The world is changing at a break neck speed and with it the way business is done is also changing, accounting is one part of doing business that has perhaps seen the greatest change in last two decades. The introduction of technology into work place has changed the traditional role of accountants and as new technologies such as artificial intelligence and big data develop further, the role of accountant is shaping itself in a new role.
If we look at the impact of technology on business then we can see that it has now become easier to do business in many ways. You no longer need to own premises in order to start your own business, brick and mortar shops are no longer required because one can simply start up a business through an online application, from their bedroom or garage. This is how Amazon started and look at where it is now.
Incubators and business accelerators have also changed the game by providing all necessary tools to entrepreneurs within a safe and efficient working environment. One thing incubators marvel at, is outsourcing, this is how they allow the entrepreneurs to focus on the core activities of their business while the non-core functions of the business are performed through outsourcing.
Outsourcing is the process of delegating specific operations to a company outside of your business, this allows the business to save time and resources which can be redirected towards the main or core activities of the business.
In theory, every non-core activity can be outsourced and as we discussed above, this is what incubators allow startups to do. But as a business grows, some of its non-core activities become strategically important and so a business has to periodically review its functions to ascertain if they are strategically important or now.
Generally, non-core, non-strategic and complex functions of a business are outsourced to save time and resources and one of the most common outsourced functions is that of accounting. Start up or a business in its early or mid-growth cycle is not going to have a strategic accounting department, their books will mostly comprise of basic assets and liabilities that need to be managed, nothing complicated like share issues, buy backs or controlling interest calculations and thus for this reason accounting department is usually the first to get outsourced and also the first department to come back as soon as it becomes a strategic function, which usually happens when a business decides to change its form and become privately or publicly traded.
It is not widely known but the accounting and finance departments of businesses have been outsourced long before the idea of outsourcing became known in recent times. Businesses have benefitted from accounting outsourcing firms to look after their accounting departments.
Some of the most notable benefits of accounting outsourcing function are as follows.
The first benefit of accounting outsourcing is cost reduction. Logically thinking, if you do not hire any staff for accounting, then you will save up on their salaries and wages, you will also save up on the space required by the accounting department and you will also save up on the costs of recruitment of the HR department. Compared to the full cost of maintaining a functional accounting department, the cost of outsourcing is much lesser. This will allow the business to focus on core activities.
The cost reductions, will then transform into profitability. This is the logical flow, when the accounting function is outsourced, it will cut down the cost of doing business and this cost reduction will then increase the margin. The cost reduction will also make more resources available at the disposal of the management and these resources can be injected back in to the business to focus on product quality to provide premium service to the customers.
Quicker decision making
One non-monetary benefit of outsourcing is rapid decision making. Entrepreneurs need a clear head space. An entrepreneur is one who gathers the factors of production and has the ability to take risks. If the accounting function is not outsourced, then an in house accounting function will not only add up the costs but it will also take up precious time of the entrepreneur. The head of accounting department may seek the advice and guidance of the entrepreneur and management on key issues and this will clutter up the decision making process.
Outsourcing the accounting department cleans up the works space, it reduces the time required to supervise the in house accounting function. Usually the firms who provide outsourcing services, employee highly qualified professionals who can provide a higher quality of service as compared to in house staff. The in house staff may demand perks and privileged whereas the outsourcing firm will only require the payment for each contract. Thus, this reduces the clutter from the work space and allows the management and the entrepreneur especially to focus completely on the core activities of the business.
Minimizing business risks
Another benefit of outsourcing is that it minimizes the amount of risk a business is exposed to. Hiring in house legal and finance experts can be very expensive as highly qualified individuals carry a heavy price tag. Thus if a business decides to carry out with a relatively less experienced and qualified legal and financial team, it may end up facing legal penalties or litigation charges, for any oversight. Whereas outsourcing will minimize this risk because, as it has been mentioned above, the out sourcing firms employ highly qualified professionals who are less likely to make mistakes because doing so will bring negative publicity to their business.
These were some of the benefits of outsourcing the finance and accounting department. It is also common to outsource HR department and customer care etc. Basically any non-core department can be outsourced and the business can focus on its core activities to provide a better product or experience to the customers.