Small businesses are no different than big businesses when it comes to needing some type of an accounting system. There has to be something in place to help keep up with incoming and outgoing money as well as handle taxes, banking and other financial tasks that come with having a small business.
There are two main options that can be selected from and then several options within those choices. The two main choices in accounting are hiring an employee and purchasing accounting software or paying an accounting firm to do the work. The differences between software and professional services are looked at herein and should help the small business owner make a decision.
In-House Accounting with Software vs. Professional Outsourcing
There are many difference in having an in-house accountant and hiring a professional accounting service to handle those tasks. Once these differences are understood, it will be easier for a small business owner to make a decision on which direction to move with their business.
Cost: The cost of using software and keeping accounting in-house must be compared to the cost of using a professional service. At first blush, many people think that hiring a professional company to handle the finances would be much more expensive; however, there are multiple expenses involved with having accounting software in-house and someone to work with the software and keep the accounting up to date. Some of those costs include:
Cost of the software: this can range from a few hundred dollars to several thousand dollars depending on how robust the software needs to be and how many features the business owner wants. Professional accounting companies tend to have the best software available and are usually able to provide documents to the business owner in whatever format is needed.
Training: This could be training involved in the software if the business owner is going to handle the finances or training a new employee on the software and the business practices. If the employee doesn’t work out, then there will be more money spent training another employee.
Employee Costs: Payroll, SS taxes, workers comp insurance, sick days, missed time that costs the company money and any other benefits that might be offered to the employee.
These costs can add up to substantial amounts of money. However, a professional service has these costs built-in and because they handle multiple accounts, the costs are not as evident or as high.
Risk: There are many different types of risks involved with accounting. First, no one is perfect and mistakes do happen. If the mistakes happen with an employee using software in house, the small business owner has to absorb those costs; however, when mistakes are made by professional services, they have to take responsibility for it and cover the money that is lost. These companies are insured for this type of mistake.
Another risk that can be cut is the risk of embezzlement. No one can provide 100% assurance that embezzlement won’t happen; however, professional services have insurance that will ensure any money that is embezzled is returned. On the other hand, when a professional service handles the finances, the small business owner has less of a hands-on role in the finances and must rely solely on the outside company to do things they way they want them to.
Laws: Professional service companies that specialize in accounting are often more up-to-date on tax laws and other changes that can affect the accounting department.
This can save small business owner money simply by not having to continually send their employee to educational seminars in order to stay on top of changes. However, many of the accounting software programs that are available today are able to keep up with changes through updates that are downloaded via the Internet.
Updates to accounting software programs are an important part of choosing the software. The program should be able to access updates on the Internet to keep the tax laws, payroll laws and other financial laws correct in the system so that the financials will be correct and the business owner won’t have to worry about tax problems and more.
Reliability: While having an in-house employee as an accountant does allow for closer monitoring of the billing and other financial tasks, it does not solve the problem of reliability. When someone is absent in a professional accounting firm, there is usually someone who can step up and fill in so that the work is complete. However, when the employee is an in-house employee, it can be difficult if the employee is absent, particularly if no one else in the business is able to use the software and fill in the gap.
Choosing between software that is used in-house and a professional services company is a decision that should be made after careful consideration of all the facets of each one. Ultimately, the choice will be one based on budget and how much oversight the business owner wants to have on the accounting.