What are the Key Differences of Outsourced Bookkeeper vs. In-House Bookkeeper? (Benefits of both services included)

If you’re like most business owners outside of the financial industry, bookkeeping may seem tedious and overwhelming. Dealing with categorizing transactions, reconciling bank or credit card accounts, and year-end closing books can confuse those who are not used to it. If the thought makes you want to pull your hair out, you may be in dire need of outsourcing bookkeeping services.

Are you daydreaming of ways to create a seamless and organized bookkeeping process? If so, it is normal, especially if you have a million other things to do.

In this article, you’ll get an outline of why hiring an in-office or outsourcing bookkeeping services may be the best option for your business.

What are the crucial benefits of outsourcing bookkeeping services?

Outsourcing bookkeeping services can help businesses save money, focus on other tasks, retain valuable time, keep accurate financials, and most importantly, be organized.

These are crucial as business owners can’t do it all by themselves. Allowing a professional to manage your books will help build a durable business. Not to mention, your business will scale at a faster rate with less added stress.

Let’s dig deeper into each perk below.

Save Money

Hiring a freelance bookkeeper can save hundreds and thousands of dollars. You’ll save time and energy on additional paperwork and eliminate costs on filing informational tax returns for payroll employees. Essentially, you’ll pay less for more by reducing unnecessary expenses. Employing an in-house bookkeeper comes with its unique expenditures. A great question to keep in mind is “Can I afford to pay a bookkeeping salary”.

Focus on other tasks

As business owners, you have a trillion and one things to do. Let’s face it; you must focus on generating revenue, research market trends and conduct SWOT Analysis, remain compliant with laws and regulations, and bring consumer awareness by marketing and advertising the business. You’ve got your hands full! Crossing that one task off your list will allow time to do other things.

This brings us to our next point.

Retain valuable time

Outsourcing bookkeeping operations is a great way to free up your schedule. Time is money! If you can get the most done at any moment, it will even out the Plainfield and help your business grow. You’ll have the capacity to invest in strategies that will contribute extra value to the company. Do remember, creating a work-life balance is also essential. Treat yourself and take a day or two as a mental day or enjoy a day off with your family.

Keep Accurate Financials

Keeping accurate financials is crucial. It is required by law to maintain records of your business financials. The more profits you make, the more IRS expects a clean and accurate book. That’s where your Bookkeeper or Accountant comes in. Avoid errors with a professional bookkeeper. They’re able to categorize transactions to the correct account, input journal entries when necessary, determine depreciable assets, record expenses against the proper account, etc.

Specialized bookkeepers and accountants are trained to follow GAAP (Generally Accepted Accounting Principles). We continuously enroll in continuing education courses to stay up-to-date with assisting our clients.

When outsourcing a licensed bookkeeper or bookkeeping firm, there’s no need to train anyone to do the job. They can jump right in and assist where needed. A freelancer or a firm usually has resources that further contribute to the company. Costs may derive from what your business needs to run, such as the QuickBooks subscription or POS systems. However, additional software costs are reduced to very minimal.

Receiving bookkeeping services reduces the chance of errors. Improperly recording transactions sends off misleading financial statements. Do note that the profit & loss, balance sheet, statement of cash flow, and statement of shareholder’s equity says everything about your business. Not only are misleading financial recordings are frowned upon, but your business may face fines, penalties, and criminal consequences in the case of fraud.

Fines, penalties, and criminal consequences are assigned for the following reasons:

1. Mis-categorizing transactions. Transactions that are not correctly categorized are subject to an audit. If the IRS finds inconsistent or discovers transactions categorized into the wrong account, they’ll recategorize related transactions into the appropriate account. IRS will then add fines and penalties on taxes owed due to the miscategorized transaction from the time it was created to present.

• • For example, suppose $35,000 worth of transactions were put into the wrong account in 2019, causing your tax liability to reduce by $10,000. In 2021, the IRS audits your business and recategorizes those transactions, the $10,000 will be due, with additional interests and penalties added to the tax liability each year until it is paid off.

2. Criminal consequences occur when misleading information is intentional to avoid paying taxes or gain investors for personal gain. Business owners who knowingly commit fraud may face fines and jail time.

Organized Books

Do you want to know how to beat the IRS? Nothing beats IRS more than an organized book. If a business is audited, the IRS will ask the company to substantiate all its claims. For a business to do so, their books must be in order with the proper dates to back any owner’s documentation. It is also crucial to keep source documents for at least three years.

In addition, having an organized book can save money. You’ll see the business’s financial state, which allows you to keep an eye on cash flow. Monitoring cash flow makes it easy to create budgets and forecast projected income and expenses. Having a clear view of the cash flow will improve decision-making in an organization.

Finally, well-maintained books give your company a higher chance of getting funded by investors. Most investors require financial statements to help determine their final decision. Having it laid out while investors analyze your financial statements makes the review process as seamless as possible.

What are the benefits of hiring an in-office Bookkeeper?

You may want to hire an in-house bookkeeper if you would rather have in-person employees. Some business owners prefer staffed employees because it’s convenient to ask questions during the hours within their shift. The prices of in-house bookkeeping can be high. However, you can hire an inexperienced bookkeeper and train them to do the job.

Some big corporations lean toward in-house bookkeeping as they employ multiple bookkeepers at once. Doing so allows them to build an accounting department ranging from Accounts Payable Clerks, Bookkeepers, and Full Staff Accountants. Building an entire department usually happens when corporations run complex accounts which may be too much for one staff to handle.

What are the Key Differences of Outsourced Bookkeeper vs. In-House Bookkeeper?

An outsourced Bookkeeper is a freelancer who is hired as a contractor to keep your books in order and perform bookkeeping duties. Whereas an in-house bookkeeper is hired within your companies organization to perform record-keeping duties within their set schedule. 

 

Should I outsource bookkeeping vs. hiring?

It all depends on the type of business. However, outsourcing has become more popular because of its perks.

Below are the Pros and Con’s of virtual bookkeeping vs. in-house bookkeeping:

Pros of outsourcing Bookkeeping

1. More value for your buck. Hiring a virtual bookkeeper allows flexibility as remote bookkeepers charges a fixed amount monthly or per project.
2. Save money on payroll and FUTA (Federal Unemployment Tax Act) tax. Employers are required to pay employees social security tax rate of 6.2% of employee wages up to the social security limit, a Medicare tax rate of 1.45% on wages with no limit, and a FUTA tax rate of 6% of the first $7,000.
3. Reduce employee benefit costs. Employee retention isn’t a concern when hiring freelancers. Offering health benefits or pension plans isn’t necessary. This alone can save thousands of dollars on benefit costs.
4. Cheaper than a full-time in-house bookkeeper.Virtual bookkeepers price ranges from $500-$2500 per month depending on the complexity of their transaction. In comparison, an in-house bookkeeper ranges from $557-$2,076 weekly, depending on experience and location.
5. Everything can be done virtually. Freelance bookkeepers can work online, may meet in person. This eliminates the need of a physical office space for your freelancer.
6. Business owners do not pay contractors sick time, vacation, or PTO. Virtual bookkeepers get paid for the services provided only.
7. Most times, outsourced bookkeepers are well connected with other professionals, providing additional information or introducing owners to their contacts becomes a valuable resource to the business owner.

Cons of outsourcing bookkeeping

1. If business owners rather an in-person meeting, they’re limited to outsourcing a bookkeeper in their State.
2. Outsourced Bookkeepers sometime do not have a 9 am-5 pm schedule set for themselves, which means updates may occur after 5pm.

Pros of an in-house bookkeeper

1. In-house bookkeepers are in the office from 9 am-5 pm
2. Large corporations may hire multiple bookkeepers at once

Cons of in-house bookkeeping

1. Employers must pay payroll and FUTA Tax 
2. Business owners will spend more money to retain employees, such as offering health benefits or retirement plans to incentivize long-term employment
3. An employer must pay the employee a reasonable salary even if the employee has a lot of downtime 
4. Employers must provide sick, vacation, and PTO compensation
5. In-office bookkeepers cost more than virtual bookkeepers
6. Bookkeeping in-house tend to provide less value for more money. In-house employees get distracted by other employees. Also, they usually have downtime during the day causing the business to pay wasted hours.
7. Training may be needed depending on experience.

Conclusion

Bookkeeping can be time-consuming. Outsourcing your company’s financials can help save time, money, and energy. A clean bookkeeping system can open doors as it makes it easier to beat an IRS audit and attract investors to fund your business. Choosing the right option for your business depends on your preference; however, most companies have opted for outsourcing due to the undeniable benefits.

If you’re looking to outsource a bookkeeper, feel free to check out QuickBooks Online Accountant.