Outsourced financial services are one of the top strategies employed by many business leaders. Since we are currently living in a hyper-connected world with unprecedented technological advances, standing out in business depends on the ability to produce goods and services in the fastest way possible. Most of the time, production efficiency is what separates successful businesses from those that are merely pulling through.
One factor with a significant role to play in this aspect, especially when a business’s financial department is concerned is outsourced financial services. Finance and accounting outsourcing is by no means a new concept, but it is changing alongside the general business landscape.
So in this article, we will go back to basics with a refresher course in finance and accounting outsourcing.
What are Outsourced Accounting Services?
When we say outsourcing, we refer to the concept of contracting out to a third-party vendor a business function that is typically internally performed. The process of outsourcing can take many different forms. Chances are modern businesses across different sectors and sizes are already engaging in some form of outsourcing.
For instance, some companies work with an external team to host and manage the website and social media accounts that constitute their online presence. Others hire third-party providers to manage marketing assets and brand collateral, while still others use external service providers to stock goods and supplies.
Simply put, business process outsourcing is the use of external providers to take care of functions that augment, but are not necessarily essential to, day-to-day business operations. For many organizations, processes related to accounting and finance take up a significant amount of these auxiliary services. When businesses choose to delegate these functions, we call that Finance and Accounting Outsourcing.
Outsourced financial services are often used interchangeably to refer to offshoring. However, the two actually pertain to different tasks. Offshoring is one strategy to take part in outsourcing. It involves delegating business functions to a provider that is operating in another country. Companies that compete in an expensive and rigid labor market can use the offshore outsourcing model to their advantage.
Why Do We Need Outsourced Financial Services?
1. Provides Valuable External Insights and Accountability
Outsourced financial services give you the opportunity to work with experts who have perspectives about the inner workings of multiple kinds of businesses. This gives you the assurance that your accounting is complying with the top practices and appropriate regulatory standards. You will also be able to rely on the impartiality that comes with external advice. The independent perspective of outsourced financial services improves accountability and adds financial capabilities to your business. With precise and well-timed reporting, you can take advantage of more opportunities and make data-driven decisions more quickly.
2. Range of Knowledge and Experience
Small-size businesses sometimes struggle to fully manage all accounting functions with their internal employees. For instance, your current finance team might be good at controller services but finds other tasks like audits and corporate tax difficult.
With outsourced financial services, you can hire experts in all areas of your accounting department so you can rest assured that each function is performed. The breadth of experience in outsourced financial services has enabled you to fill the current gaps in your system and maintain a strong financial standing as you proceed towards the future.
3. Scalability and Long Term Access to a Diverse Pool of Employees
In 15 years, roughly 75% of accountants in the US are expected to retire. Because of the shortage in the supply of local talent, businesses might struggle to find a reliable team to manage their finances.
It’s not uncommon for companies to find themselves in situations where the staff members with the most historical knowledge and information in the company retire or leave for another reason.
Additionally, companies whose main function is not accounting often find it difficult to maintain employees who have sufficient skills in managing accounting tasks. One accounting function that is often not given enough attention is the processing of accounts receivables.
Managing finances in-house also worsens certain problems. For example, software that is sufficient for a small company can become restricting when more customers, employees, suppliers, and tax obligations start to come in.
You can easily prevent problems like this when you choose outsourced financial services. By outsourcing, especially if you choose an offshore model, you get to tap into a diverse pool of talents that you wouldn’t have had the chance to meet should you have refused to outsource. These employees often undergo consistent training to maintain a good comparative advantage.
On top of that, outsourced financial services give you the ability to position your external employees where their skills are better utilized. You also don’t have to worry about expanding your business because outsourcing accounting offers a scalable solution that grows with you.
Finally, outsourced financial services remove worries about background problems such as accounting software. Most outsourcing firms maintain state-of-the-art accounting systems that offer streamlined accounting as well as data-driven reports and management analysis.
4. Develop Reliable and Future-Proof Accounting Systems
Business leaders have to manage multiple areas of the company, regardless of whether that area is their forte or not. If accounting is not your strongest suit, you will struggle to develop an accurate and dependable accounting system that will fulfill the needs of your organization now and in the future.
Choosing outsourced financial services allows you to transfer the responsibility of establishing accounting systems to professionals so you can go back to doing what you do best. As the footprint of your business expands, you can be confident that your accounting is conditioned to grow with your business.
You can scale up your outsourced financial services, if demand permits, without needing to employ in-house staff. You can also rely on the outsourced team to keep you compliant with ever-changing financial regulations as you expand your landscape.
What do Outsourced Financial Services Encompass?
In a highly competitive industry, such as accounting and finance, maximizing efficiency and keeping costs at bay is essential, especially when you’re in the midst of uncertainty. Although expanding the business by increasing service is important, it can also put you in a difficult position. You may want to expand your footprint but refuse to increase expenses on extra resources or labor costs.
This is where outsourced financial services come in. Outsourcing accounting is a cost-efficient way to solve this problem since outside service providers can accomplish the same amount of work for less than the price you would pay by employing full-time accountants.
So, the next question is: which accounting services should you outsource?
Bookkeeping usually looks like an easy task to do, but it often can become too manual and technical. Bookkeeping takes away many resources that are better spent on higher-value tasks. By outsourcing some or all of your bookkeeping tasks, you can get your employees to focus on more important functions that your clients are expecting from you. Moreover, bookkeepers don’t need extensive knowledge of the company in question, making it a prime service to outsource, thereby saving you time and increasing the value of your work.
Payroll is one of those functions that companies, especially small businesses with minimal staff struggle to manage. So it’s a perfect task to delegate to an outsourced team. If you don’t have the budget and the resources to work with an accounting firm, it makes sense to contract an outsourced payroll department.
3. Tax Returns
Similar to bookkeeping, managing tax returns is relatively effortless to do. However, require more time to do, especially for larger enterprises whose situations make preparing the return more complicated.
By allowing outsourced financial services to manage recurring returns, your team will free up some time. Other businesses also outsource tax returns during high traffic seasons, usually during the beginning and end of each year. This is perfect since these times of the year are often packed with more workload.
In terms of managing stress levels, outsourcing tax returns is beneficial for you and your team since it spells an end to working evenings and weekends, giving extra time to spend with friends and family during peak tax times.
4. VAT Returns
VAT returns are another time-consuming function for businesses. Lucky for you, there’s also a hack to VAT returns, making outsourced financial services a great choice.
When outsourcing VAT processing, go for a company that works based on the setup you already have in place instead of inflicting their selected system on you. This way, the process of outsourcing VAT returns is more straightforward and hassle-free.
How to Outsource Accounting and Finance?
After you decide that outsourced financial services fit your business strategy, the next step is to look for potential outsourcing partners. During this stage, you need to select a vendor that complements your organizational goals, values, and workflows. A caliber business process outsourcing (BPO) firm should be able to communicate your concerns and offer client referrals, case studies, and a pilot project agreement in conjunction with a quote when you send your request for proposals.
When selecting a BPO provider, here are a few considerations you need to ponder.
Look for a BPO firm with a proven history and track record. This is imperative if you want to ensure success in your outsourcing initiatives. Look beyond the duration they’ve been in business. If possible, try speaking directly with their previous and current clients to see how they like working with your selected partner. An outsourcing firm that can sustain and expand the services they provide to their clients time after time is a good sign that they’re doing a remarkable job.
You need to know what to expect about your outsourcing initiatives right off the bat. Being fully aware of how the service provider manages workflow from the onboarding process down to actual implementation is imperative when selecting a partner. So, our suggestion is to look for a firm that can walk you through how they function and remain transparent all throughout the process.
You need to consider two primary technological factors when choosing a BPO partner.
Firstly, you need to know whether they use cloud-based systems or not. Nowadays, a provider that is not capable of moving your possibly siloed information into a unified system in the cloud does not have the ability to help you scale when needed.
Secondly, you need to look for a provider that does not impose the migration of your existing processes onto their platforms. A robust outsourcing partner should be able to adjust with the current technology you have and not insist on adopting theirs.
There will always be security concerns when it comes to financial information. Fraudulent activities and data breaches can cost businesses millions if not prevented. The provider you choose should have ISO certification and they need to have security protocols installed.
Another important point to consider when selecting an outsourcing partner is the way they measure performance. It’s wise to discuss this matter when you meet with your potential provider. Go into details about the improvements you’d like to see and the KPIs you want to be achieved.
You need to ensure that the BPO firm you choose has commonalities in terms of your organizational culture. Find a candidate that shares your priorities and considers your concerns. Having a good cultural fit simplifies the process of onboarding and eases communication. Ultimately, you need to feel that the outsourcing firm is a part of your team, not a separate entity.
The Bottom Line
At first, outsourced financial services can seem daunting. The truth is, it doesn’t have to be hard. Just follow the steps we listed above in selecting an outsourcing partner and you’ll be fine. After choosing the right outsourcing partner and the right set of tools, should be able to enjoy all the benefits that outsourced financial services can offer you.