July 29, 2019

To outsource bean counting or not to outsource bean counting

Whether and how to outsource accounting

Why outsource accounting? Why outsource anything? Before answering the question, let’s take a step back. Why do we delegate? In my mind, we delegate, i.e., we employ someone else to do a task for us because:

  • We don’t want to do it ourselves
  • We don’t know how to do it ourselves, or we don’t know it well enough
  • We don’t have the time to do it ourselves

Once we have decided to utilise someone else to do something for our business for one or more of the above reasons, an important question that we should ask ourselves is whether we prefer to recruit an employee or to outsource. A number of factors are important in this decision. Here I have listed, based on our experience, a few factors that I think you should be considering with specific focus on accounting.

  • Quantum of work – do you have enough work to justify one or more full time employees
  • Cost to hire vs cost to outsource accounting – hiring typically means additional fixed costs. Depending on the jurisdiction, this might include, in addition to salaries and other direct employee benefits, costs directly related to hiring such as recruitment, visa, end of service benefits, medical and other insurance coverage and payroll related taxes. Besides, there are indirect costs such as occupancy costs and IT equipment costs. Outsourcing on the other hand simply means a fixed retainer or a time-based payment made to a third party.
  • Nature of work – does the job need expert knowledge or basic skills or a combination of these? In the case of accounting, for example, this may range from data entry which requires fairly basic skillset to higher level accounting and tax judgements which need expert knowledge and experience. Once you assess the nature of work, the next question is whether the person(s) that you hire can provide the range of skills required. An outsource firm may have the advantage of having people specialized in the range and type of skills required.
  • Risk – when you employ one single person to do all of your accounting which happens a lot in the case of small companies, there is a risk of over-dependence. What happens if that person leaves? I have personally seen cases where company managements have lost access to their own valuable data as they don’t have the password to access their own accounting system! When you outsource to a firm, you are not dependent on one person, but on an organisational system which is likely to be more reliable and stable.
  • Time frame – if the work is only for a short-term, outsourcing is more suitable as it provides much more flexibility than recruiting someone.

Based on our experience, below are some of the factors you must keep in mind should you decide to outsource.

  • Cheapest many not always be the cheapest – Many companies hire the cheapest accountants available in the market. Proper accounting requires ticking and tying all loose ends. There are plenty of cases where the resource employed has not done the job properly, with the result that despite hours of work, there’s nothing to show. Valuable time and resources are then needed to fix the data, and sometimes it may even become impossible to fix it. Lack of complete and accurate data can result in direct and indirect financial losses to the business through penalties for regulatory non-compliance and outcomes of poor decision-making based on unreliable and/or non-existent data.
  • Ensure you have access to data at all the time – you must do this irrespective of whether you are insourcing or outsourcing so that you don’t carry the risk of losing the data. With the availability of cloud- based accounting packages, this is now much easier than before.
  • Expertise and professionalism– do look for companies or persons with proven expertise in the relevant areas and professionalism.
  • Trust – I would suggest you go with someone you inherently and intuitively trust. Remember that you are handing over some of your most important data to them. You need them to handle it with the care and the attention and confidentiality it deserves. Further, and particularly if you don’t understand accounting well, then you could also be relying on their advices for some really important business decisions. Compare going to an accountant you don’t trust to going to a doctor you don’t trust – would you take that risk?
  • Systems used – there are quite a few accounting packages available in the market. Some can be purchased outright while others can be used on a subscription basis. I suggest you invest in a system which is good and user-friendly. The extra money, if any, that you have to shell out will be more than compensated by the increase in efficiency and the quality and versatility of reports. There are also some really nifty apps that come with some of these accounting systems to make your life so much easier.
  • What to outsource and how much to outsource – You may decide that you want to insource some activities and outsource others. You may also decide to outsource whole or part of the activity temporarily to a third party. There is no one-size-fits-all solution here. The right solution will depend on various factors like the size and nature of your business, your business culture and mode of operations, your own personal comfort level etc.

If your outsourced firm is good, they should help you:

  • Determine the right mix of in-house and outsourced work;
  • Agree and adhere to a communication and reporting plan that is aligned with your business and your business requirements; and
  • Guide you through all relevant aspects of accounting and will offer you the choices and risks at every stage so you can make the appropriate decision. This may be for matters such as the right mix of in-house and outsourced work, accounting judgements, tax and compliance matters, use of technology and apps, communication systems and reporting etc.

Lastly, outsourcing of accounting is not just for small organizations. Even large companies can and do outsource whole or part of their accounting needs, for short or long terms in order to make use of the expert knowledge and experience, and even the cost benefit, that a good outsourcing firm will offer.

If you are looking to outsource your accounting and tax needs in the GCC, you are in the right place. Please refer to our list of services here. Our contact details are available here

Note: My blogs are also published on my Linkedin Page. 

Leave a Reply

Get Connected