As entrepreneurs strive to gain a competitive advantage in their market, outsourcing back-office bookkeeping, payroll and management accounting functions are becoming an increasingly popular solution.
And not just for large companies. In fact, as small companies have fewer management resources, they benefit most from freeing up time from mundane tasks to concentrate on growing revenues and profits.
There are many advantages to outsourcing, some of which are not as apparent as you might think:
Replace fixed costs with variable
Possibly the greatest attraction of outsourcing is the opportunity to turn fixed costs into variable costs which can grow and shrink as necessary. The fixed cost of employing full-time financial staff to carry out day-to-day bookkeeping, payroll and management accounting functions can be onerous, especially when a business is struggling. However, outsourced costs are completely variable. When the business is small, your costs will be small, and, as it grows, accounting resource can be brought on-stream gradually. There are are also savings in employee benefits, insurance, recruitment fees and training costs. Not to mention the cost of providing work-space for the accountancy function.
Stick to the knitting
You didn’t start your business because you’re great at keeping accounts (well, not unless you are starting an accountancy firm). No, your skills lie in other areas – product development, innovation, sales or marketing. Your greatest chance of success is concentrating on what you do best, and leave the other stuff to people who are great at that.
Make better decisions
The benefit of making business decisions based on timely and accurate information is also a major attraction of outsourcing. Investments in production assets, stock, buildings or staff are best made when you have a clear understanding of the exact financial position of your business. Decisions on resource allocation are best made when you understand how each scenario will play out. Delays and inaccuracies are massively reduced when the accountancy function is outsourced to experts.
A second hand on the tiller
A by-product of outsourcing is the access to expertise and guidance from individuals outside the business, who can provide vital knowledge and insights from their experience of other successful businesses. This second pair of eyes can be a vital factor in fast-tracking the growth of a new business or in maximising the profit and value of an existing business.
Of course, there are also pitfalls to be carefully managed:
It is important to develop smooth communication channels with your outsource partner. One of the realities of outsourcing is that you do not have a full-time person at your beck-and-call. There may be times when questions are not answered immediately and management will have to adapt and plan for this possibility. Management also needs to trust the expertise of the external firm and their ability to carry out the necessary daily, weekly and monthly processes without excessive monitoring by internal management.
Losing touch with the business
A major worry for business owners is that they will lose touch with spending if they are not monitoring their accounts in-house on a daily basis. Therefore, it is vitally important to research outsourcing options to guarantee the best fit for your specific business. It is vital that the information you receive is the information you need, and not what the provider wishes to provide, and that you receive your information according to your timetable. You know your business best and a true partner will recognise that.
Your accounting information is commercially sensitive information. It is your intellectual property just as surely as if it were a trademark or patent. It is important to ensure your chosen outsourcing partner have sufficient data protection safeguards in place to guarantee the safety of your information. Inquiries should also be made as to how your partner plans to meet the EU’s GDPR (General Data Protection Regulations) in May 2018.
If you are thinking of outsourcing all or part of your accountancy function in 2018 or would like some further information, our in-house accounting providers would be delighted to have an informal chat to see whether it suits your business.