Outsourcing as a viable option
This crucial question is often asked and debated by company management. Outsourcing is a new concept for most people. An outsourced accounting firm becomes an important partner in the working of a company’s back office operation. In this article we have tried to analyze the issue including highlighting the advantages and the potential pitfalls that should be considered by the management of a company while taking such a decision.
Most small and medium sized companies today have a limited management bandwidth to focus on all aspects of their business. At the same time a robust and efficient accounting function is one of the critical success factors in the sustenance and success of a business. Management requires accurate, timely and reliable data points based on which they make important business decisions. The accounting department should have highly trained and supervised staff to be able to provide critical data on a consistent basis. Employee turnover, training costs, employee morale and motivation are some of the hidden costs while managing an internal accounting department.
Cost reduction pressures, increasing regulatory compliance and demands for a closer alignment to the business are driving the need to implement a new finance and accounting operating model. Management of companies are lever-aging finance and accounting outsourcing as a strategy to change their operating models.
Management has to decide what’s core and what’s non-core to their business, what should be retained and what should be outsourced. It is impossible to perfectly time when your organization should outsource the accounting function. Here are some reasons you might decide it’s time to outsource:
- Your business is growing rapidly, along with the number of customer accounts you have.
- Your business involves a large number of vendors or inventory or other elements that make accounting more complex.
- You no longer have the time (or even just the desire) to manage your own accounting department.
Outsourcing is a valuable strategy for organizations looking to achieve high performance by controlling costs, reducing risk, fostering collaboration, increasing transparency or growing their businesses. Outsourcing as a concept has really evolved in the last decade. An outsourced service provider typically brings in greater efficiency, standardized and streamlined operations and runs the business function better and faster than an internal accounting department.
Issues to be considered while outsourcing
One of the most compelling reasons that drives a company to outsource the accounting function is the cost savings associated with the outsourced function. Many outsourced service providers are able to offer their services at a cost that can be anywhere from 30 percent to 60 percent cheaper than what an organization is able to achieve internally.
In addition, in today’s highly competitive and ever changing market place, an outsourced service provider should be able to provide much more than just cost savings in order to justify their existence. They should be able to use their business and operational knowledge gleaned from a long term outsourcing relationship and experience with functions across multiple industries and clients to assist the company management.
At the same time, outsourcing brings with it a number of challenges that need to be ad-dressed in order to ensure that your organization has a long beneficial engagement with the outside firm. One disadvantage to outsourcing is that you are putting part of your company in someone else's hands. You have to ask yourself if you can trust them, if you think they'll stay in business and if they can adapt to your growing and changing needs. Since the outsourcing provider may work with other customers, they might not give 100% time and attention to a single company. This may result in delays and inaccuracies in the work output.
Choosing the right service Provider
If you have crossed that initial hurdle and are willing to look at outsourcing as a viable option for your business, then here are some of the important factors to consider while selecting an outsourced service provider:
- Does the service provider have the experience, integrity and expertise in managing an outsourced function such as accounting? The management should check the back-ground of the company, its management and their capabilities before selecting the provider.
- Does the service provider have well-defined processes in place that will result in a seamless execution of the outsourced function? This may be difficult to judge before you engage the service provider, but by and large based on their experience and expertise you should be able to decide if they are willing to work with your management to ensure a smooth transition. Problems with quality can arise if the outsourcing provider doesn't have proper processes and/ or is inexperienced in working in an outsourcing relationship.
- Are the tasks to be outsourced well defined? This is a very important issue that generally slips through the cracks. It seems very obvious but in reality this could be one of the main reasons for the failure of the engagement. The management should discuss with the provider, finalize and agree in writing about the tasks to be performed, responsibilities fixed and deliverables outlined. This would result in a healthy and long lasting relationship.
- Is the price reasonable compared to having a full-fledged internal accounting department?
- How secure is the data with the service provider and is the data maintained in US or in an overseas country?
- Is the service provider flexible in their approach and are their services scalable and replicable? The management should foresee the relationship 3-5 years down the line and project if the service provider has the capability to grown with the company.
Outsourcing has certain competitive advantages for a business but at the same time the wrong selection of a service provider can change the entire dynamics of the business. There is no perfect answer but if you believe in a lean and mean operation and thrive on fast decision making, quick execution of strategy and explosive business expansion then outsourcing might be a good fit for your business as it allows you to focus on your core-competency and leaving the non-core functions in the hands of professionals who are experts in their field.
VXL Services is recognized for its comprehensive service offerings that support end-to-end functions in a CFO’s office. VXL helps your enterprise by leveraging deep finance and accounting functional expertise, industry intimacy, focus on op-erational excellence and our delivery model. Our offering helps companies focus on core business issues, while the VXL team delivers to goals of standardizing finance and accounting processes, transforming the finance operations and lowering costs. Their web site is www.vxlservices.com
If you have any questions regarding his article or would like to inquire about VXL outsourcing services please contact Prakash Iyer CPA at (732) 983 - 4150 or at firstname.lastname@example.org.