When, Why and How to Outsource your Accounting
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“Outsourcing” has been around for a long time, but the business term was firmed up in the early 1980’s, as the practice became more refined and defined. Outsourcing is not just subcontracting the work, but actually carving out specific responsibility and authority to a partner business. Businesses often opt to outsource portions of their internal processes, without even considering hiring in-house. Most small to mid-size businesses outsource tax, legal, payroll processing and information technology, without even considering in-house hiring for these roles. Yet, your Finance/Accounting department can also be a great opportunity to leverage an outsourcing relationship. These outsourced services might include Controller services, Accounts Receivable, Accounts Payable, Payroll Execution, Interim Reconciliations, Month-end Close and Financial Reporting.
When & Why?
Outsourcing can give your business the ability to focus on their core products and services, without trying to build Finance/Accounting expertise in house. The right outsource partner provides these services as their business, so they have the tools, experience and expertise needed, right out of the gate.
Most small-to-midsize firms have broad Finance and Accounting requirements and activities, that vary in scope over time. This lumpy landscape of needs can be difficult to ‘hire’ to, as the job description can change from day to day. And, in many cases, each job isn’t a full-time job, so it is difficult to hire one person who effectively wear so many hats. For example, the business might need help with a Workers Compensation audit, once a year. And then budgeting/forecasting revisions twice a year. Accounts Payable weekly, Payroll semi-monthly. If you try to hire to these needs, you might end up with too much of one skillset and not enough of another. And a heavy reliance on one person or a small number of people. A reliable partnering firm will effectively bring the right people to the right requirements. They can leverage this across multiple client’s of theirs to balance out workload and skillsets.
Finally, outsourced Accounting can provide your company with more predictable costs, scope of services and deliverables than in-house services. Purely by the nature of the partnership itself.
How?
First of all, it is important you select the right outsourcing partner. A few things to consider in the selection
1) Firm size: If the partner is too large, your business might be an afterthought and not material to their bottom line. And, your small-business requirements might not be in their sweet-spot of services. A too-small partner will not have the bandwidth or resource breadth to meet your business needs. The right size firm will treat your business a ‘good fit’, and will give you the structure and predictability, as well a broad set of resources. A business should select the Goldie-locks of partners –a partnership where the outsourcer will see you as an important part of their business. How do you find this out? Ask. Ask the potential partnering firm “what size is your ideal client”, and “how many active clients do you have at different tiers of business size”.
2) Culture: This may sound cliche’, but a similar business culture creates a much better partnership. Because in a successful outsourcing relationship, the outsource partner will feel like an extension of your business. Often, they are representing your company as they communicate with your vendors, customers, investors, professional service providers, etc. Some ways to identify culture is to again ask. Also, look for value statements and community relationships on their websites, as well as employee/officer profiles.
3) Financial: The financial impact of outsourcing is also crucial to evaluation. Try not to compare the cost per hour of an employee. Instead understand that the outsourcing provider is providing you with a set of services. Look at the scope of those services, and what it takes to build that capability in-house. This about hiring, training and managing those resources as well as building the tools and processes. A quality outsourcing provider is bringing training, processes, benefits, tools and people to meet that scope – all things that your business will not need to do.
Where do you find the partners? Start by asking your network, as well as online research.
The location of your outsource partner is less important these days. But if you hire an out-of-town firm, be sure to ask about their experience, tools, security and processes to facilitate remote support. Some example questions for any firm you are considering:
1) If they will interact with your clients/vendors/investors/banks, do they appear as part of your team?
2) How do they handle accounting emails and communications?
3) What systems do they use to manage your business data?
4) How do they maintain security of your information, including banking access and financial reports?
5) How are remote meetings and reviews facilitated?
6) Do they offer or employ a virtual mailbox service that your firm might use?
7) What is their ‘transition’ approach, to move these services to their firm?
8) How are ad-hoc requests handled, and might additional team members be allocated to help?
9) Where do their services start and end? And what services are important for you to outsource? For example, do they do Tax work and advisory? If you already have a solid CPA relationship, you may prefer that they work with your existing CPA firm? Will they perform annual 1099s? Do they provide property tax statement work? What about Workers Comp audit support?
10) Is there cross-training of team members so that your business needs avoid interruption from staffing illness/vacation?
An experienced firm will have answers and options that will assure you that your company is in good hands with the partnership. You are buying a service, not an individual staff member or team. Outsourcing your Finance/Accounting department, or portions of this department, can be a sound move for a growing company, allowing you to focus on your core business.