Cost Comparison Between Outsourced Accounting and In-House Accounting in Singapore
For many businesses, the hiring climate has faced significant swirls and shifts in the present era. For almost every entrepreneur, the first and most crucial stage when thinking about the Accounting for his business is:
‘Finding the right people, with the right experience, with the right attitude’
With the change in human behaviour along with technology, it could be fairy difficult to find people who are willing to:
- Work as hard as you do,
- Embrace the vision of your overall business objectives,
- And most importantly, ensure that all annual filling requirements in Singapore are fulfilled.
Importance of Accounting
The accounting function plays a vital role in the success of a business. Timely, accurate, and complete books of accounts help to:
- track all the income and expenses of your business,
- ensure statutory compliance,
- file accurate and timely corporate tax returns,
- Provide quantitative financial information to management, investors, shareholders and other stakeholders,
- Make valuable business decisions.
The Choices Available
The most important question is what is best for the business as a whole? Since proper accounting and bookkeeping is one of the most significant functions for any business in Singapore, perfection is the only benchmark companies should be looking for. There are two ways to handle accounting function of your company:
a) Outsource accounting or
b) In-house accounting
Each option brings in different benefits for different organizations but the choice will mainly depend upon the resources you have, your business model to manage different functions of your organizations, and financial feasibility.
Following is a detailed comparison between Outsourced Accounting and In-house Accounting which will help you decide WHAT’S BEST FOR YOUR BUSINESS.
Comparison between Outsourced Accounting and In-house Accounting
1. Staff Costs
In-house: Hiring staff for your business requires availability of sufficient cash. You would need to set aside funds for:
- Recruitment costs,
- Ongoing monthly salaries,
- Annual leaves,
- Sick leaves,
- Health insurance,
- Insurance benefits and taxes also add into the overall costs.
Outsourcing: Outsourcing is a completely different financial and operational scenario. In comparison to in-house accounting costs, outsourcing is more flexible and less expensive. Particularly, for small and medium sized companies the work involved is not significant that warrants the appointment of full time employees. Accounting companies will shoulder all the costs associated with hiring/firing of employees, trainings, insurance, tickets, medical etc. which will allow you to focus on your core business rather than worrying about cash flows issues and staff management.
2. Office Space Costs
In-House: Your in-house team will need an office space to work in. This will lead to increased operating expenses such as:
- Office Equipment; desks, chairs, computers etc.
- Office Space; required office space will depend on the number of permanent employees
- Utilities; water, electricity, telephone, internet connection
- Repairs and Maintenance; as the facilities are used up, this expense increases
- General and specific research and development (R&D)
All these expenses may take up a good big slice of the total annual budget of your company.
Outsourcing: Outsourcing can relieve you from all of the above costs as the outsourcing firm can work remotely with regular visits (if needed), they need less number of staff to manage huge amount of work due to their vast experience and speed, they use their own equipment, and so on.
3. Costs of the Relevant Skills Acquisition
In-House: If an organization’s goal is to have a team of dynamic talented individuals, there will be associated costs to achieve this. With the constant changing business environment, your company will need to spend on:
- Professional trainings,
- IT workshops,
- Development programs
Outsourcing: You only need to pay hourly/week/monthly fee which is normally 20 times lower than what you spend on a permanent employee. The accounting firms provide massive internal and external trainings to their staff without any cost charged to you. Why not take benefit of outsourced skilled workforce instead of hiring and training staff yourself?
In-House: Apart from the general costs, having an in-house accounting function creates a sense of satisfaction and security. You are able to monitor growth, productivity and performance and at the same time keep your sensitive information secure. But setting work standards and an ethical culture could result in other miscellaneous costs.
Outsourcing: Outsourcing can more or less be similar in this aspect to in-house accounting. The outsourcing agreements in Singapore follow strict policies of control and security. The control of your accounting function will ultimately remain with your management. However, data security is still a concern for many business owners which sometimes prevents them from outsourcing their accounting function.
5. Risks and Cost of Frequent Resignations
In-House: The major risk in in-house accounting is you have no control over your workforce. It will cost you a lot if employees keep on resigning from the job since you have to scramble to find an instant replacement. The costs involved will be:
- Operations holdup cost or loss of profit until a requisite replacement has been found,
- Hiring new employees,
- Subsequent training costs (again),
- Expenses relating to final settlement of the outgoing employee
Outsourcing: Outsourcing in this aspect is less expensive than in-house. Changing your accounting outsourced professionals is a fairly easy task. The only cost associated with transition from one outsourcing firm to another will be:
- The early contract termination penalty (if any) and
- That too depends upon circumstances. If the termination is as a result of noncompliance of agreement by the bookkeeping firm, then expense at your end will be nil, in fact, the service provider might need to pay noncompliance penalty to your organization.
In-house employees need not only to be skilful but passionate too. Without hiring a whole team of experts, the quality of the work will suffer. Hence, accounting function is usually outsourced to specialist firms that have good experience and reputation to manage finance department functions. Their staff is well trained and have worked with a vast number of different businesses which effectively add value to your business.
7. Costs of Fraud Risk
Research indicates that nearly 22-28% of the businesses are victims of frauds from their own employees. The longer an employee stays in an organization the more access he/she will have to all the business secrets and restricted information which can ultimately increase the chances of frauds. The chances of frauds are very minimal when the work is outsourced. The reason for the same are:
- Strict covenants,
- Fraud or noncompliance penalties,
- Strict legal actions,
- The threat of whole business collapse if found guilty of being involved in a fraud.
In a Nutshell
You need to do a cost benefit analysis from financial as well as operational perspective. Some companies may think of an in-house accounting function as a long-term investment. But this will require:
- Proper leadership and management
- Excellent cash flow management and
- Enormous positive results
Accounting and bookkeeping are very important functions for any organization. These complex functions require excellent mathematical skills, accounting knowledge, an incredible eye for detail, and decades of training to become a master.