outside view.”

It’s for the company to decide, but if you’re a freelance bookkeeper, understanding the needs of SMEs can help you attract their business. And if you’re an in-house bookkeeper, you will know how to maximise your invaluableness to your employer. Both have their advantages.

6 ‘C’s: The benefits of outsourcing…

  • Cost efficiencies – it is usually cheaper to outsource than to employ an in-house bookkeeper
  • Cutting-edge technology – enables companies of any size to outsource
  • Concentration – you can detach yourself from the numbers and focus on growing the business

… versus the benefits of staying in-house

  • Culture – in-house staff understand the nuances of the business
  • Customisation – your accounting needs might be unusual or specific
  • Commitment – your employee is exclusive and loyal to you.

Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.

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