By
Beatriz Jardim
October 3, 2024
For any business, financial management is crucial for stability, growth, and compliance. Traditionally, companies have relied on in-house finance teams to handle tasks such as bookkeeping, payroll, tax filing, and strategic planning. However, with the rise of remote work and cloud-based solutions, a Virtual Finance Department (VFD) has emerged as a popular alternative.
The question many business owners are asking is: which option is more affordable — maintaining an in-house finance team or outsourcing to a virtual finance department? In this blog, we’ll break down the costs and benefits of each, helping you make an informed decision for your business.
What is an In-House Finance Team?
An in-house finance team consists of full-time or part-time employees who manage a company’s finances internally. This could include roles such as bookkeepers, accountants, financial controllers, payroll administrators, and even a Chief Financial Officer (CFO). These employees work on-site or remotely, but they are directly hired and managed by the company.
An in-house finance team is responsible for all day-to-day financial tasks as well as long-term financial planning, compliance, and strategic decision-making. For large enterprises, this setup may be necessary due to the volume of financial transactions and the need for full-time financial management.
What is a Virtual Finance Department?
A Virtual Finance Department is an outsourced solution where a team of remote finance professionals manage your business’s finances. Instead of hiring full-time staff, businesses work with a team of experts who handle various financial tasks on an as-needed basis. Virtual finance teams can include bookkeepers, accountants, payroll specialists, and even virtual CFOs, depending on your needs.
The key difference between a virtual finance department and an in-house team is that VFDs are more flexible, scalable, and generally less expensive. Businesses pay for the services they need, without the overheads of full-time employees.
The Cost of an In-House Finance Team
When calculating the cost of an in-house finance team, there are several factors to consider beyond just salaries. These include benefits, office space, software, equipment, and recruitment costs. Below, we’ll explore these expenses in more detail:
1. Salaries
The salary of in-house finance staff is one of the most significant costs. In the UK, the average salaries for finance roles are as follows:
- Bookkeeper: £22,000 – £30,000 per year
- Accountant: £30,000 – £50,000 per year
- Financial Controller: £50,000 – £75,000 per year
- CFO: £80,000 – £150,000+ per year
A small business might only need one or two finance professionals, but as the business grows, so does the need for more comprehensive financial support. For companies requiring a complete finance department, the total salary costs can easily exceed £200,000 per year.
2. Benefits and Other Employment Costs
In addition to salaries, businesses must provide benefits such as pensions, healthcare, paid leave, and bonuses. According to UK employment regulations, these benefits can add up to an additional 20%–30% of an employee’s base salary.
For example, if your accountant’s salary is £40,000, you might be spending an additional £8,000–£12,000 on benefits alone. National insurance contributions and potential overtime payments also need to be factored in.
3. Office Space and Equipment
Each employee will require office space, desks, computers, software licenses, and other equipment to perform their job. Depending on your location, the cost of office space can be substantial. If your team works remotely, you may still need to provide them with laptops, monitors, and other technology.
On average, it costs around £3,000–£5,000 per employee to set them up with the necessary equipment and software tools. Additionally, software subscriptions for accounting programs like Xero, QuickBooks, or Sage can cost anywhere from £20 to £100 per month per user.
4. Training and Professional Development
Finance professionals must stay up to date with changing tax laws, accounting standards, and regulatory requirements. This means that your in-house team will need ongoing training and professional development, which can cost a few thousand pounds per employee each year.
5. Recruitment and Onboarding Costs
Hiring finance staff can be an expensive and time-consuming process. Recruitment agencies typically charge 15%–20% of the employee’s annual salary as a fee. For example, if you’re hiring a financial controller with a £60,000 salary, you might pay £9,000–£12,000 in recruitment fees alone.
Onboarding costs, including time spent training new hires and getting them acclimated to your business’s processes, can also add up.
The Cost of a Virtual Finance Department
In contrast, a virtual finance department offers a more flexible, cost-effective solution. Here’s a breakdown of the typical costs associated with a VFD:
1. Pay-As-You-Go Services
One of the biggest advantages of a virtual finance department is that you only pay for the services you need. For example, if you only require bookkeeping and payroll management, you can pay for just those services. As your business grows or your needs change, you can scale up the services you use.
The typical rates for virtual finance services vary, but here’s a general overview:
- Bookkeeping: £200 – £500 per month
- Payroll: £50 – £200 per month (depending on employee numbers)
- Tax planning: £500 – £2,000 per year
- Virtual CFO services: £1,000 – £5,000 per month (depending on the level of involvement)
The flexibility of virtual services means you can easily adjust your budget without being locked into fixed salary commitments.
2. No Benefits or Overhead Costs
With a virtual finance department, there’s no need to worry about benefits such as pensions, healthcare, or paid leave. Additionally, since the team works remotely, you don’t need to provide office space, equipment, or software licenses for each team member. This eliminates the costs of renting extra office space and purchasing expensive technology.
3. Access to High-Level Expertise
One of the most significant advantages of a virtual finance department is access to top-tier finance professionals. Many small businesses cannot afford to hire a full-time CFO, but with a virtual finance team, you can get strategic financial advice at a fraction of the cost.
For example, a virtual CFO might work with your business on a part-time or project-based basis, providing the expertise you need without the high salary. This is ideal for small businesses looking to grow and scale but not ready to commit to full-time financial leadership.
4. No Recruitment Costs
When you outsource your financial management to a virtual finance team, you eliminate recruitment and onboarding costs. The virtual finance department provides experienced professionals who are ready to hit the ground running, saving you both time and money in the hiring process.
5. Use of Technology
Most virtual finance departments leverage the latest cloud-based accounting software, automation tools, and secure platforms to manage your finances. You benefit from cutting-edge technology without having to invest in software licenses or IT infrastructure. The cost of these tools is usually included in your service fees, so you don’t have to worry about additional expenses.
Cost Comparison: In-House vs. Virtual Finance Department
Let’s compare the costs of an in-house finance team and a virtual finance department for a typical small business:
In-House Finance Team (2 Employees)
- Bookkeeper salary: £25,000
- Accountant salary: £40,000
- Benefits (20%): £13,000
- Office space and equipment: £8,000
- Software and technology: £3,000
- Recruitment fees: £9,000
- Total Annual Cost: £98,000
Virtual Finance Department
- Bookkeeping: £400 per month (£4,800 per year)
- Payroll: £100 per month (£1,200 per year)
- Tax planning: £1,000 per year
- Virtual CFO services: £2,000 per month (£24,000 per year)
- Total Annual Cost: £31,000
In this example, the virtual finance department is significantly more affordable, costing roughly £67,000 less per year than an in-house finance team. While costs can vary based on your specific needs, a virtual finance department is generally a much more cost-effective solution, particularly for small businesses that don’t require full-time financial staff.
Additional Benefits of a Virtual Finance Department
1. Flexibility
A virtual finance department offers flexibility that an in-house team simply can’t match. You can scale services up or down as your business grows, ensuring that your financial management is always aligned with your current needs.
2. Access to a Broader Skill Set
Virtual finance departments typically offer a wider range of expertise than a small in-house team can provide. Whether you need help with tax planning, financial forecasting, or strategic decision-making, you’ll have access to professionals who specialize in these areas.
3. Faster Implementation
Since virtual finance teams are already established and have the necessary tools and processes in place, you can start benefiting from their services almost immediately. There’s no need for lengthy recruitment, onboarding, or training periods.
Conclusion: Which Is More Affordable for Your Business?
For most small and medium-sized businesses, a virtual finance department is the more affordable option. The ability to pay for only the services you need, combined with the elimination of benefits, office space, and recruitment costs, makes a virtual finance team a highly cost-effective solution.
That said, the best option for your business depends on your specific needs, size, and growth trajectory. If you require full-time financial management or have complex financial needs that demand an in-house presence, hiring an in-house team may be the right choice.
However, for businesses looking to save costs while maintaining financial efficiency and gaining access to expert advice, a virtual finance department offers an attractive and affordable alternative.
Ready to explore the benefits of a virtual finance department for your business? Contact us today to learn more about how we can help you save costs and streamline your financial management!
