How Outsourcing Accounting & Finance Can Work Positive For Your Business?
For years, companies have outsourced specific niche accounting functions of their businesses, such as tax preparation, legal assistance, financial portfolio management and actuarial services. In today’s evolving time, more and more companies are outsourcing core functions, such as accounting/finance, IT, payroll and HR, so they can shift time, money and other resources to strategic business activities, instead of focusing on mundane, routine & administrative functions.
What was once appealing to smaller base of companies has since expanded to a much larger base and now organization see, perceive and value outsourcing as a smart and viable option to optimize business processes and ultimately improve the bottom line.
It’s important that companies take the time to understand and assess the pros and cons involved, such as cost/benefit ratio, potential risks, service level agreements (SLAs) and necessary controls, before making any changes.
When considering whether or not to outsource key accounting/finance functions, there are several factors to consider.
- Firstly, do a Cost/Benefit Analysis; Compare the cost of maintaining the finance department (or sub-section thereof, depending on the scope of the project) in-house, taking into account expenses like salaries, fringes & benefits, training, office space, equipment and software, retention aspects compared to the overall expense of using an outsourcer to achieve the same goals.
- All costs associated with outsourcing need to be clearly documented in the written agreement in order to reduce latency. Setting mutual expectations upfront, such as deliverables and deadlines, facilitates the overall process.
- The more detailed and specific the agreed upon expectations are, the better chance of avoiding unexpected costs down the line.
- In the case of a finance department outsourcing agreement, it is especially important to clearly understand and agree on how any relevant data is accessed, information exchange, frequency thereof. Company management needs to make sure they are comfortable with the arrangement and that it won’t impede their normal course of business.
- The level and range of services the potential outsourcer provides is another area to contemplate.
- Given that there are likely other clients vying for their time and attention, it is critical to understand how resources are allocated to ensure deadlines are met and that someone is always available to address any questions or concerns.
- If the outsourcer is located overseas, it is important to understand how the differing localities, time zones, cultures and languages are handled.
- The transition process is another major consideration. An experienced outsourcer typically has a streamlined process in place to help minimize any delays in getting the work done, without anything slipping through the cracks.
- As a best practice, the company outsourcing the work can help ensure a smooth transition by having thorough documentation of all policies and procedures prepared ahead of time.
Following careful analysis and selection of the right outsourcing partner, the benefits – both quantitative and qualitative – can be huge and strategic.
- The most obvious benefit is reduced costs. Supporting in-house employees and facilities can be costly. The cost of labor and operations to outsource a business function is often cheaper, especially when the cost savings can be reallocated and put back into running the business, and ultimately, generating more revenue.
- In general, companies report experiencing boosts in productivity when they are able to focus on the customer, rather than on backend/administrative functions.
- Owners / Key Management group can invest their efforts on core business activities while mundane activities and processes are taken care of vide Outsourcing.
- Researched Analytics across the globe depicts that the benefits of Outsourcing leads to involvement of Key Management Group / Process Owners on Strategic Business Aspects.
- A good outsourcing partner provides access to a team of specialists in a respective field, such as accounting/finance. This deep functional expertise usually translates into strong management and control around the processes, which, in the end, allows company management to feel confident about the accuracy of the financials the outsourcer prepares. Outsourcers are also used to working with deadlines and typically have more flexibility to use their resources to meet varying client timetables.
Finally, just like their in-house counterparts, smart outsourcers are leveraging technology, where appropriate, to help gain efficiencies around various traditionally manual accounting/finance processes. Outsourcers often have the bandwidth and capital that companies may not have in-house.
For example, a company may not have the time or money to investigate and implement a software tool that could help automate some of the processes in its financial close, such as account reconciliations or variance analyses, but an outsourcer may, because it can share the associated expenses across many clients. In the end, companies benefit by taking advantage of outsourcers’ means to streamline processes without the overhead.
Overall, outsourcing allows businesses to leverage a provider’s expertise, best practices and efficiencies, so management can focus on customers and growing the business. As long as a company goes into it aware of the potential pros/cons, challenges and risks, the rewards are usually well worth it!
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