The pros and cons of finance process outsourcing

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Editor's Note

This article is sponsored by numbercrunch

Business Process Outsourcing is on the rise and in fact 90 per cent of small businesses plan to outsource business functions in 2022 (up from 80 per cent in 2021) according to a survey conducted by Clutch. Furthermore 23 per cent of respondents are planning to outsource their financial services (just shy of the top spot which is IT services at 27 per cent).

If this is an area that you are curious about, here is a run down of the general pros and cons of outsourcing your finance and accounting function (“F&A”).  Keep in mind that the assumption here is that you are already prepared to hand off these tasks to someone else (other than yourself).

63 per cent of small business owners underestimate the amount of time it takes to process payroll.

Why do business owners outsource?

The key reason always cited from business owners on why they choose to outsource F&A is that it saves them time and gives them peace of mind. Outsourcing F&A reduces the number of rookie mistakes that can cause legal liability and lead to further costs down the road. Although these reasons are valid, a business owner may think they also satisfy these concerns by hiring a full-time employee to handle F&A. There is more to consider, namely expertise. Most business owners don’t actually understand the difference between bookkeepers, controllers, accountants and financial analysts and by outsourcing to a firm that specializes in your industry you get further peace of mind while you focus on growing your business.

Here is a run down of the pros and cons to keep in mind when you are deciding whether to hire or outsource your F&A function.

  1. Save on costs. Outsourcing bookkeeping services are generally less than hiring a full-time bookkeeper, but when you add in Controller and CFO services the spend gap widens greatly between hiring full time resources and outsourcing. An outsourced team can easily save you 50 per cent on your current F&A spend.
  2. Work with experts. How confident are you in your ability to assess a Controller skill set for hire? Although the average founder excels in many areas, accounting is not generally one of them. It can take a long time to realize when you have made a bad hire in F&A, and unfortunately the costs can be tremendous. 
  3. Only pay for what you need. It’s generally easier in an outsourced relationship to limit the scope of an engagement and if you choose a modern service provider they will certainly be leveraging the latest accounting tools cutting down on resource time and improving data accuracy. 
  4. Timely reporting. One of the most common complaints about in-house accounting departments is that they are too slow and financial reporting is not being circulated every month. For whatever reason, it seems extra challenging for business owners to hold their F&A department accountable. An outsourced firm has the duty to deliver or risk contract termination so it drives consistent performance or risks a bad reputation. 
  5. Affordable CFO guidance. Business owners are increasingly seeking a CFO to help them co-pilot their business. An outsourced F&A that includes CFO expertise can provide a small business owner with a financial co-pilot for making strategic plans and decisions.
  6. Minimizing the great resignation impact. It’s well known that we are in the era of the “Great Resignation” and business owners have to weather the expense and stress this impact has on their business. If you choose to outsource, this is one less area of burden. Although your outsourced provider may experience turnover of their own, it will be their responsibility to manage accordingly and ensure your service impact is minimized.
  7. Improved business focus. The savings from outsourcing F&A can be reinvested into customer acquisition initiatives to grow your revenues.

There are some cons to consider as well:

  1. Divided attention. When you have adhoc requests it may take more time for you to hear back from your external teammate because you likely aren’t their only client. 
  2. Slower turnaround time.  A benefit of an in-house team is that you can easily drop by for greater response times on adhoc requests.
  3. Out-of-scope costs. Over time business owners may want to add more reporting and services to the relationship which can lead to scope creep and increased costs. To contain spend you’ll want to ensure additional costs are discussed in advance to avoid nasty surprises when the bills come in.
  4. More control. When hiring an in-house team, you can direct how the work is performed and exactly what the reports look like.  When engaging with an outsourced provider, you get to clarify what information you want, but generally the vendor essentially decides how the work is performed, including reporting design, etc.
  5. Unmet Expectations = Frustration. Outsourcing F&A does not mean you will eliminate all frustrations. There will still be errors from time to time and the frustration can sometimes feel greater for those who thought that outsourcing a business process would result in complete elimination of all departmental issues. 
  6. Choosing the right vendor. All outsourced F&A providers are not created equal. Ensuring you select a reputable vendor with the right expertise for your business will ensure a better experience.

If you are considering outsourcing your finance function keep these pros and cons in mind and be sure to do your research on the F&A provider before engaging to ensure they are the right fit for your business.

If you’d like to have a conversation with a specialist at numbercrunch about outsourcing your finance contact us today.