Outsourced Bookkeeping vs. In-House: What’s Best for Small Businesses?

Bookkeeping may not be the most glamorous part of running a business, but there’s no denying its impact on your bottom line. Accurate financial tracking can make or break tax season and ultimately your business's success. When it comes to choosing between hiring an in-house bookkeeper or outsourcing the job, there are pros and cons. 

Let’s dive into the best options for creative small business owners like you—whether you’re in videography, photography, content creation, or running a marketing agency. Check out my book, "Profit First for Creatives," to discover more strategies that can help you thrive and maximize your profits!

The Importance of Accurate Bookkeeping

Before diving into the in-house vs. outsourced debate, let’s address why accurate bookkeeping is essential. Your financial records aren’t just numbers on a page—they’re the heartbeat of your business. 

Accurately tracking your expenses helps you understand your profitability, but also affects the taxes you owe. When expenses are properly recorded and tracked, you reduce your taxable income, potentially saving thousands in taxes.

But here’s the kicker: doing it yourself can lead to costly mistakes. The error rate among DIY bookkeepers is shockingly high, with studies showing error rates of over 20%. That means one in five entries could be incorrect. 

Errors of omission, like missing deductions you deserve, are surprisingly common. These mistakes can cost you more in taxes than the savings you gain from managing your own bookkeeping. 

The Cost of Doing Bookkeeping Yourself

Sure, DIY bookkeeping may look like a money-saver on paper, but it often leads to hidden costs. In addition to possible errors, managing your books eats up time—valuable time that could be spent growing your business. 

As the bookkeeping backlog grows, it becomes harder to make informed business decisions. Untimely and inaccurate financial records prevent you from understanding your true cash flow, which is essential for timely investments, setting prices, and avoiding unexpected expenses. When bookkeeping is on the back burner, it’s only a matter of time before tax season rolls around, and you’re left scrambling.

Pros and Cons of In-House Bookkeeping

So, you might think, “Why not just hire someone in-house to handle the books?” Let’s break down the advantages and disadvantages of bringing a bookkeeper on board.

Pros of In-House Bookkeeping

1. Direct Access and Control

Having someone in-house means you can access your financial data immediately, and you can have more direct oversight over their work. It allows you to make quick adjustments, hold regular check-ins, and directly manage the flow of your financial records.

2. Better Understanding of Your Business

An in-house bookkeeper who spends time with your business every day will likely have a more detailed understanding of your unique needs and industry quirks. This familiarity can be particularly helpful for creative industries, where income sources and expense types can be unconventional.

3. Immediate Problem-Solving

If issues arise, an in-house bookkeeper can jump on them immediately. There’s no need to wait for someone external to address questions or investigate discrepancies.

Cons of In-House Bookkeeping

1. Cost of Hiring

An in-house bookkeeper isn’t cheap. You’re looking at expenses beyond their salary—think benefits, training, and taxes. For most small businesses, especially in the creative fields, the volume of transactions often doesn’t justify the need for a full-time position.

2. Potential for Fraud

Bringing someone in-house can open the door to fraud. Small businesses without strong internal controls may be more vulnerable to theft, and some scammers specifically target small businesses lacking formalized processes. Fraud can take many forms, from fudging expenses to embezzling funds, and recovering from fraud can be a long, painful process.

3. Finding the Right Fit

The reality is that good part-time bookkeepers are hard to come by. It’s challenging to find someone with the skills and experience to do the job well on a part-time basis. Plus, training a bookkeeper on your specific processes, systems, and industry quirks can be a time-consuming process.

The Case for Outsourced Bookkeeping

Now, let’s turn the spotlight on outsourced bookkeeping, which is increasingly becoming the go-to choice for creative entrepreneurs.

Pros of Outsourced Bookkeeping

1. Professional Expertise Without the Full-Time Price Tag

Outsourcing gives you access to professional bookkeepers with specialized knowledge and experience. They’re trained to keep up with tax law changes, new bookkeeping software, and best practices, which means you don’t have to worry about investing in continual training.

2. Reduced Error Rates and Oversight

By hiring a professional service, you’re likely to see a significant reduction in bookkeeping errors. External providers often have internal quality checks, meaning your books are reviewed by more than one set of eyes. This not only ensures accuracy, but also catches deductions you might have missed.

3. Scalability and Flexibility

Outsourced bookkeeping services can grow with your business, making it easier to adjust as your needs change. Whether you’re adding team members, expanding service offerings, or even launching new projects, outsourced services can easily scale with you. And if your business needs fluctuate seasonally, you can adjust the level of service accordingly, rather than keeping a full-time employee year-round.

4. Fraud Prevention

Most outsourced providers already have fraud prevention measures. With a professional bookkeeping service, you’re getting built-in checks and balances, often with secure software that safeguards sensitive financial data. This reduces the risk of fraud or theft—a common problem for small businesses with in-house bookkeepers.

Cons of Outsourced Bookkeeping

1. Less Direct Control

Outsourcing means you’re handing over control of your finances to a third party. While reputable services prioritize security and accessibility, you may feel a little out of the loop compared to having someone in-house.

2. Communication Delays

With an outsourced provider, immediate communication isn’t always possible. Although most providers are responsive, you may not get the same instant feedback or in-depth discussions as an in-house bookkeeper. However, many firms offer dedicated account managers, which can minimize this issue.

3. Less Industry Familiarity

Some outsourcing providers work across multiple industries, so they may not have the same understanding of your specific business model. That said, many bookkeeping services now cater to specific industries and can specialize in the financial needs of creative businesses.

So, Which is Right for You?

The decision ultimately depends on your business’s unique needs, but here are some questions to guide you:

• How complex are your financial needs? If you’re a solo freelancer, DIY bookkeeping with minimal support might work for you. However, if you manage a larger creative agency with multiple income streams, outsourcing will bring the precision you need.

• How much control do you want? If staying on top of every financial detail is important to you, an in-house bookkeeper may be the way to go. But if you’d rather focus on creative growth, outsourcing allows you to hand off the responsibility to trusted experts.

• What’s your budget? In-house bookkeepers pay costs beyond their salary, while outsourced providers pay for exactly the level of support you need. For most small businesses in creative fields, a full-time in-house bookkeeper may not be financially justified.

• Do you have fraud prevention systems in place? Outsourcing offers more fraud protection right out of the gate, while bringing in an in-house bookkeeper may require additional steps and resources to secure your financial records.

The Bottom Line

For most small businesses, especially in creative industries, outsourcing bookkeeping tends to be the more practical and cost-effective choice. It provides professional expertise, fraud protection, and flexibility without the commitment of a full-time hire. With an outsourced provider, you get high-quality, accurate bookkeeping, with the bonus of scalable services as your business grows.

Outsourcing allows you to focus on what you do best—creating, innovating, and delivering value to your clients. And as a creative business owner, wouldn’t you spend more time on your craft than on spreadsheets? Make the choice that keeps you in the creative zone and ensures your business thrives financially.