“If you deprive yourself of outsourcing and your competitors do not, you are putting yourself out of
– Lee Kuan Yew
Rapid globalization, technology advancements and the availability of quality manpower have driven the growth of Financial Accounting Outsourcing (FAO) industry; today, it is well-established and matured. The advantages of FAO have far outgrown cost arbitrage and improved efficiency now, to encompass agility and strategic advantage among others. However, the critical decision of whether to outsource the F & A function or not still remains a delicate one for entrepreneurs and senior management for a variety of reasons. Hiring an FAO partner makes a lot of sense for certain organizations while it does not make sense for many others.
In this article, we deliberate the advantages and disadvantages in Financial Accounting Outsourcing as well as the numerous factors which influence the decision to outsource.
ADVANTAGES OF IN-HOUSE ACCOUNTING
- You are in complete control of the accountants who are doing the accounting tasks for you. You can approach them whenever you want to clarify doubts or to give directions.
- You can easily align those accountants with your organization’s culture, requirements, and business goals. They will quickly understand how their work impacts your organization’s profits and business performance.
- Since the accountants are only working for your company, they will likely become loyal employees of your company who won’t leak sensitive and private financial information.
DISADVANTAGES OF IN-HOUSE ACCOUNTING
- Generally, accountants’ salaries, incentives, and bonuses are relatively high, compared to your average employee.
- The accountants you have hired should be well versed in their roles. Any accounting mistakes from their side will make your company entirely responsible and you may have to pay hefty fines or face a few years of imprisonment for non-compliance of statutory laws.
- The accountants you have hired should be completely trustworthy. You must conduct multiple interviews, run various background checks, and thoroughly check if they have any criminal records. Any leak or manipulation of sensitive financial information will get you into financial and legal trouble, which you may never come out of.
Generally, startups and small/medium-size firms, which don’t require too many financial transactions to be processed in a month and whose revenues and profits are low, prefer to hire their own team of accountants/do In-house accounting.
ADVANTAGES OF OUTSOURCED ACCOUNTING
Most large firms and MNCs outsource their financial accounting tasks to their trusted FAO partners these days. Let’s have a look at the advantages of accounting outsourcing:
- By outsourcing complicated accounting tasks and thereby statutory compliance worries, organizations can focus on their core business activities and thus improve competitive advantages, resulting in enhanced revenues and profits. In short, they can work more effectively towards achieving the purpose for which they were founded.
- Accurate, real-time financial information is made available to companies by modern accounting software used by FAO partners. All the modern accounting software are cloud-based. So the clients can access data and reports from any part of the world any time.
- Finding the right, reliable accounting and law talents can be very hard for organizations. By outsourcing accounting tasks, organizations can rely on their FAO partners, who are specialized in hiring and managing accountants.
- FAO partners have excellent Standard Operating Procedures (SOPs) in place. They ensure that there is always a backup for any accounting staff and that in the absence or resignation of an accountant, the day-to-day accounting activities are not affected.
- FAO partners use the latest, cloud-based accounting software to do accounting tasks. They are swift, robust, and secure. This accounting software can do a large number of complicated accounting tasks in a short time and in a highly secure manner. All the information is updated and accessed on a real-time basis. There is zero chance of leakage or manipulation of sensitive financial information. Only authorized persons are allowed to perform authorized activities in cloud-based accounting software.
- Outsourcing F & A activities can make your organization agile and flexible for rapid expansion, diversion, etc. as the FAO partner takes care of the added F & A workload and the allied complexities of compliance.
- Outsourcing the F & A function also offers certain strategic advantages to your organization, such as repositioning the organization or achieving a substantial increase in the share price.
DISADVANTAGES OF OUTSOURCED ACCOUNTING
Surprising as it may sound, there are some disadvantages to outsourced accounting despite expert FAO partners and state of the art accounting software. Let us have a look at them.
- Large FAO partners may not understand your company’s culture, accounting needs, or business goals properly. In short, they may not understand how their work impacts your business’s profits and market performance, since they tie-up with a plethora of companies and may not have the time to understand each one of them properly. They may focus only on their larger clients, who give them more revenue, bonuses, and incentives and ignore their smaller clients.
- Nobody likes their private and sensitive financial information to be accessed by third-party companies. Unless your FAO partner has a proven record of handling outsourced accounting projects successfully, you are likely to face anxious employees (if they ever come to know about this).
- Your FAO partner/s have to be given bonuses and incentives for completing outsourced accounting projects successfully at the end of each contract, otherwise, they may give more preference to their clients that do give them bonuses and incentives and may sideline you over time.
- If your employees come up with concerns regarding their wages, it may take time to resolve and you may not understand the explanation or resolution given by your FAO partner as accounting is a vast, dynamic and complex subject. Getting in touch with the accountant responsible for disbursal of employees’ wages may itself take time and for most organizations, time is a premium entity.
In general, established organizations, large organizations, MNCs and Fortune 500 companies gainfully outsource their financial accounting tasks. They have more revenues and profits than smaller organizations and startups. They can effectively keep their FAO partners happy (financially and information-wise). The size and complexity of such organizations make in-house accounting option infeasible too. The call on F & A outsourcing may be taken after thoroughly considering the key factors discussed in the article so far and the FAQs listed below.
FAQS IN OUTSOURCED FINANCIAL ACCOUNTING
Why should I outsource my financial accounting?
Outsourcing F & A operations allow your organization to focus on your core activities which are the largest creators of value for you. Outsourcing also allows you to achieve accuracy efficiency, data safety, risk reduction, etc. as you scale up and grow into newer markets and regions. Outsourcing also has strategic benefits.
Generally, is the entire accounting task outsourced or only specific accounting tasks?
That depends mainly on organizations and not FAO partners. Usually, established companies outsource their entire accounting task to their FAO partner/s.
Do FAO partners work on weekends?
Generally, most FAO partners/firms work from Monday to Friday or Monday to Saturday. However, most of them can support during weekends with sufficient advance notice.
Is it necessary to use any particular software?
Good FAO companies train their resources to work on multiple accounting platforms which are popular in the market. So, it is not necessary for the client to use any particular software in order to be able to outsource their F & A operations.
Do FAO partners provide demonstration sessions/free trials?
Most FAO partners/firms provide a demo session leveraging technology. Free trials are offered by some
What kind of organizations can benefit from FAO?
Typically, well-established companies, large corporates, MNCs, etc. benefit more from F & A outsourcing in comparison to startups and smaller organizations. There are no industry sector barriers to F & A outsourcing.
What about the safety and security of data in FAO?
Good FAO partners ensure complete data safety and security with a slew of measures. These include comprehensive NDAs, technology adoption, rigorous SOPs, and ensuring a culture of integrity among employees.
How easy or difficult is it to input data and view reports?
Technology advancements have made it possible to input data into the FAO partner’s system, in a hassle-free manner, these days. So is the case with accessing reports. Good FAO partners ensure that they have the necessary software which helps clients in this regard.
What is the term of FAO contracts?
Outsourcing is a strategic decision and therefore not made with a short-term plan. Most FAO contracts are signed for an initial one-year period, which gets extended subsequently depending upon the partner’s performance.