Hiring an Internal Accountant vs. Outsourcing: Which Option Saves You More in Costs and Efficiency?
Hiring an internal accountant or bookkeeper vs. outsourcing to an external professional is a critical decision that can have a significant impact on the financial management and bottom line of your business. Both options have their advantages, but the costs associated with each differ in notable ways. In this blog, we’ll explore the true costs of hiring an internal accountant or bookkeeper compared to the potential cost savings of outsourcing these services to an external provider. By examining factors like salary, benefits, and efficiency, you can make an informed decision about which approach is best for your business.
The Cost of Hiring an Internal Accountant or Bookkeeper
For many small to medium-sized businesses, the idea of having an in-house accountant or bookkeeper can seem appealing. Having a dedicated employee on staff to manage financial tasks such as bookkeeping, payroll, and financial reporting can provide a sense of control and constant access to your financials. However, this control comes at a cost.
1. Salary Costs
The most obvious cost associated with hiring an internal accountant or bookkeeper is their salary. According to the U.S. Bureau of Labor Statistics, the median annual wage for bookkeepers in 2023 was approximately $45,000, while for accountants, it was closer to $70,000. However, these numbers can vary based on the experience level of the employee, the location of your business, and the complexity of the work they’re required to handle.
For example, if you operate in a larger city or need someone with more specialized financial expertise, you could end up paying significantly more than the national average. On the other hand, hiring a less experienced accountant or bookkeeper could lead to inefficiencies or mistakes that cost your business in the long run.
2. Employee Benefits
In addition to salary, you’ll also need to account for employee benefits. Hiring full-time employees means providing them with healthcare benefits, which, depending on your business’s location and size, could add an additional 10-15% of their base salary to your overall costs. This includes health insurance premiums, dental and vision coverage, life insurance, and more.
Moreover, employee benefits often extend beyond healthcare. You may also need to offer a retirement plan, such as a 401(k) with employer contributions, which can add another 3-5% to the cost. Paid time off (PTO), sick leave, and paid holidays also contribute to the cost of employing a full-time accountant or bookkeeper. Depending on the benefits package you offer, these extras can significantly increase your total expenses for having an in-house employee.
3. Payroll Taxes
Payroll taxes are another hidden cost of hiring internal staff. As an employer, you’re responsible for covering Social Security and Medicare taxes (commonly referred to as FICA), which amount to 7.65% of your employee’s gross wages. You’ll also be required to pay federal and state unemployment insurance (FUTA and SUTA), which can vary based on your state’s requirements and your business’s specific unemployment rating. Altogether, these taxes can add 10-15% to your payroll costs.
4. Office Space and Equipment
Hiring an internal accountant or bookkeeper means providing them with a physical workspace, which might seem negligible, but the costs add up. You’ll need to supply office equipment such as a computer, desk, phone, and software subscriptions (like QuickBooks or accounting software). If you don’t already have the space, leasing additional office space for new employees could further add to your overhead.
5. Training and Development
Accounting and bookkeeping regulations are constantly evolving. To ensure your in-house accountant or bookkeeper remains compliant with new laws and best practices, you’ll likely need to invest in ongoing training and professional development. Whether that’s through certifications, continuing education, or industry conferences, these expenses can easily add a few thousand dollars to your annual budget. The cost of maintaining a knowledgeable staff member is often higher than business owners anticipate.
The Cost of Hiring an External Bookkeeper or Accountant
Outsourcing your bookkeeping or accounting services is often a more cost-effective option, especially for small to medium-sized businesses. With an external provider, you gain access to the expertise and services you need without the overhead costs associated with a full-time employee.
1. Cost Savings on Payroll and Benefits
When you outsource your accounting or bookkeeping services, you don’t have to worry about paying a salary, benefits, or payroll taxes. You only pay for the services you need. Most outsourced bookkeepers or accountants work on an hourly basis, a project basis, or through a monthly retainer. This means you’re not paying for downtime, vacation time, or periods when the work is light.
Depending on your business’s size and complexity, the cost of outsourcing can vary. Some businesses may only need a few hours of bookkeeping services per week, which could cost as little as $300 to $500 per month. Larger businesses with more complex financial needs may pay a few thousand dollars per month, but even then, the cost is often less than hiring a full-time employee with benefits.
2. Scalability and Flexibility
Another significant advantage of outsourcing is scalability. As your business grows, your financial needs will change. If you have an in-house accountant or bookkeeper, you may eventually need to hire additional staff to handle the increased workload. However, with an external provider, you can easily scale up the services as needed without the hassle of recruiting and training new employees.
Additionally, outsourcing allows for flexibility. If your financial needs decrease during certain times of the year (for example, during off-peak seasons), you can reduce the level of service and cost accordingly. This flexibility is not possible with a salaried employee who requires payment regardless of workload.
3. Expertise and Efficiency
External accounting and bookkeeping firms specialize in financial management. Because they work with multiple clients, they have access to a wide range of industry best practices and technologies. By outsourcing, you gain access to this expertise without the cost of constantly training and developing in-house staff. External professionals are more likely to be up-to-date on the latest regulations, tax laws, and accounting software, ensuring that your business remains compliant and efficient.
Outsourced bookkeepers and accountants typically work faster and more efficiently than in-house employees because they have systems and processes in place. They can handle your finances with minimal oversight, freeing up your time to focus on running and growing your business.
4. No Need for Office Space or Equipment
When you outsource bookkeeping or accounting services, there’s no need to provide office space or equipment. The external firm operates from their own office and uses their own tools, so you avoid the overhead costs associated with maintaining an in-house team. This can save your business thousands of dollars annually, especially if you’re working in a space-constrained office or need specialized software.
5. Avoiding Turnover and Recruitment Costs
Hiring and retaining good employees can be challenging. If your internal accountant or bookkeeper leaves, you’ll need to invest time and money in recruiting, hiring, and training a replacement. This process can be both costly and time-consuming, especially if your business relies heavily on one individual to manage all financial operations. Outsourcing eliminates this risk. Accounting firms have established teams and systems in place to ensure continuity of service, even if individual staff members change.
Conclusion: Which Option is Right for Your Business?
Ultimately, the decision to hire an internal accountant or bookkeeper vs. outsourcing depends on the size and complexity of your business, as well as your specific financial needs. For many small to medium-sized businesses, outsourcing is the more cost-effective and efficient solution. By outsourcing, you can save on payroll, benefits, office space, and equipment while still gaining access to expert financial management.
On the other hand, if your business has complex financial needs that require constant attention, or if you prefer having someone on-site to manage finances, hiring an internal accountant or bookkeeper may be the better choice. In either case, it’s important to weigh the costs carefully and consider what will work best for your business’s growth and sustainability.
If you’re considering outsourcing your bookkeeping or accounting, Open Book Financial offers tailored, professional financial services designed to meet the needs of small businesses. Contact us today to learn more about how we can help you save money and improve your financial management.
