Hire a Bookkeeper vs. Outsource Your Accounting: The Pros & Cons
If You’re Growing And Scaling, You’ve Either Already Considered This Question Or You’re Starting To Ask Yourself This Question.
Hope is not a strategy, so when your client base grows to fit the time you have to dedicate to work, your next step is to delegate the tasks that someone else can easily take over for you allowing you to re-invest your time into tasks that are bringing more money into your firm.
Three areas that commonly get delegated first
Sales - Taking prospect calls, gathering data, managing prospect data (software), online inquiries, intake meetings, etc.
Administrative work - Scheduling, responding to emails, managing emails, document management, software management, etc.
Accounting work - Bookkeeping, financial report creation, invoicing, paying the bills, keeping up with the money, etc.
Accounting isn’t the whole picture but it sets a great stage. When you first venture off on your own you may have done your own books for a while. It worked at first because you were still building your client base and had enough time each month to pay attention to things like invoicing, paying bills, collecting money, and recording it all in the accounting and case management software.
Then something happened. Your time shifted towards working with clients and new cases as things started to pick up. The books started to get overlooked. Perhaps at this point you even hire on help but low and behold, you still didn’t have time to set aside to get the books caught up with training and managing a new employee.
There you are, your books have been left in the dust and you find yourself wondering if it’s time to let someone else keep up with the books. Now you’ve got a decision to make.
Hire a PT bookkeeper or outsource to an accountant?
Before making this decision it’s important that you understand the different types of professionals involved with tax and accounting functions.
Bookkeepers – think of a bookkeeper as the data entry specialist in your accounting system. This person enters data and maintains the accuracy of the books and software.
Accountants – these people look at the compiled information in the form of financial reports and specialize in compliance. Think of this person as the advanced bookkeeper with an understanding of tax implications.
CPAs – CPAs have more of an accounting focus. Their state licensing permits them to perform public audits making them accounting and compliance experts.
EAs – EAs are the tax experts. They are licensed to practice in all states and focus their education on taxes and tax strategy.
Certified Tax Coach/Planner - These amazing folks are harder to find and for good reason. There’s a difference between getting your taxes done once a year and planning your taxes out over the next 5-7 years. Tax planners know tax “loopholes” inside and out and analyze your unique situation so they can apply a strategic tax plan for your business and personal life. This is where the real money is saved in taxes.
So, which one do you really need?
Hire a part-time bookkeeper
Some firm owners feel more comfortable hiring a part time bookkeeper for various reasons and sometimes that’s the best fit. Maybe they know someone who understands bookkeeping and they already trust this person. Other firm owners want someone who can come to their office and be physically present which makes them feel more at ease. Whatever the reason, there are pros and cons to this option.
Pros:
Convenience – Having someone in your office can be easier than outsourcing your books to a service provider. If they have questions they can be quickly answered, and they are there to be part of the team interacting with other employees.
Cost effective – Typically the hourly rate of a bookkeeper is less than the comparable hourly fee of outsourcing. This does not include, however, tax preparation fees and other tax functions that a bookkeeper cannot perform. Those will vary based on how you currently work with your tax professional.
Cons:
Employee Management – Managing a team doesn’t happen without intent and time invested. W2 employees are different than outsourced service providers who are 1099’d in two main ways, the employee management and the payroll reporting and tax requirements. Managing an employee takes time in the form of employee reviews, vacation time tracking, HR functions, and administrative oversight to name a few. In addition to the time is the extra costs per employee in the form of employer taxes and workers comp at a minimum. Not to mention if your PT bookkeeper quits, so does the progress of your books.
Limitation of skill set – Bookkeeping is data entry. The power in numbers comes after the data entry is done. When you want to use your numbers to develop a strategy that increases profitability and efficiency, you’re going to need another set of skills from an accountant and/or tax specialist. It is also advised that the work be reviewed for accuracy. Are you the best person to manage that type of work? Do you know what to look for? Are you having a professional review the books at regular points during the year?
Outsourcing
As online business become more and more common outsourcing options are becoming plentiful. This isn’t just in the world of accounting but in marketing, administrative tasks, email management, social media management, online business managers, I mean it’s really limitless. This affords busines owners the convenience of outsourcing pieces instead of filling a part-time or full-time employee schedule.
Pros:
Specialties – Have you ever hired someone that was really good at one thing, but kind of sucky in another? By outsourcing only the tasks you need to a specialist, the work is more effective. Instead of being a jack of all trades you can outsource to people who are doing this day in and day out and studying their craft. You may not have part-time hours worth of work in order to keep up with your accounting. Outsourcing is efficient in that it eliminates “milking the clock”.
Strategy & experience – As with specialties, when you outsource your accounting to a third-party service provider you gain more expertise. Accounting firms work within multiple accounting platforms, see many businesses and how they perform financially, and keep up with industry tricks and tips.
Cons:
The Cost – You will likely pay more (per comparable hour) for this level of expertise. Like many other things, however, you get what you pay for in this respect. If you find a good accountant who is invested in turning your numbers into useful information and financial strategy then they should not just cost you money, they should help you make even more money.
Upfront Time Investment – Setting up remote systems between your physical location and the virtual service provider is a process and there’s just no way around it. In order to keep things running smoothly and up to date, you’ll have to create a process for sharing information.
No matter which you choose, YOU are still responsible for your books in the end.
As the captain of your ship, it’s your responsibility to make sure that all the moving parts are working together towards a greater goal. The way that you monitor your firm at a high level is by using KPIs (Key Performance Indicators). These can also take the form of checks and balances. When it comes to your money, you’ll want to make sure you’re keeping an eye out for any funny business.
> Not sure what KPIs your firm should be tracking? Download our KPI Key for Law Firms. <
Some things you can do to sustain a well-oiled accounting system in your firm…
If hiring a bookkeeper makes sense for your firm
· Set due dates for tasks required to produce financials. This will hold the bookkeeper accountable to timely work and give you an opportunity to check in regularly.
· Make sure you’re reviewing your monthly financials. Bookkeepers do not specialize in analyzing financial statements. Check out our how to read financials 101 video for a quick overview of what you should be paying attention to on your financial reports.
· Find an accountant or CPA/EA to review your books bi-annually for tax strategy and accounting considerations. Bookkeepers are data entry and you still need the compliance and tax perspectives. A CPA/EA can work directly with your bookkeeper to do this for your firm.
If outsourcing your accounting makes sense for your firm
· Choose a provider who is familiar with your industry
· Make sure they are committed to timely completion of the books and providing useful financial statements to you each month.
· Make sure they understand your business and personal money goals so they can translate that into financial strategy.
If you’re struggling to keep up with your books, or you’re keeping up with them but also working 60+ hours each week, outsourcing your books is the next step in order to scale your firm while remaining profitable. If you’re ready to take the next step, Contact Us to get started.
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