The business process outsourcing industry is expected to reach $152.80 billion in the United States alone during 2025. By 2030, the industry is expected to topple $280.64 billion. The pandemic forever changed workflows, with countless organizations forced to adapt to remote work. At the same time, employees began leaving their positions in record numbers, forcing CFOs to explore alternative labor forces, including financial outsourcing. This brings us to the question: Is financial outsourcing worth it?
Despite what you might believe, outsourcing is a great way to reduce costs, uncover new opportunities, and reach growth goals. Deciding if financial outsourcing is worth it requires a thorough CFO cost analysis. In this article, we'll guide you through that process, along with exploring finance outsourcing, costs, and benefits.
What is Finance Outsourcing?
Finance outsourcing is the process of hiring an independent contractor or outsourcing agency to manage the financial tasks in your organization. Common finance tasks outsourced include accounts receivable management, data entry, accounts payable management, financial statement generation, budget oversight, compliance management, and financial forecasting and modeling.
Although there are finance outsourcing agencies based in the United States, many organizations look for overseas professionals to lower costs. However, where you source your outsourced finance professionals will depend on the specific needs of your organization.
There are two main types of finance outsourcing: freelancers and outsourcing agencies. Freelancers are independent contractors that aren’t attached to an agency. Hiring a freelancer is good for one-time projects or simple outsourcing needs. On the contrary, outsourcing agencies have numerous finance professionals on their staff, giving you flexibility, access to new resources, and continuity if one professional leaves.
Evaluating Financial Outsourcing Costs
Before we can evaluate outsourcing costs vs benefits or how to complete a CFO cost analysis, we need to outline common costs associated with outsourcing. Keep in mind that the following costs will differ based on the company you work with. Nevertheless, here are common costs associated with finance outsourcing:
Service Fees
The first type of cost you may encounter is service fees. Service fees are costs paid to an outsourcing agency for pairing you up with a professional. Some outsourcing agencies will charge a one-time service fee upfront, while others will impose an overhead charge on a regular basis, such as monthly.
Service fees can also be charged if you utilize certain resources. For example, if you need a year-end projection or growth forecast, your outsourcing agency might charge a specific cost for preparing this item on top of the hourly fee. Moreover, service fees can also apply based on your payment method. For example, if you pay with a credit card, expect to incur a 1% - 3% fee.
Staffing Costs
The next outsourcing cost you’ll incur is staffing costs. This is the hourly rate of fixed cost you’ll pay for the finance outsourcing professional. Most outsourced finance professionals work on an hourly schedule; however, you might be able to secure a fixed contract, depending on the services you need.
It’s important to note that your staffing costs will not include employer payroll taxes or benefits. Outsourced professionals are considered independent contractors, meaning they are in charge of their own tax reporting. Even if you do pay a higher hourly rate, these cost savings can be more beneficial in the long run.
Transition Costs
Transition costs occur when you switch from internal processes to an outsourced team. Costs, like data migration, process documentation, and training, are all included in transition costs. Some outsourcing agencies will provide a fixed cost for migration, while others will work based on an hourly schedule.
Management Fees
Management fees might apply if you have an internal team member overseeing outsourced finance professionals. For many CFOs, this individual will be themselves, leaving no additional management fee cost. However, if you plan on hiring a dedicated internal staff member to oversee your outsourced finance professionals, be sure to include the expense in your CFO cost analysis.
Collaboration Resources
Maximizing finance value outsourcing relies on having the necessary collaboration resources in place. Communication platforms like Slack and Teams ensure fluid communication between your internal staff members and the external outsourcing team. Other collaboration resources might include cloud-based accounting software and projection software. While your outsourcing agency may provide some of these items, many companies will also invest in the necessary resources to maximize value.
Eliminate the guesswork: Calculate if financial outsourcing is worth it for your organization now.
Unlock Financial Outsourcing Benefits
Now that we’ve covered a few of the costs associated with finance outsourcing, let’s go through the benefits of finance value outsourcing.
Scalability Options
The first advantage of finance outsourcing is access to scalability options. For one, you can leverage the expertise of outsourced finance professionals to identify new opportunities and reach your strategic growth goals. In addition, working with an outsourcing agency means you have numerous financial professionals ready to jump in and help your business at any time.
For example, let’s say you want to raise capital. The backend work to issue financial statements, prepare forecasts, and put together investment presentations can be time intensive. If you don’t have the labor capabilities, you might lose out on opportunities. Not to mention that hiring in-house employees takes weeks and can be costly. Instead, you can partner with an outsourcing agency that has the labor force to handle an influx of tasks.
Improved Compliance
Growing organizations often face compliance issues, from forgetting to register for sales tax in a new state to missing an important filing with the government. Outsourced finance professionals have the expertise to monitor compliance in your organization. Similarly, many finance professionals can also advise you on compliance best practices.
Expanded Insights
As a CFO, you likely have a background in accounting and finance; however, having another expert to bounce ideas off of can make all the difference. From mapping out strategic growth to deciphering financial results, an outsourced finance professional brings new ideas and insights to the table.
Cost Savings
Despite a handful of different costs associated with finance outsourcing, most companies report cost savings. From the elimination of employer payroll taxes to flexibility in hours worked, outsourced finance professionals have the ability to improve your margins without sacrificing work quality. Additionally, the insights and attention to detail provided by an outsourced finance professional help your company scale to new levels, such as increases in revenue and market share.
Greater Support
What would you do with an extra five hours back in your week? Could you secure more customers or spend more time with your family? Outsourced finance professionals give you support, helping you transition into other value-added tasks. Instead of trying to manage every detail of the finance function on your own, you can leverage the expertise and availability of an outsourced finance professional.
Risk Reduction
Outsourced finance professionals have extensive experience identifying risks and opportunities. This expertise can be directly used in your company to uncover relevant risks and generate an action plan to preserve your profitability. For example, your outsourced finance professional might uncover that the risk of customer payment default is 20%. To alleviate this risk, your outsourced finance professional reworks your collection policies and makes it a priority to follow up on outstanding invoices each month.
Want to explore hidden advantages? Uncover 3 surprising benefits of accounting outsourcing.
How to Complete a CFO Cost Analysis
A CFO cost analysis looks at both the benefits and the costs associated with finance outsourcing. Although it can be difficult to assign a monetary benefit to certain items, like your time, there are ways you can ballpark if financial outsourcing is worth it for your organization. Here’s a simple four-step process to complete a CFO cost analysis:
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Calculate Your Hourly Rate
The first step is to figure out what your time is worth. Take your salary or compensation and then divide it by the number of hours worked. If you need to move tasks off in-house employees, also find their hourly rate.
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Evaluate Tasks
Now, look at tasks that can be outsourced in your organization. Make a list of what you think you’ll pay to outsource each task.
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Outsource
For each finance task that has an assigned rate lower than your calculated hourly rate, outsource!
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Review Outsourcing Costs vs Benefits
After you’ve gone through the outsourcing process, it’s important to evaluate the outsourcing costs vs benefits. Add up all of the costs over the last period, such as six months or one year. Then, add up the value you’ve received. This might include sales growth, lower compliance issues, reduced payroll costs, and more time in your schedule. Some costs will be difficult to assign a monetary value to, but do your best.
To find your return on investment, divide your outsourcing costs by your benefits. A positive number indicates that outsourcing has had a beneficial impact on your company, while a negative number lets you know that changes might be needed.
Summary
Outsourcing can have a profound impact on your organization, from expanded insights and cost savings to greater compliance and risk reduction. Our CFO cost analysis will help you determine which tasks to outsource and the impact on your organization, ultimately helping you decide if financial outsourcing is worth it. While there may be larger outsourcing costs upfront, it’s important to look at the long run benefits of outsourcing. To get started outsourcing finance tasks in your organization, reach out to one of our team members to schedule your free consultation.
