Finance Outsourcing vs. In-house Finance: Pros and Cons

As your business grows, it’s natural for certain challenges to arise. Yes, the dilemma is real. Many business owners struggle with whether to outsource their finance and accounting (FA) functions or keep them in-house.

There are pros and cons to both sides of this equation and that’s exactly what we cover in this article. Which one emerges as the winner: outsourcing vs. in-house finance? Keep reading to find out more.

In-house finance

In short, in-house finance is a more traditional way of doing your business’ accounting and bookkeeping functions. You hire a team, they work only for your business, and you can exercise greater control over their work. This situation comes with both advantages and disadvantages, which are covered in more detail below.

Pros

  • You have vetted and know your team: During the recruitment process of hiring your team, your human resources (HR) department has vetted your team members. You know them to be reliable and trustworthy. Also, once they start working for you full-time, you’re able to get to know their strengths and weaknesses better, enabling you to have a good understanding of your team. 
  • Greater control and integration: With in-house FA functions, you can exercise much greater control over your team. You can set deadlines, expectations, milestones, and key performance indicators (KPIs) while ensuring there are control mechanisms in place to monitor your team’s performance.
  • Immediate access to financial data: There are also no time lags when relying on your in-house FA team. When you ask them for a financial report or the latest breakdown of revenue or turnover, they can tap into your accounting system and extract it right away.
  • Company-specific knowledge: Another perk of in-house finance and accounting relates to your team’s company-specific knowledge. Being a part of your team and your team only means that they know your business and its cash flows and expenses inside out. This creates a lot of focused value that you might consider irreplaceable.
  • Work continuity: Furthermore, in-house FA functions ensure greater levels of work continuity. This means that your team’s only focus is on your business and not on serving any other clients. This creates smoother workflows, meaning that you can focus on the core business as your team works side-by-side next to you to make sure your business succeeds.
  • Cultural alignment and motivation: Finally, it’s important to also consider that working with one team on one business means that the team is more likely to be culturally aligned because they are all hired from the same region. Having a close cultural fit and working as a team also boosts motivation to work hard for the business, while performing critical finance and accounting functions.

Cons

On the flip side of the coin, there are some important drawbacks to having an in-house finance and accounting team. Here are a few worth considering:

  • Higher costs: The hiring process can be lengthy and time-consuming. Not to mention expensive. Depending on your workflows, your team may at times experience slow periods of little work and be overwhelmed during other times. Nevertheless, and especially during lags, you’re still paying a full team their full salaries, meaning you may be getting less value for your business over the long run.
  • Limited expertise: When you hire a small internal finance and accounting team, you’re hiring a few experts that may be specialists in one area but not in others. This limited expertise means you either need to hire more people to cover the gaps or you need to work with what you already have, while acknowledging that the team isn’t perfect.
  • Workforce management: You will also need to consider your responsibilities as an employer when managing your team. It is standard practice for team members to take time off work as part of their annual leave benefits. Sometimes, a team member may get sick and be absent from work. In cases of such absences, you’re dealing with lower productivity and a team that’s burdened by additional work, while still having to pay for sick leave and/or annual leave, which also has cost implications. 

Finance outsourcing

When it comes to finance outsourcing, this means that you’re taking your in-house finance and accounting functions and handing some or all of them to a third-party to manage and handle on behalf of your business. There are numerous advantages in this scenario. Let’s explore these below.

Pros

  • Compliance: Whether they’re doing cost analysis or reconciling your books, your outsourced partner should guarantee you high levels of compliance with industry regulations and standards. This is a type of quality assurance that you may not always be able to receive from your in-house team. It’s also more advantageous because it allows you to minimize risks and reduce instances of fraud through important checks and balances introduced at the start of your outsourcing partnership.
  • Optimized use of internal resources: When you outsource your FA functions, you can optimize your use of internal resources, while focusing on your core business as you leave the FA work to experts you can rely on.
  • Cost efficiency: Whether you pay per hour or per task submitted to your FA outsourced team, there are great cost efficiencies that your business can take advantage of. You’re not paying a full complement of an internal team’s salaries, which creates a continuous fixed cost. Instead, you’re only paying for what you’re getting. This can lead to impressive savings over the long term.
  • Less risk of downtime: With an outsourced finance and accounting team, you can experience less downtime. Your third-party partner will have all the right team members in place to work on your business’ needs and you will not have to concern yourself with sick leave or annual leaves. It’s all about getting the job done right to your specifications.
  • Expertise access: When it comes to outsourcing  your FA functions to a third-party, you can also tap into a wider and more expert talent pool. Since your outsourcing partner focuses exclusively on finance and accounting, they can hire bigger and more competent teams with diverse skill sets to work on your business’ finances.
  • Flexibility and scalability: It goes without saying that outsourcing offers a great deal of flexibility and scalability. You can start by only outsourcing a few FA functions and then move onto adding more and more as your business grows. The opposite of this is having to hire more permanent team members in-house, which has significant cost implications.
  • Focus on core business: When you work with an FA outsourcing partner, you don’t have to drown in the nitty gritty of daily accounting and bookkeeping practices. Instead, you can receive the necessary financial reports on time and use these to make critical decisions for your business. This allows you to focus more on what matters most as opposed to getting bogged down in the minutiae of FA functions.
  • Collaborative problem solving: Another major advantage of outsourcing your finance functions is collaborative problem solving. This means that you’ll have access to excellent expertise that you can tap into whenever you face a business hurdle. The saying “two heads are better than one” is valid here as an external point of view is sometimes highly valuable as they can offer solutions based on an outsider’s perspective.
  • Technology and innovation: Choosing to partner with a third-party provider also means tapping into their technological tools and resources while encountering greater levels of innovation and time and cost savings.

Cons

Just like the pros to outsourcing finance and accounting functions, there may also be some cons. Here are some you might consider:

  • Loss of control/autonomy: Unless you put some checks and balances early on in your relationship, you may feel a loss of control or autonomy over your business’ finance and accounting activities.
  • Response time: Due to geographical distance, it’s sometimes an issue that you may face slower response times from your outsourcing partner.
  • Confidentiality issues: Unless these are addressed very early on in your outsourcing relationship, you may also face certain confidentiality issues.
  • Learning curve: Working with a third-party can also be a steep learning curve for some business owners as they seek to navigate new ways of doing things.
  • Communication challenges: Lastly, due to cultural differences, it’s also likely that you may encounter certain communication challenges. However, these can easily be overcome with the right strategies in place.

Conclusion

Deciding whether to outsource your finance and accounting functions or keep them in-house can be a challenging position to be in. However, the benefits of outsourcing far outweigh the disadvantages.

That’s why we strongly encourage you to consider working with a reliable and trustworthy partner with a strong industry reputation for quality, efficiency, and cost effectiveness. Partnering with StorsenDigital is always the right answer and all it takes is to send us a quick message so that we can set up an appointment to discuss your business’ unique needs.

Our team of friendly professionals is at your side and ready to help you at every stage of your business’ growth journey. Get in touch with us today.

Published: June 11, 2024

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StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.
StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.