Pros and Cons of Doing Your Own Accounting for Your Business
With so many low-cost accounting tools available, it's easy for business owners to do their own accounting or rely on software to handle their accounting needs.
But depending on your needs, doing your own accounting for your business may not always be the best plan. Whether you want to handle your own books, hire an in-house staff accountant or bring on a third-party accounting service, here's what you need to consider before deciding between these options.
Doing accounting for your business has several advantages. It's often much cheaper to do something yourself than to pay someone to do it for you. You also have more control over when your taxes and other necessary business filings are complete. If you work with an outside accountant who has multiple clients, you'll have to do things on their timeline rather than your own.
However, a significant drawback of the DIY accounting approach is that what you save in terms of dollars, you lose in terms of time. As a business owner, the hours you spend managing your books may be better spent on activities that drive more revenue.
Expertise is another topic to consider. If you have an accounting, finance or math background, doing your accounting may not be as challenging. However, if this isn't within your knowledge base, it might be more cumbersome. Errors could be costly and may get you in trouble with the IRS or your state's regulatory and finance agencies.
This approach comes with several benefits. For one, hiring an in-house accountant means you'll have a dedicated employee to handle this critical business need. You'll also have someone with expertise who can help you find tax savings and ensure you meet regulatory requirements. They can help you with forecasting, financial planning and cost-saving opportunities you may not have discovered.
On the other hand, hiring a staff accountant means more overhead for your business, which also means you'll need more revenue to justify this cost. You may not have complex accounting needs that require a full-time employee. However, if your business is large enough—both in terms of revenue and the number of employees—hiring an in-house accountant may be the right move.
Using a third-party accounting service can be beneficial if you have complex accounting and bookkeeping needs. You can either hire an independent accountant or a large firm. Both options will save you time and give you access to expertise.
Hiring a professional service might make more sense than a staff accountant if your needs become too large and time-consuming. At that point, using an external provider might be more cost-effective than hiring additional staff.
The downside of going with a third-party provider is that you don't have as much control. And depending on your needs, these services can be costly—even though they may be more affordable than adding employees. You'll also have to weigh the time it takes to find the right third-party accounting service. Look at this as a strategic partnership that can help you grow your business. Compared to a professional accounting service, a staff accountant may be much more invested in your success, because they're part of the company.
Which option is right for you?
Getting your accounting right is key to your business's long-term financial health. Still, it can be a time-consuming and labor-intensive process. Doing your own accounting for your business can be the right approach, but only if you have the expertise and don't mind devoting your time to it.
Hiring a staff accountant or professional service provides you expertise and can save time. However, both of these options come at a cost. Consider these factors when deciding which choice works best for you and your business.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.