Offshoring vs. In-house Accounting | How to Select the Perfect Fit for Your Business

Are you seeking a way to reduce costs for your in-house accounting processes? It is true that an in-house accounting team is a great way to maintain absolute control over all financial activities and ensure confidentiality. However, offshore accounting is not something to overlook.

In this blog, we discuss one of the most basic and yet, one of the most important decisions a business makes: which is better, offshoring or in-house? Because even the largest businesses globally have already adopted offshoring to improve processes, save costs, and alleviate manual workloads so that their remaining staff can focus on more significant priorities. Let’s discuss this in detail.

What is In-House vs Offshore Accounting?

What does In-house mean in accounting?

In accounting, in-house refers to having your own dedicated team of accountants and financial professionals within your company. This internal team takes care of essential financial tasks like bookkeeping, payroll management, and preparing financial reports.

However, one challenge with the in-house model is high turnover. This happens because many employees end up stuck in repetitive tasks like data entry and reconciliation, without much opportunity for more stimulating work like strategic analysis. The lack of engaging tasks can lead to frustration among employees, prompting them to seek roles elsewhere that offer more fulfilling responsibilities.

What is Offshore Accounting?

Imagine having a reliable expert who handles your business finances, freeing you to focus on what you do best. That’s the idea behind offshoring accounting.

Instead of hiring and training your own accounting staff, you partner with an experienced firm to take care of your books and financial reports. This can save you time and money, allowing you to concentrate on running and growing your business.

What is Cheaper- Offshoring Vs. In-house Accounting?

In-House Accounting Fiscal Analysis

When considering in-house accounting, cost is a significant factor. Hiring an internal accounting team incurs various expenses, including salaries, benefits, training, recruitment, and potential turnover costs. The U.S. Bureau of Labor Statistics puts median salary for accountants, along with benefits, totals around $60k approximately per year.

As a company grows, additional accountants may be needed, increasing costs further. These expenses, coupled with potential business and personal time losses, make the in-house option less appealing when compared to offshore accounting services.

Is it Cheaper to Do Offshore Accounting?

Essentially, yes. Offshoring can be a budget-friendly option compared to hiring an in-house team. Here’s why:

• Skip the hiring hassle: Offshoring eliminates the costs of recruiting, training, and managing an internal accountant.
• Reduce turnover risk: Replacing an employee can be expensive. Offshoring offers a stable team of experts.
• Gain broader expertise: Offshore firms often have a wider range of experience than a single in-house accountant.

In-house accounting: Imagine hiring an in-house accountant, which typically costs around $50,000 per year when you include both salary and benefits. This means you’re committing to paying this amount annually to have someone on your team managing your finances.

Offshore accounting: Offshoring firms, on the other hand, usually charge based on a combination of factors, including the number and complexity of transactions they handle for you, and potentially the experience level of the staff assigned to your work.

While outsourced staff salaries can vary depending on location and experience, a median salary of $25,000/year is common. To be competitive, offshoring firms will likely structure their pricing to be lower than this benchmark.

This means, offshoring accounting can potentially cut your accounting costs in half. While the exact savings will depend on your specific needs and the quotes you receive from providers, offshoring can be a significantly more cost-effective option compared to hiring a full-time in-house accountant.

Why Might a Company Decide to Offshore Rather than Have an In-house Team?

In-House Accounting: Pros and Cons

Pros

• Control and Security: With in-house accounting, your financial data remains within the company’s confines, which can lower security risks and provide greater control over sensitive information.
• Direct Communication and Collaboration: Being in close proximity to your accountant facilitates easier communication and collaboration. This means quicker responses to queries and immediate access to financial insights.
• Deeper Understanding of Your Business: An in-house accountant can develop a comprehensive understanding of your company’s operations over time. This familiarity allows for more tailored and specialized financial guidance.

Cons

• Cost: As we discussed before, maintaining an in-house accounting team comes with various expenses, including salaries, benefits, workspace, and software. These costs can accumulate significantly, particularly for smaller businesses with tighter budgets.
• Limited Expertise: Relying on a single accountant may result in limited expertise across all areas of accounting. This limitation could pose challenges when facing complex financial situations that require specialized knowledge.
• Scalability Challenges: Expanding or downsizing an in-house accounting team can be cumbersome. Hiring and managing additional staff during periods of growth can be challenging, while redundancy may occur during slower times, leading to inefficiencies in resource allocation.

Offshore Accounting: Pros and Cons

Pros:

1. Cost-Effective: Offshore accounting is typically more economical than hiring an in-house accountant, particularly for businesses with lower transaction volumes. Just like in the example above, this cost-saving aspect can be significant and beneficial for companies seeking to optimize their financial resources.
2. Access to Expertise: Offshoring firms often boast a team of specialized professionals with diverse knowledge and experience. This breadth of expertise surpasses what a single in-house accountant can offer, allowing for more comprehensive financial support and guidance.
3. Scalability: Offshore accounting services provide flexibility to scale up or down based on your business needs. Whether your company is experiencing rapid growth or facing temporary fluctuations, offshoring allows for seamless adjustments to your accounting requirements.

Cons:

1. Loss of Control: Entrusting your financial data to a third-party firm means relinquishing some degree of control. This loss of control over sensitive information may be a concern for businesses wary of sharing confidential data externally.
2. Communication Challenges: Effective communication with the offshore accounting team is vital for successful collaboration. However, potential challenges such as communication delays or misunderstandings can arise due to geographical or cultural differences.
3. Security Risks: Selecting a reputable and trustworthy offshoring firm is paramount to mitigate security risks associated with sharing financial data externally. Businesses must ensure that the chosen firm implements robust security measures to safeguard sensitive information from unauthorized access or breaches.

Choosing Between In-House and Offshore Accounting

The best option for your business, however, can depend on several factors, including:

1. Size and Complexity of Your Business:

Smaller businesses with straightforward accounting needs, such as basic bookkeeping and financial reporting, may find offshoring more advantageous. Offshoring allows access to specialized expertise without the overhead costs associated with hiring full-time staff.

Conversely, larger enterprises with intricate financial structures and regulatory compliance requirements might lean towards in-house accounting to maintain greater control and customization over their processes.

2. Your Budget:

While offshoring can offer potential cost savings compared to maintaining an in-house accounting team, it’s essential to weigh the costs against the benefits. Consider the fees associated with offshoring services and compare them with the expenses of hiring, training, and retaining in-house accountants.

Additionally, factor in any potential hidden costs, such as set-up fees or additional charges for specialized services, to ensure that offshoring remains within your budget constraints.

3. Your Comfort Level with Sharing Data:

Entrusting sensitive financial data to a third-party service provider requires a high level of trust and confidence. Before opting for offshoring, thoroughly research and vet potential accounting firms to ensure they have robust security measures in place to protect your data.

Review their track record, client testimonials, and certifications to gauge their reliability and credibility. If you’re uncomfortable with the idea of sharing financial information externally, in-house accounting may provide greater peace of mind regarding data confidentiality.

4. Your Growth Projections:

Scalability is a key advantage of offshore accounting, particularly for businesses anticipating rapid growth or fluctuating accounting needs. Offshoring allows you to easily adjust the level of service as your business evolves, without the constraints of hiring and training additional staff.

This flexibility can be particularly valuable during periods of expansion or contraction, enabling you to scale your accounting operations efficiently without incurring unnecessary overhead costs. In contrast, in-house accounting may require more significant investments in infrastructure and personnel to accommodate growth, potentially leading to inefficiencies and resource constraints.

Ultimately, the optimal choice between in-house and offshore accounting depends on a careful evaluation of these factors in the context of your business’s specific requirements, objectives, and constraints. By conducting a thorough analysis and considering the long-term implications, you can make an informed decision that aligns with your company’s financial goals and strategic vision.

Finding the Perfect Accounting Offshoring Partner

Choosing the right partner is crucial for a successful experience. Here’s process to find your perfect accounting offshoring partner:

1. Define Your Needs:

• Accounting Functions to Offshore: Identify specific tasks you want offshored, such as bookkeeping, payroll processing, tax preparation, or financial reporting.
• Volume and Complexity: Estimate the volume and complexity of your accounting transactions to gauge the provider’s capacity.
• Industry Expertise: Consider if you need an offshoring partner with experience in your specific industry.
• Technology Integration: Determine if the provider’s technology platform integrates with your existing accounting software.

2. Research Potential Partners:

• Industry Associations: Look for offshoring firms listed by relevant accounting or industry associations.
• Client Reviews and Testimonials: Read client reviews and testimonials to assess the provider’s reputation and service quality.

3. Evaluate Qualifications and Expertise:

• Professional Certifications: Look for CPAs (Certified Public Accountants) or qualified accountants with relevant certifications on the team.
• Experience: Ask about the provider’s experience with businesses of your size and industry.
• Team Structure: Inquire about the team’s qualifications and the staff who will be dedicated to your account.

4. Security and Data Protection:

• Data Security Measures: Understand the provider’s data security protocols and compliance with regulations.
• Disaster Recovery Plan: Ask about their disaster recovery plan to ensure business continuity in case of disruptions.
• Non-Disclosure Agreements (NDAs): Verify that the provider has NDAs in place to protect your confidential information.

5. Communication and Support:

• Communication Channels: Determine their preferred communication channels and responsiveness to inquiries.
• Account Management Structure: Ask about the account management structure and the dedicated point of contact for your business.
• Reporting and Transparency: Understand their reporting schedule and how they keep you informed about your finances.

6. Pricing and Fee Structure:

• Pricing Models: Get quotes with detailed breakdowns of their pricing structure (fixed fee, hourly rate, etc.).
• Hidden Fees: Ask about any additional fees or charges beyond the base rate.
• Scalability: Ensure the pricing model accommodates potential growth in your transaction volume.

7. The Selection Process:

• Shortlist and Contact Providers: Shortlist a few promising candidates and contact them to discuss your specific needs.
• Request For Proposals (RFPs): Issue an RFP outlining your requirements and desired outcomes for a more structured evaluation.
• Conduct Interviews: Schedule interviews with shortlisted providers to ask in-depth questions and assess their fit for your company.

8. The Final Decision:

• Compare Proposals and Interviews: Compare proposals and interview experiences to identify the provider that best aligns with your needs.
• References: Contact references provided by the offshoring firm to get firsthand feedback on their service quality.
• Contract Negotiation: Negotiate a contract that clearly outlines the services, fees, and terms of the agreement.

Additional Considerations:

• Cultural Fit: Look for a partner with a work style and communication approach compatible with your company culture.
• Scalability: Choose a provider with the capacity to scale their services as your business grows.
• Long-Term Relationship: Think beyond the initial project and consider the potential for a long-term partnership.

By conducting thorough research and careful evaluation, you can find a reliable and qualified accounting offshoring partner that helps your business achieve its financial goals.

Conclusion: Is it better to do offshore accounting?

In conclusion, while offshore accounting is the cost-effective out of the two, the decision to offshore or keep accounting in-house depends on several factors tailored to your business needs. While smaller businesses may find offshoring more cost-effective, larger ones may prefer the control and communication of in-house accounting.

However, when considering offshoring, StratShore stands out as a top choice. Offering tailored accounting solutions, StratShore ensures confidentiality, professionalism, and cost-effectiveness. Whether you opt for in-house or offshore accounting, prioritize what best serves your business’s unique objectives!