Outsourced Bookkeeping vs. Internal Bookkeeping

Why Hire A Bookkeeper?

Businesses that work with a professional on their bookkeeping and finances consistently experience more growth and are more likely to project positive growth in revenue and employee headcount.

Only 33% of small and mid-size businesses employ a bookkeeper– Accounting Today!

And 40% of small business owners say bookkeeping and taxes are the worst part of owning a business. – Score.org.

Accounting software like QuickBooks Enterprise and ERP’s like Acumatica have made managing your finances so convenient that many entrepreneurs and business owners handle the day-to-day bookkeeping themselves. This is great for businesses that are just getting off the ground. But as businesses grow, there are many inflection points where it is important to take a step back, look at the numbers, and candidly ask yourself: would I be better served by handing this off to an expert?

When Should You Hire A Bookkeeper?

It is never too early to get help with your books.

If you are remodeling your house, you hire a contractor. There may be some parts you can DIY, but you want the peace of mind of having your important project overseen by a professional. It is the same with books and accounting. Unless you are a trained accountant, many aspects of bookkeeping will be tedious and non-intuitive.

However, there are some telltale signs that you really need a bookkeeper on your team:

1. You filed for an extension on your taxes because you are behind on your books
2. You don’t know your business’s profit margins
3. You aren’t sure if you are withholding the right amount of taxes
4. You are doing business in 3 or more states
5. You are spending more than 6 hours a week doing payroll
6. You have more than one physical location
7. You have more than 200 SKUs in your inventory
8. Your bookkeeper does not have an accounting background

If any of these sound like you or your business, it is probably time to bring in outside help.

How Much Should I Spend On A Bookkeeper?

We recommend determining your bookkeeping budget as a percentage of your pre-tax revenue.

• < $250,000/year – 2.5% – 3.5% of your gross revenue
• $250,000 – $500,000/year – 2% – 3% of your gross revenue
• $500,000 – $1M – 1.5% – $2.5% of your gross revenue
• > $1M/year – $0.5 – 1% of your gross revenue

Smaller, growing companies can expect to spend slightly more, as a percentage of revenue, on bookkeeping services. Businesses of all sizes need many of the standard bookkeeping tasks and reports, and the time required to create them does not vary based on business size. Younger businesses in high-growth phase also may require some additional setup to ensure they are tracking the correct KPI’s, their books are properly linked to their online banking systems, and they have strong processes in place for order and invoice fulfillment.

As the businesses grow, and processes are well-defined, some tasks can be automated and bookkeeping transitions to monthly, and year-end close, and higher level financial reporting and planning.

Outsourced bookkeeping vs. In-House Bookkeeping

Businesses have two options for hiring a bookkeeper:

• Bringing on an internal employee
• Hiring an outsourced bookkeeping team

Each option has some pros and cons, and many businesses utilize a combination of in-house and outsourced bookkeeping.

Outsourced Bookkeeping

Pros

• Lower cost. Outsourced bookkeeping typically starts at around $1,500/month.
• Flexibility. An outsourced team will have a la carte options that allow you to pay only for your most critical tasks. It is also easy to scale their involvement up or down.
• Expertise. An outsourced team will be trained specifically in bookkeeping and accounting, and will leverage lessons learned by thousands of client engagements.
• Full team. An outsourced bookkeeping may mean you have multiple people to troubleshoot or provide guidance.
• No contract. Outsourced bookkeeping requires no long term commitment.

CONS

• Not embedded in your business. Outsourced bookkeeping teams will have less context about your business as they are not in the office on a daily basis, attending company meetings, or speaking directly with customers.
• Slower. Outsourced bookkeeping are going to require scheduling meetings, and calls in advance.

In-House Bookkeeping

Pros

• Embedded in your business. An in-house bookkeeper will be available every day and will have context about every aspect of your business.
• Can perform other tasks. If your bookkeeping needs are small, you can leverage their time to perform HR or office administration duties.

CONS

• More expensive. The average salary for a bookkeeper is $41,500. The average cost to an employer for benefits is $4,766/year. The average cost-to-hire is around $5,000. So the overall cost of an in-house bookkeeper approaches $50,000/year. More if you hire someone with accounting experience.
• Bad processes. In-house bookkeepers will be creating processes in a vacuum. If these processes don’t conform to best practices, you may lose money or create headaches for yourself come tax season.
• Firing. If your situation changes, you have to go through the uncomfortable process of firing an employee, rather than just canceling a contractor.

What Should A Bookkeeper Do?

There are a variety of tasks that your in-house or outsourced bookkeeping can perform for your business. We’ve categorized them into three levels:

Basic

These are daily or weekly tasks that are standard in every business.

• Software selection and set up
• Accounts payable
• Accounts receivable
• Account reconciliations
• Connection of accounts to online banking
• Month end close

Enhanced

These are more time-intensive tasks that include higher-level skill

• Processing payroll
• 1099’s & 1096
• Basic process creation and training of your team
• Internal controls and auditing
• Chart of accounts tailored to your specific industry
• Monthly & quarterly financials

CFO Services

These are services that will help lead and guide your company in the right direction, working closely with your executive leadership.

• Advanced reporting and financial projections
• Year end financials and Annual Report creation
• Working with your CPA for tax planning & return preparation
• Sales tax and payroll tax reporting
• Software conversions and upgrades (ex. QuickBooks to Acumatica)