One of the major reasons why accounting firms outsource is to reduce costs. Outsourcing and offshoring are integral to enhancing efficiency and global talent too. Hence, today, many firms are seeking to resort to outsourcing to improve their business processes. Despite the multi-layer benefits, one of the common apprehensions that leaders have is about outsourcing partners charging a hidden cost. These costs reduce the anticipated savings and increase the financial burdens. The major concern about hidden costs is that they can erupt at any time, which means most often accounting firms aren’t ready for this. This can be problematic for small accounting firms that have a set budget for every activity.
While there might be some truth to it, a lot of it is apprehension.
Understanding the Apprehensions:
- Lack of Transparency
Apprehension:
Many accounting firm leaders think that when they outsource a task to a provider, it increases the pressure on their pockets, adding to the complexities.
Reality:
Transitioning to an offshore provider comes with several steps. From training the offshore team to setting up systems and processes, and transferring knowledge. There might be some initial costs on travel expenses, training, and the time spent on the resources. However, these costs can be mitigated by having a well-defined strategy. This plan should include timelines, clear responsibilities, and the number of resources needed. This will also ensure that the end-to-end processes have been crafted keeping the foreseeable adversaries in mind.
- Management and coordination costs
Apprehension:
Managing and coordinating with an offshore team can lead to additional expenses – this is a common thought that accounting firm leaders have.
Reality:
An offshoring team is an extension of an in-house accounting team. Instead of additional costs, it helps reduce a number of expenses. Effective management and coordination is important. But to ensure that, all you need is regular communication and oversight mechanisms. There is a cost involved even to set up and run an internal team. The cost needed to manage and coordinate with another team is much much less. Robust project management tools and establishing clear communication protocols can help streamline coordination and reduction of expenses.
- Quality control and rework costs:
Apprehensions:
Many accounting leaders equate offshore teams and poor-quality work. They believe that it can lead to rework and finding additional quality control measures only leads to increased costs.
Reality:
Offshoring teams sign SLAs with accounting firms before progressing with the agreement. This agreement helps ensure and keep track of the quality control measures. Internal teams should conduct regular audits, and performance reviews, and give and receive continuous feedback. Failing to meet the standards and expectations also causes a huge liability on the offshore teams. Accounting firms, by setting out clear quality standards, conducting thorough evaluations, and implementing quality assurance processes can help them mitigate the risk. The teams should create their own backup that prevents complex situations from happening altogether.
- Hidden charges:
Apprehension:
Having hidden fees in contracts is a common fear. Some outsourcing partners have charges that they are neither told about nor are evident initially.
Reality:
Outsourcing contracts are sometimes complex, with several different clauses and terms that may lead to eventual charges. These can include a variety of things – additional charges for exceeding the service level agreements, for example, currency exchange fees and the cost of additional services that are not in the contract. When you partner with an outsourcing firm, it is important to carefully review contracts, seek legal advice if needed, and negotiate clear terms. It is important to talk to the outsourcing provider in detail to ensure that you know all about what you are being charged for. The best way to settle this is to find a partner with a transparent pricing model.
- Security and compliance cost:
Apprehension:
Data security is inevitable in the accounting industry. Accounting firm leaders believe that they end up paying more than usual for regulations and compliance when they outsource to a service provider.
Reality:
Data security and regulatory compliance lie at the heart of outsourcing and offshoring business models. With the amount of automation happening in the industry, there is an increasing need to tighten security to ensure optimum data protection. There is a rise in fraud and a need for two-factor authentication, encryption, secure data storage, and audit. These are some of the top things that firms need to invest in. When outsourcing, accounting firms also need to maintain global regulation rules applicable to the host country as well as the provider country. That is why it is important to partner with service providers who already have strong credentials and compliant expertise, which can help manage these expenses.
Key Strategies to Reduce the Costs:
Although outsourcing helps reduce overall costs in the long run, there are some initial costs involved, just like there is to set up an in-house team. Most of these costs can be tackled. Here are a few ways to reduce the costs:
- Thorough due diligence:
Accounting firms must conduct comprehensive due diligence when selecting an offshore provider. This means when you vet through partners, you need to evaluate their financial stability, track records, the clients they have catered to, and if they can meet your unique demands.
- Clear and transparent contracts:
It is the responsibility of both parties to ensure that contracts are clear, transparent, and detailed. This should include current and potential costs, define SLAs as clearly as possible, and specify penalties for non-compliance. This will also help keep your outsourcing teams aware.
- Robust transition plan:
When hiring an outsourcing partner, develop a detailed plan that helps outline the timelines, responsibilities, and resources needed. Allocate a specific budget and stick to it as closely as possible for transition-related expenses, and monitor the progress closely.
- Proper project management:
Project management is important when handling cross-geographical teams. Implement project management tools that cater to your business needs, management practices,, regular progress updates, and communication protocols.
- Regular audits:
Conduct regular quality audits and performance reviews to ensure that the offshore team meets the expected standards. When issues occur and recur, make sure to address them swiftly without delay. This also enables outsourcing partners to take precautionary measures when needed. ‘
- Continuous monitoring and improvement:
Monitoring the offshoring arrangement, tracking expenses, and identifying areas of improvement are some of the common ways to help teams stay on track.
Hidden costs revealing themselves suddenly can cause great worry to accounting firms. Outsourcing is designed to help firms reap many benefits. But that requires firms to carefully evaluate the current status of the providers, and conduct a background check on them before finalizing. While there is some reality to the apprehension, the way accounting firms plan and strategize their agreement with outsourcing providers, can go a long way in establishing a long-term relationship.
Want to find an outsourcing partner that suits your needs? Write to us at connect@finsmartaccounting.com.
Director Growth Strategy & Alliance
Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.
