Choosing Between an Accountant and Accounting Software: Striking the Perfect Balance

Accountant vs. Accounting Software

Accountants and accounting software each offer unique advantages that complement one another, becoming even more powerful when used together. Finding the right balance depends on various factors, including the number of transactions, growth projections, and the budget of the business.

Advantages of Choosing an Accountant

The latest NASBA numbers released in late 2022 reveal that over 665,600 CPAs are actively working in the U.S. However, almost 1.4 million accountants operate in the U.S., meaning the remainder are regular accountants without specialized CPA training. Their services, whether as part of an in-house accounting team or as third-party providers, are in high demand for many reasons, including:

• Expertise: Accountants are educated professionals with up-to-date knowledge and expertise to manage a business’s finances. They are well-versed in the latest tax laws, financial reporting requirements, industry-specific regulations, and accounting best practices, ensuring they apply them correctly in their daily work. Additionally, they often have significant experience using accounting software.
• Time Savings: Managing a business’s financial affairs is complex and time-consuming. Accountants save time and resources by handling the majority of accounting tasks, allowing business owners and staff to focus on their core activities.
• Financial Planning: Accountants assist in developing financial plans that align with a business’s goals and objectives. They provide valuable insights into financial trends and opportunities, optimize tax strategies, and offer guidance on business investments and other financial concerns.
• Risk Management: Accountants identify and manage financial risks, such as fraud and noncompliance with accounting and industry-specific regulations, which can be financially draining. They also develop internal controls and processes to mitigate these risks.
• Business Growth: Accountants support business growth by providing valuable financial insights and advice. They can identify areas for cost savings, optimize pricing strategies, and customize budgets to align with the business’s growth objectives.

Disadvantages of Choosing an Accountant

Despite the advantages of engaging with an accountant, businesses should be aware of some potential downsides:

• Cost: The average salary for a staff accountant is just shy of $55,000 per year, according to Payscale.com. This figure does not include the significant expenses associated with acquiring, hiring, training, and retaining an accountant, which can total as much as three to four times the salary for recruitment alone. Third-party accountants typically charge by the hour, with rates determined by their level of experience and expertise, the complexity of services required, and the time needed to complete the job. These costs can quickly add up to hundreds, thousands, or even tens of thousands of dollars, especially if accounting services are needed frequently.
• Overdependency: There is a risk of becoming too dependent on an accountant’s expertise and advice, which may hinder the business’s own understanding and its ability to make financial decisions without outside input.
• Errors and Risks: Even the best accountants can make mistakes, as they are human. Ultimately, the business is responsible for its accounting, including any penalties and fines resulting from inaccuracies or non-compliance.
• Limited Availability: Accountants, particularly those with heavy workloads, may not be able to respond to a business’s needs immediately. This can hamper the business’s ability to obtain timely advice or assistance, potentially damaging business relationships.
• Limited Scope: While accountants provide valuable financial advice and expertise, they may lack knowledge in areas outside of finance, such as marketing or operations. This limitation may require the business to seek additional insights from other sources.

Advantages of Using Accounting Software

Bolstered by the increasing adoption of cloud-based solutions, accounting software offers many advantages:

• Automation: Accounting software automates critical tasks such as financial close, payroll, invoicing, and accounts payable/receivable processes. This enhances efficiency and effectiveness, allowing business leaders to focus on strategic initiatives and stand out in a competitive market.
• Accuracy: Accounting software performs complex, multistep calculations accurately, reducing errors common in manual data entry. This ensures precise financial metrics and key performance indicators are maintained, from net profit margins to days sales outstanding.
• Real-time Data: Cloud accounting software updates transactional data, dashboards, and reports instantaneously. This real-time capability ensures businesses have the latest information to proactively manage their financials and make informed decisions.
• Cost Savings: For growing businesses, accounting software is often more cost-effective than hiring accountants who charge for their time and expertise. Cloud-based solutions further reduce costs by eliminating the need for IT infrastructure and maintenance.
• Time Savings: Accounting software automates the accounting cycle, from journal entries to financial statement preparation, saving valuable time. Cloud-based solutions offer additional time savings by handling IT tasks such as infrastructure management, updates, and data backups.
• Accessibility: Online access to accounting software, whether through a secured virtual private network or the cloud, provides a significant advantage, especially for remote work environments.
• Scalability: Leading accounting software can scale up or down as business needs change. Cloud deployment models handle scaling seamlessly without requiring additional equipment purchases, like servers.

Disadvantages of Using Accounting Software

No software is 100% perfect, and any decision to use accounting software should involve a thorough evaluation of vendors and their solutions. Businesses should consider the following potential drawbacks:

• Learning Curve: Depending on the complexity of the solution, significant time and ongoing training may be required to use it effectively. This can be challenging for small business owners without a background in accounting or technology.
• Technical Issues: Accounting software can experience technical issues ranging from minor delays in invoice generation to major problems like data loss or inability to release financial statements on time. A clear service-level agreement should outline expectations and vendor actions in case of issues.
• Limited Functionality and Customization: While accounting software offers customization, it may not fully meet the needs of a growing business, requiring additional solutions or workarounds.
• Security Risks: Storing financial data on a computer or in the cloud can present security risks, including data breaches or hacking. It is crucial to implement appropriate security measures to protect financial data.
• Dependence on Technology: Using accounting software requires a computer or mobile device, internet connection, and power source. Any failure or unavailability of these components can prevent access to financial data.
• Lack of Personalization: Despite advances in technology, sometimes personalized advice or expertise from a real accountant is necessary. The nuanced understanding and interactive nature of a conversation with a live accountant are aspects technology has not yet mastered (though AI and machine learning are rapidly advancing).

By carefully considering these advantages and disadvantages, businesses can make an informed decision about integrating accounting software into their operations.