Is it Time to Bring Accounting & Finance In-House?
Recognizing Accounting Needs
In a recent article, Rob Leake, Business Development Manager of NumberMill, a prominent UK accounting consultancy, noted an increase in the number of businesses reaching out to the firm for remedial accounting. Often, they’ve been using the same general-practice accountant since their founding and have now discovered that their business has quietly outpaced the incumbents’ ability to support them.
At this point their balance sheets are in chaos, cash flow is in a critical condition, and profits have been over/understated. In the worst instance, this was only discovered when they tried to sell resulting in the CEO’s retirement plans being unexpectedly deferred.
The pace and complexity of business today is so much greater and the regulatory framework so much more nuanced and complex that outsourced business accountants are often unable to handle what they easily handled some years ago. When most businesses were started, the accountant was simply there to gather receipts and submit year-end returns. Now, accounting should be an integral part of the organization and its planning processes.
Outsourced vs. In-House Accounting: A Comparative Analysis
Here are some examples of what your outsourced accountant is probably doing, where things can go wrong, and where an in-house accounting function would be expected to do better:
Bookkeeping: This involves maintaining a business’s financial records, including invoicing, tracking expenses, and reconciling bank statements.
Disorganized records: Your bookkeeper is not keeping your records, including wages, control accounts, debtor management, and tax accounts, organized and up to date. They easily get out of control and unwieldy, especially if the bookkeeper or accountant does not understand their importance in a business.
Unexplained discrepancies: If there are discrepancies in your accounts that are not explained, it could indicate an error in bookkeeping feeding through to your accountant.
Missing or duplicate transactions: If you notice missing or duplicate transactions in your books, it’s a sign that your bookkeeping service is not being performed accurately.
Taxation: This involves preparing and filing tax returns, advising on tax planning, and dealing with tax inquiries and disputes.
Late or missing tax returns: If your tax returns are filed late or not filed at all.
Tax planning: An in-house accountant will proactively guide you through optimal tax planning. A holistic view is required as taxes often interact. Salary or dividend, corporation tax and income tax decisions, capital gains, and inheritance tax. Long-term plans, both from a business point of view and a personal view, need to be taken together.
Lack of communication: If your accountant doesn’t communicate with you regularly or doesn’t respond to your inquiries quickly.
Financial reporting: This involves preparing financial statements, such as balance sheets, profit & loss, and cash flow statements, to provide a snapshot of a business’s financial health.
Inaccurate financial statements: Your financial statements do not accurately reflect the financial position of your company.
Lack of transparency: A lack of clear and transparent financial reports.
Missing or incorrect entries: Errors in your financial statements.
Payroll: This involves managing a company’s employee payroll, including calculating and processing salaries, taxes, and other deductions.
Incorrect pay: Employees are being paid incorrectly or pensions not being processed accurately.
Inefficient payroll processing: Your employees are not being paid on time. Lack of flexibility in payroll timings when emergency issues come up.
Unresolved payroll issues: Incorrect tax or National Insurance contributions, delays in setting up new starters, or slow responses to leavers.
Management accounting: This involves providing management with the crucial information they need to make informed business decisions, such as budgeting, cost analysis, and performance evaluation regularly i.e. monthly or quarterly.
Inadequate analysis and insights: Management accounts should provide quality analysis and insights into your company’s financial performance.
Failure to provide timely reports: If your accounting service does not provide timely management accounting reports, it could affect your decision-making processes.
Lack of customization: Being unable to customize your management accounting reports to meet your business needs, one size does not fit all.
Financing: This involves advising on financial matters related to business transactions, such as acquisitions, disposals, and raising finance.
Inaccurate financial projections: If your accounting service provides inaccurate financial projections, your ability to inform financing decisions will be hindered.
Lack of financial strategy: An in-house accountant should be able to provide a clear financial strategy for your business.
Inadequate cash flow management: Inadequate cash flow management can result in cash flow problems impacting your business operations and impinging growth.
The Benefits of In-House Accounting & Finance
Having accessible accountants in your business who understand how your sector works and can get straight to work streamlining your financial processes and maximizing shareholder value has been a game changer for businesses.
Growing firms must shift quickly from old, outsourced accounting to financial leadership that is more nimble, agile, and consistent with what is needed in a fast-paced, quickly evolving world. Given the complexity of this change, firms will need to recruit, interview, and screen financial executives in a whole new way. A relationship with a recruiting firm that understands and stands for the demands of this new world is likely to produce the best results. An effective recruiting partner will partner with the company to identify the right combination of skill and experience to find the top candidates and to convey to them what the hiring company stands for.