Manufacturing & Distribution Accounting: Navigating your options for In-House vs. Outsourced Solutions
- Craig Berberich
- Apr 7
- 5 min read
Updated: Apr 9
In the dynamic world of manufacturing and distribution, accounting isn't just a task—it's a vital component of your business's success! For many manufacturing owners, deciding how to handle accounting can be overwhelming. Should you; keep bookkeeping in-house, hire a full-time accountant, or enlist an external firm? Each option has its benefits and drawbacks. In this article, we will break down the characteristics of each approach, helping you discover the best fit for your business.
The Importance of Accurate Accounting in Manufacturing
Every manufacturing business, regardless of size, requires a reliable accounting system. This system helps track financial performance and ensures compliance with regulations and tax obligations. Let's face it - we all need to pay our taxes, but keeping accurate books will help limit risk of overpaying when tax season comes around!
Accurate accounting offers insights into; production costs, pricing strategies, and overall profitability. If you're looking to grow your business, knowing historically where you're money has gone & being able to adjust quickly to changes is imperative!
Which begs to ask the question, do we have the right eyes & procedures in place. While, we've worked hard to get where we are - do we have the right pieces in place to get where we want to go?? The method you choose for; accounting, financial planning & analysis is vital!
Owner/Operator Maintained Bookkeeping
This is where nearly all small to medium-sized businesses started, owner/operator maintained bookkeeping. In this approach, the business owner or a selected employee is responsible for all financial records, including invoicing, payments, expense tracking and tax filings.
Pros and Cons
Advantages
Cost Savings: This method is often the most economical, as it helps you avoid the costs of hiring dedicated accounting staff or outsourcing.
Increased Control: Business owners can oversee every transaction closely, enabling swift decision-making based on direct financial data.
Flexibility: As your business changes, you can readily adjust your accounting practices without needing approval from an external party.
Disadvantages
Time Commitment: Owners must divide their attention between various roles, including production, sales, and accounting.
Risk of Errors: Without specialized training, mistakes can easily happen, potentially leading to costly financial consequences.
Limited Insights: Owner-operated bookkeeping may not provide the depth of financial analysis offered by professional services, limiting growth opportunities.
In short, keeping bookkeeping in-house can be suitable for small businesses looking to save money, but it comes with risks like time constraints and mistakes. As your business grows you lose visibility to profitability & where your money is going - it might be time to hire some additional help.
Two options include; hiring a fractional/part-time accountant or hiring a full-time accountant.
Outsourced Accounting Firm (Fractional/Part-Time)
Outsourcing accounting to a specialized firm has become an increasingly popular strategy among manufacturing businesses. This entails hiring an external firm to manage finance-related tasks.
Different firms offer very different packages; ranging from the local independent bookkeeper (varying expertise but low cost) to Fractional Controllers (high expertise with moderate cost) lastly to the Big Four Accounting Services (extreme expertise but extreme cost). Refer to our blog post about navigating different service levels of various accounting services.
While each firm is different, the overall process still aligns to the same process for your business. Below represents the pros/cons of an outsourced accounting firm.
Pros and Cons
Advantages
Cost-Effective Expertise: Outsourcing allows access to a wider range of skills without the full expense of a permanent in-house team.
Focus on Core Activities: By letting professionals handle accounting, your company can concentrate on their core operations.
Advanced Technology: Many outsourcing firms employ cutting-edge technology, enhancing financial processes and reporting capabilities.
Disadvantages
Less Control: Outsourcing means ceding some control over financial processes, which can hinder quick adjustments (largely impacted from large outsourced firms)
Communication Gaps: Working with an external team may lead to miscommunication or delays in financial reporting.
Reliance on Third Parties: Depending solely on an external team can introduce risks like inconsistent service quality or trust issues.
Outsourced accounting firms can provide an efficient solution for manufacturing businesses seeking expert knowledge while maintaining flexibility.
In-House Accounting
The last standard option as manufacturing companies expand, they frequently shift from owner/operator bookkeeping to employing a full-time accounting team. This transition can prove advantageous as there is clear segregation of responsibilities, but comes with a cost of a full time accounting team.
Pros and Cons
Advantages
Expert Knowledge: Hiring experienced accountants provides access to essential skills that can offer sophisticated financial insights and guidance.
Focused Attention: In-house accountants dedicate their time entirely to financial matters, leading to more timely and accurate reporting.
Scalability: An in-house team can expand as the business grows, ensuring continuity as financial operations become more complex.
Disadvantages
Higher Fixed Costs: A full-time accounting department introduces fixed costs such as salaries, benefits, and training, which may not align with every budget.
Hiring Challenges: Finding qualified accountants with manufacturing sector experience can be challenging, especially in competitive job markets.
Limited Flexibility: Changes to company workflows may be necessary, which could lead to inefficiencies.
In-house accounting can streamline financial operations and support growth, but business owners must carefully assess the related costs and hiring needs.
Evaluating Your Options
To determine the best accounting solution, manufacturing owners should consider key factors, such as company size, growth potential, and financial complexity.
Cost: Owner/operator bookkeeping is usually the cheapest option. However, in-house accounting may be justified if substantial growth is anticipated, while outsourcing can balance cost with needed expertise.
Control vs. Expertise: Each method offers varying levels of control and expertise. Weigh the importance of direct oversight against the advantages of specialized knowledge.
Scalability: Growth plans should guide your accounting strategy. In-house teams may adapt more easily, while outsourced firms can also offer quick scalability.
Internal Resources: Assess your team's accounting capabilities. If expertise is lacking, hiring or outsourcing may be more effective.
Ultimately, the accounting strategy chosen should reflect the unique demands and goals of your manufacturing business. Whether you select owner/operator maintained bookkeeping, create an in-house accounting team, or outsource to a specialized firm, understanding the specifics of each option is vital for improving financial efficiency.
As you contemplate your options, remember that the right accounting framework can mean the difference between merely surviving and truly thriving in a competitive market. Invest in the appropriate accounting approach to reveal new growth opportunities and ensure your business confidently navigates the complex world of manufacturing accounting.
If you feel your business is ready to hire fractional accounting services from a dedicated manufacturing & distribution accounting firm - reach out to CRB Advisor and let's have a talk about your accounting needs!!