When running a business, the goal is to have good operations and profits. You’re also in a constant state of awareness for ways to protect your business from harm – whether that comes in the form of increased competition, property loss due to theft, or some other factor. Have you considered staffing and managing an in-house accounting department? This is a very important and foundational part of any business, so it’s key that you address accounting. Now, your bookkeeping may be managing its bookkeeping and accounting in-house; however, that may not be the smartest choice. There are 4 problems with in-house accounting that we are going to take a look at in this blog.
4 Problems with In-House Accounting
Whatever your reason for wanting to keep your accounting in-house – control – it’s important to know how those problems with in-house accounting may impact your business.
1. Costly Bookkeeping Mistakes
If you employ a bookkeeper to handle your day-to-day financials, then you’re relying on one single person for this critical function. Since human beings are fallible, it’s not unusual for people to make mistakes. This is especially true when said person is inexperienced and/or tired.
In the worst-case scenario, however, a mistake will go unnoticed. That means it could be used to generate reports or even prepare audit and tax readiness inaccurately — and that’s the last place you want errors. In other words, one single mistake can have far-reaching consequences for your company, both financially and fiscally.
On the other hand, if you outsource your accounting to a reputable firm, then you’re guaranteed that the expert services you receive are accurate. With an entire team looking at your books and handling your reporting, any errors are more likely to quickly be noticed. And the team can address those issues immediately.
2. Outdated In-House Financial Training
When you hired your accountant, you probably took great care to verify that their certifications were valid and up-to-date. Yet over time, even the best training becomes outdated. Just look at the new revenue recognition updates!
Accounting professionals need to stay current not only about things like new software and integrated apps for greater efficiency, but more importantly about things like amended regulations, changes to tax rules, and other important developments that affect their field.
Unfortunately, especially when your bookkeeper or accountant has a heavy workload, it can be challenging for him or her to stay current with these things. Furthermore, it’s going to be difficult for them to complete any professional development courses. That means that before too long, the quality of your in-house bookkeeping and accounting will suffer.
When you outsource your accounting, the right firm will ensure that its people are up-to-date on all of the latest technology, regulations, tax codes, and other developments. That means you never have to worry about the quality of your accounting.
3. Potential Internal Fraud
On average, organizations lose 5% of revenue to fraud annually. In addition, small businesses are typically more susceptible to fraud. Why? Because they don’t have the resources to perform all of the checks and balances needed to detect and combat fraud. Payroll fraud and skimming are common types of fraud that occur.
In a larger company, you can set up a system of internal controls to ensure that the various financial responsibilities and authorizations are handled by different people. In a small company, this often comes down to one or two people.
No matter how much you trust your bookkeeper or accountant, he or she can miss all the signs of fraud. What’s worse is that they could even be the person committing fraud. And when you know that the average fraud incident for small businesses amounts to $150,000 median loss, then you have to ask yourself, “Can my company afford this kind of risk?”
The best firms have procedures in place that virtually eliminate the chances of fraud going undetected. If they do detect fraud, then they can follow the trail back to determine which of your employees is the fraudster. Then you can take appropriate action.
4. Higher Costs for In-House Accounting Staff
Hiring a full-time bookkeeper or accountant involves significant costs. First of all, there’s the time and money that goes into recruiting, screening, and onboarding the new employee. If you work with a recruiter to do this quickly, then you’re looking at a bill of between 20-30% of the new employee’s salary. Then, there are the costs of employee salary or wages.
According to GlassDoor, U.S. salaries average $43,874 for a bookkeeper, $55,093 for a staff accountant, and $100,705 for a controller annually. Of course, there are also additional costs such as benefits, paid time off, retirement, overhead, etc. And last but not least, you have a contractual and financial commitment to the employee. You can’t simply let them go without a certain financial obligation.
In contrast, an accountant’s firm will cost between $24k-$60k annually. That range depends on the size of your company and the type of services you require. On average, you can expect to pay around $2,500 per month when you outsource your business’s bookkeeping and accounting. That’s considerably less than hiring a full-time bookkeeper!
If you want to learn more about how outsourcing your accounting can help your business, then contact us at GrowthForce. We’re always happy to learn about your business needs and discuss how we can help you achieve your financial goals. In the meantime, download our free Guide to Outsourcing Your Bookkeeping & Accounting to avoid those problems with in-house accounting.
Stephen King is a guest blogger at The Strategic CFO. He is the President and CEO of Growthforce, an outsourced bookkeeping firm.