As a small business grows, owners are often faced with a pivotal question: should we hire an in-house accountant, or is it better to work with an external small business accountant? Both options have genuine merits, and the right answer depends heavily on the size, complexity, and stage of the business. This comparison looks honestly at both routes, while explaining why many small and medium-sized businesses in London find that partnering with an external specialist, such as Fred Michael & Co, delivers better value than building an internal finance function too early.
An in-house accountant sits within the business, typically working exclusively for one employer. The obvious appeal is availability. They are on hand every day, deeply familiar with the internal systems, and able to respond quickly to ad hoc questions from management. For larger companies with complex, high-volume finances and dedicated finance departments, this immersion can be invaluable, since the in-house accountant becomes intimately acquainted with the nuances of the business over time.
However, hiring a full-time, qualified accountant is a significant financial commitment. Beyond the salary itself, there are employer's National Insurance contributions, pension obligations, holiday pay, sick pay, recruitment costs, training, and the ongoing cost of software licences and professional development. For most small businesses, particularly those with fewer than fifty employees, the workload simply does not justify a full-time salaried position, and the fixed cost can strain cash flow, especially in the early years when revenue is still unpredictable.
An external small business accountant, by contrast, operates on a flexible fee structure, often a fixed monthly retainer scaled to the size and needs of the business. This means you pay for the level of service you actually require, without carrying the overhead of a full-time employee. Firms like Fred Michael and Co structure their services so that small businesses receive comprehensive support, covering bookkeeping oversight, VAT, payroll, annual accounts, and tax planning, at a fraction of the cost of an equivalent in-house hire.
Breadth of expertise is another significant advantage of the external route. A single in-house accountant, however capable, is still one person with a finite set of experience. An external accountancy practice typically has a team of specialists covering different areas, from corporation tax to VAT nuances to payroll legislation, meaning your business benefits from a wider pool of collective knowledge rather than relying on one individual's understanding of every tax rule.
There is also the matter of objectivity. An in-house accountant, being an employee, can sometimes feel pressure, whether real or perceived, to present figures in a way that pleases management or avoids difficult conversations. An external accountant, operating independently and bound by strict professional and ethical standards, is better positioned to give impartial advice, flag concerns honestly, and challenge decisions that might not be in the business's long-term interest, even when that advice is not what the owner wants to hear.
Continuity is a factor that is often overlooked until it becomes a problem. If an in-house accountant leaves the business, whether through resignation, illness, or retirement, there can be a knowledge gap that takes months to fill, particularly if documentation and processes were not thoroughly recorded. With an external accountancy firm, the relationship is with the practice itself rather than a single individual, so continuity of service is far more resilient to staff changes on either side.
Technology and compliance updates present another area where external accountants often have the edge. Keeping up with changes to Making Tax Digital, evolving HMRC reporting requirements, and new accounting software features requires constant investment in training and systems. A dedicated accountancy practice invests in this as a core part of its business model, whereas a single in-house hire may struggle to stay fully current alongside their day-to-day workload, especially in a small business where they are often also expected to cover administrative or operational tasks beyond pure accounting.
None of this is to say in-house accountants lack value entirely. As businesses scale into the tens of millions of pounds in turnover, with complex multi-entity structures, international operations, or heavy transaction volumes, having a dedicated internal finance lead who understands the business intimately becomes genuinely important, often working alongside external accountants rather than replacing them entirely. The two models are not always mutually exclusive, and many mid-sized companies use a hybrid arrangement, with an internal finance manager overseeing day-to-day operations while an external firm like Fred Michael & Co handles statutory compliance, tax strategy, and specialist advice.
For most small businesses in London, though, the calculation tends to favour the external route, at least until the business reaches a scale where the workload genuinely justifies a full-time position. The flexibility to scale services up or down as the business grows or contracts, without the complications of employment law, redundancy considerations, or recruitment risk, is a meaningful advantage that should not be underestimated, particularly for businesses navigating uncertain economic conditions.
Response time is sometimes cited as a drawback of external accountants, with the assumption that an in-house person will always be faster to reach. In reality, a well-organised external accountancy firm with dedicated client managers and modern communication tools can respond just as promptly, often within the same working day, while also bringing a breadth of experience that a single in-house hire cannot match alone.
Ultimately, the decision comes down to an honest assessment of your business's current size, complexity, and growth trajectory. If you are a small or medium-sized business seeking reliable, cost-effective, and expert financial support without the burden of a full-time salary, an external small business accountant is very likely the more sensible choice. Firms such as Fred Michael and Co are built specifically to serve this segment of the market, offering the depth of a full finance team at a scale and price point that works for growing businesses rather than large corporates.
Before making a final decision, it is worth having a candid conversation with a prospective accountancy partner about your current needs and future plans. A good external accountant will be transparent about what level of service makes sense now, and will not try to oversell you on support you do not yet require, which is itself a useful indicator of whether they are the right long-term partner for your business.
Another factor worth weighing is how each option handles the inevitable questions that arise between scheduled reviews. A business owner who suddenly needs to understand the tax implications of a new contract, or who receives an unexpected letter from HMRC, benefits enormously from having a single point of contact who already knows the full context of the business. An external firm such as Fred Michael & Co typically assigns a dedicated contact or small team to each client, which delivers much of the responsiveness associated with an in-house hire while retaining the flexibility and breadth of an external practice.
Recruitment risk is also worth considering carefully before committing to an in-house hire. Finding, interviewing, and successfully onboarding a qualified accountant can take several months, and a bad hire can be costly to correct, both financially and in terms of the disruption caused to the business's financial processes during the transition. Engaging an external accountancy practice avoids this recruitment risk almost entirely, since the infrastructure, training, and quality control are already established and proven before the relationship even begins.
Finally, businesses should think about how their needs are likely to change over the next three to five years, not just their current situation. A business expecting rapid growth, additional funding rounds, or expansion into new markets may eventually reach a size where an in-house finance function becomes genuinely worthwhile. Starting with an external small business accountant such as Fred Michael and Co in the meantime provides a strong foundation of financial discipline and compliance that will serve the business well, regardless of which direction its staffing model eventually takes.
Weighing Up Your Options?
Let's help you compare with confidence
Fred Michael & Co Ltd provides business planning and financial advice to help London businesses choose the right accounting service for them.