While they were traditionally in-house functions, an increasing number of businesses today outsource their finance and accounting operations to third-party services providers.
However, as a CEO or CFO, you have to consider several factors before deciding on outsourcing your financial and accounting operations.
This article contains:
(click on a link to read a specific section)
- What is Finance and Accounting Outsourcing (FAO)?
- 5 Ways FAO Can Benefit Your Business
- 4 Actionable Tips to Effectively Outsource Finance and Accounting Tasks
- Where Should You Outsource Accounting Processes?
Let’s get started.
What is finance and accounting outsourcing (FAO)?
Finance and accounting outsourcing is an arrangement where an external firm handles some or all of your finance and accounting functions.
A business owner could outsource anything from a single function such as bookkeeping to the entire department’s operation. In partial outsourcing, a company hires an external provider to support and extend the in-house capabilities.
Some of the standard finance and accounting processes that you can outsource include:
- Bookkeeping: Recording and organizing all financial transactions.
- Transaction management: Handling day-to-day business processes and transactions like account payables and receivables, invoicing, payroll processing, filing tax returns, etc.
- Financial planning and analysis: Creating goals, budgeting, forecasting, measuring KPIs, and devising financial management strategies.
- Financial reporting: Preparing an accurate balance sheet and financial statement along with KPI (key performance indicators) reports to update business owners.
- Accounting and financial compliance: Ensuring that finance and accounts (F&A) processes are compliant with standards set by authorities like the Financial Accounting Standards Board (FASB).
But how does outsourcing these functions help the business?
Let’s find out.
5 ways FAO can benefit your business
FAO operations are crucial as they help you manage cash flow, cut down unnecessary expenditures, and point out areas needing more funds. These operations directly impact your company’s long-term growth and sustainability.
So you must have top-notch finance and accounting professionals as well as advanced accounting solutions to carry out these duties.
This is where outsourcing comes into the picture.
Here are five ways in which outsourcing an accounting and finance function to external providers could benefit your business in the long run.
Outsourced bookkeeping and accounting could help small businesses and startups get full accounting department functionality without investing huge amounts.
Hiring an external F&A service provider is relatively cheaper and less time-consuming than building an in-house team.
With outsourcing, you can avoid the overhead costs attributed to in-house employees, such as training, social security contributions, paid time offs, workers’ comp, employee turnover, etc.
Moreover, for modern-day accounting needs, you’ll also need to invest in advanced accounting software. However, you save up on this investment when you outsource to an accounting firm that already has such technology in place.
For many small and medium businesses, outsourcing is a cost-effective way to get access to such advanced accounting solutions. These solutions can help predict potential cash flow problems and give many cost-saving insights into fund management and operations, helping you save even more.
2. Access to global talent pool
When building an in-house accounting team, you’ll be limited to the local talent pool and may not find the right person for the job.
But with outsourcing, you can hire the best talent in the field from across the world at competitive prices.
Global collaboration gives you access to a top-notch skillset, as well as advanced financial methodologies and frameworks. Achieving the same level of in-house competency is often very hard and may not be cost-effective due to a large capital requirement.
3. Increased freedom and flexibility
Business owners often find themselves spending more time managing funds than growing the business.
Fortunately, having an outsourced accounting team oversee company funds will help you spend more time and effort scaling the business.
Firstly, you can concentrate on other important functions when you have the assurance of an expert team handling your finances. Secondly, you’ll have at your disposal the financial acumen needed to minimize red flags and make progressive decisions.
Post outsourcing, you can choose to train your in-house team on other high-value skills to boost their capabilities.
4. Business continuity
Accounting is a time-sensitive core process, and frequent interruptions can adversely impact the business.
For example, a business may face delayed payments, loss of records, and penalties when normal accounting functions are affected due to factors like:
- Inadequate infrastructure.
- System downtime.
- Shortage of workforce due to high employee turnover.
With such lapses in business continuity, companies often run the risk of losing clients to a competitor.
However, with outsourced accounting, you work with providers usually equipped with cloud-based systems and automation capabilities that offer uninterrupted services.
Besides, you can get the provider to offer time-bound services by including a business continuity plan in the service agreement.
5. Enhanced data security
Today, most finance and accounts operations are performed digitally, generating a massive volume of confidential data. This data could be internal or client-related, and it’s a company’s responsibility to protect it.
However, efforts made by small businesses and startups to secure this data are often inadequate and leave them prone to cyber-attacks and data thefts.
Such security lapses can affect your brand’s image and may even have you face a lawsuit.
The main reason behind these data security breaches is the lack of security features in the accounting solutions used by a company.
Professional accounting services usually have secured cloud servers with advanced features like:
- Encrypted transactions.
- Cloud-based secured servers for storing data.
- Cutting-edge data recovery and disaster management capabilities.
With such lucrative benefits, it’s no surprise that companies are quick to join the outsourcing bandwagon without the required due diligence. As a result, a majority of them fail to get the most out of this arrangement.
So what can you do to maximize outsourcing benefits?
4 actionable tips to effectively outsource finance and accounting tasks
If you’re planning to outsource F&A services, here are some essential tips that will ensure a smooth and profitable transition:
1. Identify your needs and plan ahead
We can’t overstate the importance of analyzing your accounting needs before making an outsourcing decision.
When the leadership of an organization has clearly stated accounting needs and goals, they can make an informed decision on whether they should:
- Outsource the accounting tasks at all.
- Completely outsource the finance and accounting department.
- Use an external service to support the in-house team for a specific finance operation.
- Hire an outsourced accountant or bookkeeper on an ad-hoc basis.
Here are some factors you should consider to better understand your accounting and outsourcing needs:
- How critical is an accounting function to your business, and does it require advanced technology solutions?
- Do you have the resources to maintain a full-time in-house accounting team?
- Are the financial KPIs for your business showing a downward trend?
- Do you frequently spot errors in your financial statements?
Once you’ve figured why and what you need to outsource, create a baseline budget after a thorough cost-benefit analysis. If you’re engaging an outsourced accounting firm in a different country, make sure to take into account any hidden costs.
Additionally, you should compare your budget with the cost of maintaining a full-time accounting team and the required technology stack. It’ll not only help you see the cost advantages of outsourcing but also prevent you from overspending.
2. Focus on technology
Accounting and finance systems that leverage advanced technology can give you an edge over your competitors. If you can’t afford to invest in such technology, you can opt for an external provider that already has such systems in place.
How do technology solutions boost your financial performance?
Cloud-based accounting outsourcing services, such as Quickbooks or Zoho Books, could help you:
- Streamline all accounting tasks.
- Save time by automating routine back-office tasks such as invoicing, bill payments, salary processing, etc.
- Keep your financial records consistent with the relevant taxes.
- Ensure that invoices, financial reports, and statements are accurate.
- Get real-time updates on your inventory, expenses, sales, etc., through interactive dashboards.
- Access your financial data from anywhere and anytime since it’s all hosted on the cloud.
- Track financial KPIs to measure your progress.
Similarly, financial solutions that use AI (Artificial Intelligence) and machine learning can help you in many ways, such as:
- Analyze bank statements, tax documents, invoices, etc., to give insights on fund management and investments.
- Assess credit information of the borrowers to make better lending decisions (for consumer or business loans, etc.).
- Build accurate predictive models that help with wealth management, market analysis, risk management, etc.
- Monitor accounting workflows and financial transactions in real-time to detect fraudulent activities.
3. Choose your outsourcing partner wisely
Once you have your outsourcing goals and cost calculation done, the next step is to hire a vendor that perfectly matches your requirements.
Here are a few pointers on hiring an efficient and cost-effective outsourced accounting service:
- Ensure that the vendor you choose has a proven track record in FAO. Review client testimonials and past feedback to gauge their efficiency and work ethics.
- The outsourced accounting team would be working closely with your in-house team. For effective collaboration, make sure the vendor is aligned with your business and work culture.
- Before entering a partnership, test out the vendor’s capabilities through ad-hoc trial projects. You can monitor their performance using KPIs.
- Pay attention to the time zone differences when hiring an accounting service provider from another country.
- Discuss internal control measures with your service provider to ensure the accuracy and integrity of financial information and prevent fraud. In F&A, internal controls are rules and procedures to minimize risks and improve efficiency.
- Ensure that the software and hardware technology at the vendor site is future-proof. This becomes crucial when you’re entering a long-term partnership and have plans to scale in the near future.
- Review the data security features of the accounting software at the vendor site.
- Brief your outsourced accounting firm about tax compliance requirements in your region as well as other laws related to accounting and finance.
- Prioritize a CPA firm (Certified Public Accountant), which ensures that you work with accountants licensed by the American Institute of Certified Public Accountants.
- Lastly, don’t choose a financial service provider just based on pricing. Look for one that offers a balance between cost and quality of services.
4. Set realistic deadlines for the vendor
When you outsource any business function, it’s natural to expect positive results quickly.
However, a finance or accounting process is often complicated and sensitive. The result of a new financial strategy could sometimes take months to show. So rushing your vendor by setting unrealistic deadlines might be the wrong approach and set you up for losses.
Instead, give your outsourced team a decent timeline to analyze your business and understand its complexities. It’ll allow the vendor to devise customized solutions for your needs and ensure success in the longer run.
Where should you outsource accounting processes?
An increasing number of companies are outsourcing their accounting and finance processes to overseas firms to combat high labor costs and skill shortages at home.
To choose the best overseas accounting firm, read this informative guide on offshore accounting services.
Let’s check out two highly preferred FAO destinations globally:
India is undoubtedly a global outsourcing powerhouse, catering to various domains, including accounting and finance.
According to Clutch.co, India has over 800 companies offering cost-effective financial accounting services like bookkeeping, payroll, financial research, and even CFO duties.
Indian firms that offer services to global clients have highly skilled accountants with CPA (Certified Public Accountant) certification. Moreover, these accounting professionals usually have good English proficiency, making it easier for international clients to collaborate.
Some of the top FAO companies in India include MindSpace Outsourcing, Genpact, and Tata Consultancy Services.
Check out our starter’s guide on outsourcing to India to understand the benefits and the processes.
Bulgaria is a cost-effective choice for European businesses looking to nearshore or outsource their finance and accounting work.
However, due to its strategic locations, Bulgarian outsourcing services can also serve clients from Turkey, Middle East, and North Africa.
The country has plenty of top-notch accounting service providers compliant with International Financial Reporting Standards (IFRS). These accounting firms provide bookkeeping services, payroll processing, financial reporting, and consulting services to their clients.
Besides, professional accountants and financial experts in these companies can speak fluent English and have great work ethics.
Some of the top Bulgarian companies offering outsourced accounting services include NOVACON, KPMG Bulgaria, and B&Si Services.
Discover some solid tips and more in this detailed outsourcing to Bulgaria guide.
Outsourcing accounting and finance operations can bring peace of mind and a great deal of freedom for business owners. Besides saving a ton of time and resources, they can get valuable financial insights to boost the business.
But financial accounting requires the utmost accuracy, and you should only outsource to expert professionals after careful planning.
Use the information and tips shared in this guide to effectively outsource F&A functions and get the maximum benefit out of it.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.