Outsourcing The Accounting Processes of the Company – Pros and Cons.
Right from recording financial transactions to reporting financial statements, accounting is a reliable way to manage the finances of any business. Even though it may appear easy, managing accounting requires experience and expertise to be done correctly. It involves a series of steps to ensure that the financial report of an establishment is accurate and up-to-date. Despite having large accounting departments and teams, many companies struggle to maintain accuracy and efficiency. Many must have begun Outsourcing The Accounting Processes of their company, as it has become more feasible and cost-effective option. It is important to keep in mind that every system has its own benefits and drawbacks. Before diving into the pros and cons of “Outsourcing the Accounting Process”, first let’s understand what it means.
Accounting Processes Outsourcing (APO)
Right from recording financial transactions to reporting financial statements, accounting is a reliable way to manage the finances of any business. Even though it may appear easy, managing accounting requires experience and expertise to be done correctly. It involves a series of steps to ensure that the financial report of an establishment is accurate and up-to-date. Despite having large accounting departments and teams, many companies struggle to maintain accuracy and efficiency. Many companies have begun outsourcing their accounting processes as it became more feasible and cost-effective option. It is important to keep in mind that every system has its own benefits and drawbacks. Before diving into the pros and cons of “Outsourcing the Accounting Process”, first let’s understand what it means.
Since outsourcing became popular in the middle of the 20th century, the value added by APO has increased from 20% to 60%. As outsourcing expanded beyond basic routine business processes, many new concepts emerged such as Engineering Process Outsourcing, Legal Process Outsourcing, Recruitment Process Outsourcing, and Knowledge Process Outsourcing (KPO). Outsourcing Accounting being a subset of KPO refers to outsourcing core information-related business activities that form an integral part of a company’s value chain.
Simply put, Outsourced accounting is when a business hires a third party (outside of their company) to complete the accounting and finance related functions of the organization. As a company’s finances require constant supervision and control, managing them poses significant challenges. Maintaining the company’s ancillary functions and following up with the accounting team can at times be time-consuming and frustrating for any management. In addition, as businesses strive to reduce costs while improving performance, outsourcing is becoming more common. Outsourcing accounting can be a respite wherein a company and its leaders can focus on core activities that foster business growth.
Let us check out the Pros and Cons of APO
Pros of APO:
Cost Saving:
Accounting Process Outsourcing (APO) is gaining traction in the business world due to its cost-effectiveness. By outsourcing accounting tasks such as bookkeeping, payroll, and financial reporting to an external provider, companies can save on the costs associated with hiring and training in-house staff. This cost advantage is one of the biggest benefits of APO and can help businesses improve their bottom line.
Following are the functions and areas where the companies can save cost significantly:
- Maintaining salaried accounting staff
- Employee benefits, such as payroll taxes, medical insurance, vacations, and sick days.
- Expenses associated with recruitment and training.
- Huge rental expenditure required to place employees
- Expenses in buying expensive bookkeeping software and upgrading as per changing laws and regulations
Time-Saving:
Outsourcing the Company’s accounting process can be a great way to save time and efforts. By outsourcing the accounting process, the organization can ensure that all financial functions are managed efficiently. The organization will benefit from having access to experienced professionals who can provide accurate and timely financial statements.
Additionally, outsourcing will eliminate the time and effort it takes to hire, train and retain employees.
Strategic and Competitive Advantages:
The increasing use of outsourcing has resulted in companies gaining a competitive advantage by multiplying performance (speed and quality), decreasing capability gaps, increasing agility, accessing intellectual capital, and gaining new market access. Furthermore, outsourcing helps businesses stay ahead of their competitors by providing them with timely and reliable financial data. With the increasing use of outsourcing, companies can make better decisions faster and get an edge over their rivals in the marketplace.
Increased Technological Automation:
By working with an outsourced accounting team, the company also gets access to all their accounting software (Xero, FreshBooks etc.) and systems which in turn helps them to streamline processes and automate tasks. To get the maximum benefit from automation, the company needs a solution provider that can help to centralize, standardize, and automate its system.
Easy Access to Global Talent:
Businesses get the benefit of their work being effectively handled by talented professionals around the globe, using top-notch technology. Mostly skilled financial analysts, statisticians, and chartered accountants can be teamed up in the outsourcing entity. By utilizing such domain experts, companies can ensure that they are getting the most up-to-date and cutting-edge accounting services available. These experts understand the latest trends in the industry and can provide their clients with tailored solutions that meet their needs.
Cons of APO:
It may result in Lesser control:
For an organization, speaking with an internal accountant about financial issues is simpler. This is not the case when an external team is in charge of the company’s accounting function since, they don’t directly oversee large-scale operations of the company.
Security breach of your financial data
When it comes to financial information, businesses need to be extra careful about who they entrust with such sensitive and confidential data. By outsourcing accounting services to a reputable agency with security measures in place, you can keep financial statements, balance sheets, and cash flow secure from unauthorized personnel. Therefore, before the Company discloses its information, it is essential to fully comprehend the accounting partner and the tools they will use to protect your financial information.
Less Flexibility
When it comes to financial information, businesses need to be extra careful about who they entrust with such sensitive and confidential data. By outsourcing accounting services to a reputable agency with security measures in place, you can keep financial statements, balance sheets, and cash flow secure from unauthorized personnel. Therefore, before the Company discloses its information, it is essential to fully comprehend the accounting partner and the tools they will use to protect your financial information.
With outsourcing, the company is dependent on the service provider for all accounting related tasks and is unable to make changes or updates on its own. This can be a hindrance when companies need to make quick decisions or changes in their financials. Furthermore, outsourcing also limits access to certain confidential information which could lead to communication gaps.
In contrast to the company’s employees, the outsourcing company’s immediate accessibility is relatively challenging if it is not located closer to the company. However, a zoom call will need to be scheduled in advance and that will be depending on who is available at the Outsourcing firm.
Conclusion:
Outsourcing accounting is a great way to reduce costs, increase efficiency, and improve the accuracy of your financial data. With an advanced outsourced accounting team, you can take advantage of the latest technology and processes to make sure that your finances are in order. Not only that, but you can also customize management reporting and controller services to suit your specific needs.
Here at V Purohit & Associates, we’ve helped businesses and non-profits of all sizes, gain the peace of mind, efficiency, and actionable financial intelligence they need to succeed. Contact us to start a conversation
