In-house accountant or external accounting firm: which pays off more?

In a smaller company the decision is simple. A full-time or even part-time accountant simply does not pay off, because an accounting firm costs you only a few dozen to a few hundred euros a month. But what about larger companies, where the cost of bookkeeping could easily climb into the thousands of euros a month?

THE COST OF AN IN-HOUSE VS. AN EXTERNAL ACCOUNTANT

Let us take it step by step and look at all the concerns a company faces if it wants to employ an in-house accountant. If a company wants to employ an in-house accountant, it pays the costs of:

• recruiting a new employee
• the employee’s wage
• meal allowances and other costs related to employing the employee
• setting up the workplace
• hardware and software for the in-house accountant
• training and professional literature for the in-house accountant
• income compensation paid to the employee during sick leave or annual leave

And that is not all. What if something happens to your accountant and they go on sick leave (PN) and cannot work? The tax office is not interested in such a situation, and you are still obliged to file your tax returns, whether for VAT, income tax or motor vehicle tax, and if you failed to meet any obligation, a penalty would follow immediately.

With external bookkeeping, the entrepreneur is spared the costs and concerns listed above that would come with employing an in-house accountant. An external accounting firm pays its own accountants and provides them with training, accounting software and hardware; as a rule it has several accountants who are able to stand in for a colleague on sick leave. The client simply pays the invoice for the accounting services and has nothing more to worry about.

WHO IS RESPONSIBLE FOR POSTING DOCUMENTS CORRECTLY?

With in-house bookkeeping, the employer may claim damages from the employee (the in-house accountant) up to a maximum of 4 times their average monthly earnings. The employer can claim damages from an employee who caused the damage by breaching their duties while performing their work tasks, and only if the employer proves the employee was at fault (which as a rule tends to be a big problem).

By contrast, the external accountant’s liability for errors on the accountant’s part can be provided for in the contract for the provision of accounting services. Good external accountants are insured for the performance of their work, and if the accountant causes damage, the risk is covered by the insurer.

THE TIME FACTOR IN EXTERNAL AND IN-HOUSE BOOKKEEPING

The disadvantage of external bookkeeping is that the client usually receives accounting outputs with a time lag. This is because the accountant generally receives the documents by the 10th–15th day of the following month. By the VAT deadline, i.e. by the 25th day of the following month, the accountant has posted all documents for the previous month. Only after all documents have been posted can the accountant send the client current results from the accounts (for example, what the expected profit/loss looks like).

With in-house bookkeeping, documents are posted continuously, which means the entrepreneur has access to up-to-date accounting outputs throughout the month.

Another advantage of in-house bookkeeping is that the in-house accountant normally also issues invoices on the entrepreneur’s behalf, processes incoming invoices and prepares the documents for the bookkeeping itself. The disadvantage of external bookkeeping is that the client usually issues invoices themselves, prepares the documents for the external accountant and hands them over.

CONFIDENTIALITY IN EXTERNAL AND IN-HOUSE BOOKKEEPING

Confidentiality should be laid down in the bookkeeping contract with the external accountant. An external accountant often has access to the client’s financial data and to the personal data of the client and its employees, and may also know the client’s production processes or the client’s know-how.

It is easier to require an in-house accountant to maintain confidentiality. The employer can do so as early as the signing of the employment contract or of an agreement on work performed outside an employment relationship.

HOW DO YOU CHOOSE A GOOD ACCOUNTANT?

A client never has a 100% guarantee of choosing correctly. Every entrepreneur should take care over which accountant they choose. Nowadays anyone can be an “accountant”, even someone who has only taken an accounting course. That, however, does not guarantee that they are a good accountant.

Bookkeeping is generally seen as an activity the entrepreneur cannot avoid, but one that brings them no added value. It often happens that price is the deciding factor when choosing an accountant. However, a cheaper accountant can often be a worse accountant.

When choosing an external accountant, an entrepreneur should take into account several things:

• education in the field, qualifications obtained, length of experience,
• the accountant’s continuing education, following legislative changes,
• risk cover,
• the comprehensiveness of the services provided,
• cooperation with other experts.

The first important criterion when choosing an external accountant is finding out about the accountant’s education. Do not be afraid to ask what qualifications they have, how many years they have worked in the field and so on. An accountant who studied accounting is more likely to be better than an accountant with a master’s degree (Ing.) in another field.

A prospective client should also ask how many years of experience the accountant has and how they keep learning during the year: whether they attend training courses, whether they continuously study professional articles and whether they follow current legislative changes. Tax laws, for example, are the most frequently amended laws in Slovakia. An accountant who does not follow current legislative changes cannot be a good accountant.

A good external accountant should have professional liability insurance covering damage caused in the course of their work as an accountant. It is also a good idea to check the sum insured. There is a difference between insurance cover of €5,000 and insurance cover of €50,000. If the accountant has insurance, it provides a certain guarantee that the client will be compensated in the event of an error on the accountant’s part. If the client received a penalty for an error caused by the accountant, the client would be compensated. If, however, the penalty came because of an error on the client’s side – for example, they paid tax late – they would not be entitled to compensation. Our firm is insured up to €165,000.

When choosing an external accountant, an entrepreneur should also ask about the range of services provided. Some accountants specialise only in taxes and bookkeeping for individuals. If a self-employed person (SZČO) plans to switch to a limited liability company (s.r.o.) in the future or to hire an employee, they would have to look for another accountant. An accountant should provide at least the following services:

• bookkeeping for individuals,
• bookkeeping for legal entities,
• payroll,
• filing VAT and income tax returns, and other statements with the tax office where applicable,
• processing travel orders, and so on.

It is easier to communicate with one accountant who provides you with more comprehensive services than to communicate with several accountants.

The accountant is the first person a client turns to when they need advice in other areas too, for example how to draw up a contract for work or a copyright licence agreement – even though drafting contracts is a legal matter, not a tax or accounting one.

Last but not least, when choosing an external accountant, a “good feeling” about the accountant matters. The client will be in contact with the external accountant at least once a month, or once a quarter. An entrepreneur has more trust in an accountant who is willing to advise and help and with whom they communicate well. Ideally, the external accountant meets the client every month to maintain a good relationship.

To conclude, let us sum up the advantages and disadvantages of external and in-house bookkeeping.

EXTERNAL BOOKKEEPING

ADVANTAGES:

• lower costs of having the bookkeeping done, mostly in fixed monthly or quarterly invoices
• several specialists work on one problem, which does not necessarily mean higher costs for the entrepreneur
• the external accountant’s illness or annual leave will not significantly affect the business’s operations, since a substitute accountant can answer all accounting questions.

DISADVANTAGES:

• the disadvantage of outsourcing the bookkeeping is that a third party has access to company and accounting information.
• information is available only on request, e.g. by e-mail or phone call.

IN-HOUSE BOOKKEEPING

ADVANTAGES:

• the more extensive the business activity of the accounting entity, the more often its management and top executives need access to accounting information. Processing the accounts in-house is more advantageous for managing complex processes and for strategic decision-making, because the entrepreneur constantly has important accounting information on the current financial situation “at hand”.

DISADVANTAGES:

• higher costs of setting up a workplace for the accountant (recruiting and searching for suitable candidates, buying office furniture, technical equipment, regular purchases of office supplies and professional literature, an accounting software licence)
• the in-house accountant is completely on their own with any accounting issue, so additional advisory services are often needed, which also means higher costs
• if the in-house accountant is absent, the situation becomes complicated, since their services in the business cannot be replaced.