How to Outsource your Accounting

Introduction 

Technology is developing, and change is rapid. Accounting must respond to changing business needs, and that’s why process development is important. The focus of accounting is shifting towards knowledge-based management, meaning producing and analysing information that supports business decisions. In addition, simply reporting on the past is no longer enough; effective future modelling is crucial. Therefore, the focus of accounting needs to move away from repeating the same ineffective routines.

The challenge for many organisations is that although there are enough resources in accounting, they are misused in poorly planned processes. From month to month, the accounting resources are used for manual and repetitive routine tasks, instead of them doing value adding work that supports decision making, such as customer-specific analyses, investment calculations or forecasts on different scenarios.

The situation might be a result of out-dated systems or that current resources’ expertise is more of financial accounting than business controlling. The fact that employees prefer familiar practices makes it difficult to implement changes internally. Another factor that slows down the development of accounting processes is that resources are often needed in core business and back end processes are left behind.

These are some of the reasons why basic accounting functions are outsourced to a partner who can produce them efficiently and also utilize automation. There is a pressure to modernize financial processes, but at the same time, cost-efficiency is also required. In addition to systems and integrations, routines can be automated through robotic process automation and AI. However, finding a suitable solution for your company requires the help of an experienced partner.

Outsourcing is a way to ensure constant development and to identify cost reductions. Our advice and examples will help you find a suitable way of increasing the efficiency of your financial processes.

Business process outsourcing can be built as an external service solution with or without the personnel transferred to the external partner. In any case, the purpose of outsourcing is to integrate accounting into a single unit that combines a modern and efficient way of managing routines with active development and increased service level.

Modern outsourced accounting

Expert partner to support change and development

Cost-effectiveness and ease of administration have always been reasons for outsourcing. When financial services are provided by external partner, a company benefits from their partner’s specialization and achieves efficiency and economies of scale. Also, the company saves time and money in recruiting and taking care of compensatory resources required for absence situations. In addition, often reasons for outsourcing relate to the need for faster or better reporting processes, or ensuring that accounting is scalable when the business expands internationally.

So, what has changed? As stated in the introduction, the digitalisation of society and the accelerating change of requirements in accounting have become evident in recent years. Both business and financial systems are developing and are being updated at a fast pace. In addition, RPA and AI have become central tools for finance process development. In general, it could be said that the accounting of the 2020s requires more and more development ability and agility, in addition to the more traditional attributes such as efficiency and ease of administration.

Therefore, an outsourced accounting partner is not sought just for the sake of cost savings. Companies are specifically looking for a developing and specialised partner who ensures that accounting processes are modern and efficient, both now and in the future. A partner must also be able to respond to possible volume changes, such as customer's strong growth or internationalisation, or a sudden contraction of business. 

Corporate responsibility is significant 

In recent years, emphasis has also been placed on responsibility matters. A modern accounting team should be composed of experts, not clerks. Sometimes, however, the allocation of roles in the internal accounting is not optimal, and people may respond to reforms negatively. This slows down development significantly. 

While there is a desire and need to provide financial services efficiently, it cannot be made at the expense of personnel or the company’s reputation as an employer. Instead of terminating employee contracts due to outsourcing, the entire financial function can be outsourced by transferring the employment relations to the new service provider – more on that later. This way, a company does not have to choose between competitiveness, efficiency, and its responsibility as an employer.

Efficiency in accounting is achieved by doing things differently, through better work practices supported by modern systems, AI and RPA. Efficiency is not achieved by demanding more work hours or a faster work pace from employees if practices are poor. 

Financial service partners have expanded their services 

As more and more companies that outsource their financial services wish for a developing partnership, that is also provided more. Many financial service providers have taken the role of administrative process developer, supporting customer’s strategy and its implementation, actively developing accounting technologies as well as tools for optimising subprocesses and knowledge-based management.

In addition to their core service solutions, financial partners are also providing software products, and have expanded their expertise to cover robotics and AI solutions. These technologies can also support customers' other processes, not just back office operations. For example, robotics and AI may be utilised to accelerate customer service or to improve the quality of the service. In addition, partners support companies’ internationalisation needs by providing common platforms, service solutions and ready-made partnership networks on global scale.

Financial tools have also improved but choosing a proper tool and especially using it effectively may be a challenge without a competent partner. External partners can also provide consultation on process development suggestions to improve customer’s financial operations. This consultation provides an opportunity to compare operations’ efficiency to the best industry practices. Reports provide ready-made improvement suggestions, containing the parner's technology and service solutions, which can be then tendered.

How should you outsource accounting?

The outsourcing of accounting can be approached either as a whole service centre or smaller scope. Which are the typical tasks that should be outsourced and what are the roles that should be kept in-house?

Normally, companies start by outsourcing routine and repetitive tasks such as accounts payable/receivable, monthly closing, and regulatory reporting. Payroll calculation is also a common process to be outsourced. In general, financial accounting processes have many rule-based elements that are similar across different companies. Performing them can be done without a deep insight of business drivers.

Everything does not have to be outsourced at once, but the scope of outsourcing should still have clear process entities and responsibilities. Outsourcing a single work stage may not yield a great deal of benefits or savings. Since the process stages are linked to each other, the process becomes more exhaustive if additional coordination is required. Therefore, outsourcing should always be scoped so that the allocation of responsibilities is clear. However, the scope of outsourcing is flexible and can be changed later, as the customer’s business requirements develop. 

Financial service partners also offer business controlling and CFO services, which can be a great fit especially if the need for resources is part-time or momentary. Also, with good BI tools, management accounting routines can be automated efficiently. Instead of producing reports and forecasts, employees get to analyze and support the business in decision-making. BI and forecasting tools must be integrated with financial data, and accounting must produce accurate information so that the analyzes can be trusted. The overall functionality of internal and external accounting is the basis of effective knowledge-based management.

When a company is scaling upwards, external accounting is more flexible because resourcing can be increased step-by-step instead of by adding headcount. Such companies are also typically facing massive recruitment pressure in their other functions. If new administrative personnel is out of scope the recruiters can focus on core business personnel.

Another typical reason for outsourcing is the overall need to redesign and modernise processes. An example of this would be a change in the ERP system, or a situation where the accounting processes has been lagging behind development for one reason or another. With the help of a partner, accounting can be modernised as a whole and the administration support systems such as purchase invoice processing or travel claim calculation systems can also be updated.

A partnership can bring many advantages, but it requires both parties participation. Customer needs to take part in designing processes and managing personnel to follow the new guidelines. Therefore, the CFO should have time for the cooperation or delegate someone else to take care of the partnership. The more a company wants to develop financial projects with a partner, the more important it is for the company to participate in the development and be a stable link between the external partner and its own stakeholders.

Roles and responsibilities – why are Controllers needed? 

Not all tasks should be delegated to partners. In general, the tasks that support the business the most decisively, that require a deep understanding of internal processes and that are not repetitive, are more difficult to outsource.

It is worth questioning all data production work that Controllers do because these days it can be effectively automated with BI and forecasting tools. Instead, Controllers are needed for analysing the data and supporting business decisions as well as for planning and ensuring operational models from a finance perspective. 

Transfer of undertakings is an easy method to outsource accounting

As previously stated, one outsourcing method is a transfer of undertakings. It refers to the transfer of a company or its operative part to another operator. In the case of outsourcing, it refers to a trade, where a service provider purchases a productive function of accounting, and its related tools and employment relations.

A transfer of undertakings is a responsible outsourcing method because it ensures that the current employment relations remain unchanged. In addition, it is a risk-free transfer method, because the expertise of current processes and tacit knowledge are transferred as they are to the service provider. Routines remain the same, and the development can be implemented in steps. 

The idea of a transfer may cause employees to worry. Will work change? Will the relations with the former employer be terminated? For employees, transferring to a new company is an opportunity to grow as a professional and to take inspiration from other financial experts.

So, it is not a decision that causes a bad reputation to anyone. Outsourcing via transfer of undertakings is an opportunity to grow – for both the company and its employees.

How to succeed in a seamless accounting outsourcing project?

Make careful preparations 

Next, we will describe how to create the best conditions for a successful outsourcing project with a fast return of investment, without interruptions in reporting schedule or quality.

The foundations of a successful outsourcing project are actually created well before the kick-off. You might want to think of the following: 

1. First, you must specify the goals and reasons of your outsourcing project. Cost savings? Things related to your finance team's skills or resourcing? Improving quality or schedules? Updating or automating processes or systems Responding to future business needs? Something else? Identifying these will help you find a suitable partner and facilitates the preparation of request for proposal.

2. Define current situation and the current critical business processes well. Documenting current processes by yourself can also be beneficial but you can easily utilise outside help for this as well. When mapping out the current state, an experienced partner is able to compare it in a solution-oriented way to the goals. Understanding the current situation to a sufficient extent is important so that partner candidates are able to create sensible proposals. Although the goal is often to get comparable offers, it is worth giving space to service providers to present proposals using the tools they know. Mapping the current situation helps to create a common understanding of what is expected from the service right now and what are the expectations and needs for development. If there is not enough understanding of the current situation, starting the future cooperation can be bumpy. 

3. Describe the system architecture to your upcoming partner. If you have recognised something that doesn't function in your architecture, bring it up already during the tendering process and discuss it openly with possible partners. Together you can brainstorm solutions. System challenges affect service costs and processes essentially. When requesting an offer, especially the most laborious and manual steps should be made as transparent as possible for both yourself and the possible partner. 

4. Think about the scope of outsourcing and areas of responsibility. What tasks will you perform in-house, and what do you want to outsource? Have you thought about an option where the current finance personnel transfers to a partner as a part of the outsourcing solution? In this way, the transfer of tacit information is easier and safer, and on the other hand, skilled people get new career paths and growth opportunities with a partner. Or is there a need to proceed more directly with a pure service solution? Responsibilities and the scope of the service can be changed later, but it's good to think about which skills are really business-critical and kept in-house and which part of the routines could be handled more easily through a partner, freeing up your time to support the business.

How to find a suitable outsourced accounting partner? 

Naturally, the successful outsourcing depends on choosing a capable partner suited to your needs. Here are our tips for choosing a suitable service provider: 

1. Choose a partner whose offering, development mindset and quality management support your strategy now and in the future. Changing the outsourcing partner is possible, but challenging, especially in large entities. Also consider the company's future needs, for example internationalisation or ownership changes.

2. Prefer partners who focus on employee satisfaction. Outsourcing business is about producing a service, so you want to ensure that your partner recruits the best experts in the field. When work satisfaction is high, the risk of personnel changes in your service team is decreased, and the continuity of financial services is improved. Also, in case of a transfer of undertakings, transferring your employees to a partner that takes good care of their personell is far more pleasant and safer to all parties.

3. Make sure that the negotiation mechanisms related to service pricing is clear. It is important that the pricing and service model work flexibly and cost-effectively with the growth of your company.

4. Choose a partner who actively develops its business and technology and knows how to utilise automation. This way you can expect the partner to provide your finance function with the best practices and technologies on the market.

How can you ensure a good relationship with a partner?

When you have found a suitable partner to go forward with outsourcing, it is a good idea to build a partnership model to actively develop the processes in cooperation. Your company’s contributions to the development will strongly influence the pace and result of the targeted improvement results.

For a functioning partnership, the processes, system environment and allocation of responsibility regarding work stages should be well documented from the beginning. This will ensure a smooth transition phase for the partner when both parties are aware of each other’s responsibilities.

In addition to the actual financial processes, good communication is crucial: how should you agree on issues, and with whom? Who is your contact person in daily matters or development targets? What other forums are required to develop the partnership? Appropriate measurable response times can also be agreed for service requests.

In a good partnership one can discuss and overcome difficult matters. Clear procedures in the event of errors or exceptional conditions are important. To support this, we recommend a steering group practice in which you can affect how the financial team is steered and developed. Matters such as the prioritisation and realisation of projects for cost-effectiveness are also topics on this forum. 

If you predict changes in your business volume, it is a good idea to specify a mechanism for adding or reducing resources, and to specify beforehand how this kind of changes affect service pricing. This will allow you to budget the cost level more accurately.

The opportunity for development should be utilised

Follow the evolving technology and the changing world

The outsourcing of financial services is usually linked to the company’s overall development goals to become more agile in all its areas of operation. External partner can help modernizing administrative processes and the company itself can focus on developing its technology around the customer experience. A partner will ensure that you can keep up with a changing world, and that you are also using cutting edge technology in management processes. 

Next steps? Think of your current status and your future needs and look into the service and technology portfolio of different partners. Find out what your business and financial department may achieve through outsourcing. At Staria, we will gladly discuss the direction in which your company’s financial function can develop.