We live in an increasingly connected world in a time of unprecedented technological advancement. More and more the ability to stand out in business relies heavily on offering the best of what you produce in the shortest amount of time possible. In many cases, efficiency and agility represent the line that separates a business that's successful from one that's merely surviving.
Business process outsourcing has always had a significant role to play in this regard, especially where an organization's finance and accounting department is concerned. BPO is by no means a new concept, but it's been changing in tandem with the rest of the business landscape. We're going back to basics with an updated crash course in FAO – whether you're brand new to outsourcing or just need a refreshed take on the solution.
What is Finance and Accounting Outsourcing?
When we talk about outsourcing, we're referring to a very basic concept: contracting out a part of the work that a business regularly performs in house to a third-party. This can take a lot of forms. Irrespective of size or revenue share, the odds are very high that every modern business already engages in some form of outsourcing. Most businesses use an outside vendor to print marketing collateral and branded assets, for example. Others use a vendor to host and manage the website that represents their online presence, and still others hire third parties to warehouse goods or simply stock the break room with a steady supply of coffee.
Business process outsourcing simply refers to using a third party to manage the processes that supplement – but aren't critical to – everyday business operations. Functions related to finance and accounting make up a sizeable portion of these supplementary processes for a lot of businesses, and when a business opts to delegate them to a third party, that's Finance and Accounting Outsourcing, or FAO.
Why Outsource Finance and Accounting Processes?
As awareness around outsourcing has increased and the market has grown, it's become accessible to businesses of all sizes. The reasons organizations have for outsourcing finance and accounting processes are as varied as the organizations themselves, but there are a few common threads:
- Better focus on core competencies: Unless a company's main offering is accounting and financing, the associated processes do nothing to differentiate that company from its competitors, no matter how critical. Completing these functions in house requires either a significant portion of time and money be spent on hiring, training and retaining qualified talent to manage the work, or key decision-makers can do double duty and attempt a DIY approach.Either way, those valuable resources are being diverted from that same company's actual main offering to keep a peripheral portion of their operations running smoothly. Eliminating this burden by delegating it to qualified outside talent allows that company to refocus their efforts on the business-critical tasks that do make them competitive.
- Offset talent scarcity: Finance and Accounting is uniquely positioned for success in outsourcing – especially with an offshore model – because the accounting industry is faced with a pipeline problem that will likely only become more challenging. The American Institute of Certified Public Accountants (AICPA) estimates that 75 percent of currently employed certified professional accountants will retire within the next 15 years, and there simply aren't enough next-generation candidates coming in to replace them. In offshore markets like the Philippines, accounting is still considered a viable and reputable career option and are qualified to the same standard as stateside CPAs.
- Manage costs and increase savings: FAO is an effective way to decrease costs for a lot of businesses for a lot of reasons. Comparable labor in overseas markets is often much less costly, and traditional expenses associated with in house labor are circumnavigated. Many companies find that the right partnership allows them to essentially bring on a new employee without needing to choose between the associated financial burden or sacrificing the quality of life standards they can already offer their team by way of pay and benefits.
- Reinvest time: For financial leadership, time is often as valuable a resource as money is. When a company chooses to outsource repetitive manual tasks and peripheral rework, they find they can budget the time they are no longer spending on those items elsewhere. They can invest that time back into tasks and functions that are value-added, including strategic planning and judgment-based finance functions like mergers and acquisitions (M&A), divestitures and nurturing shareholder relations.
- Improve accounting processes: As a company grows, downsizes and changes in other ways, accounting processes don't always have a way to keep up. Disparate systems across business units, an overall lack of documentation and employee attrition all contribute to inefficient accounting and messy bookkeeping. Allowing a reputable third party to take the reins means that a system for universal documentation is built-in, so streamlined, efficient processes become a byproduct of the relationship.