Outsourcing Accounting and Bookkeeping services

Accounting and bookkeeping Files

Companies globally outsource their core and non-core activities in today’s competitive world. The primary reason for doing that revolves around cost reduction and seeking external expertise.

Currently, the global outsourcing market stands at USD 54.5 billion and is projected to grow at a rate of 6.2%.

A common form of service outsourced lately is accounting and bookkeeping services. Out of 5.94 million small businesses in the UK, 40% outsource their accounting services to other companies. It is the sector that companies themselves least manage.

To get more details about it, continue reading through the rest of the article:

What is outsourcing?

Outsourcing is when you hire a third party, another company, individual or organisation, to perform operations that the company’s employees earlier performed or would have performed. For example, these operations could be related to the manufacturing of goods or rendering core services. This strategy came into practice in the 1990s- after globalisation.

Business process outsourcing is a frequent term used in this respect. Globally, countries like India, China, the Philippines, southern America, and the Far East are leading nations offering a massive market for outsourcing facilities.

The United Kingdom is also a lucrative market concerning outsourcing. It is the world’s largest consumer of outsourcing services and a significant hub for global vendors to sell services to Europe. The services outsourced by the UK to various countries are:

  • Call Centre services
  • IT and technological solutions
  • Finance and accounting services
  • Data entry services
  • Software development
  • Creative design
  • Photo editing
  • Engineering services
  • Research and analysis services
  • Virtual assistants

What is accounting & bookkeeping outsourcing?

Outsourced accounting and bookkeeping is an arrangement where an outside provider renders the whole accounting experience by providing a complete accounting and bookkeeping solution.

Establishing an in-house accounting team can be expensive in most cases. Therefore, many companies have opted for outsourcing. The standard accounting service outsourced by the UK firms are:

  • Payroll processing
    It concerns the calculation of employee’s compensation, wages, bonus and commission.
  • Bookkeeping Services
    It is cumbersome and deals with employee expense processing, balancing ledgers, procuring to pay to process, and expense management.
  • Tax returns filing
    In this service, company, business and self-assessment tax returns are prepared and filed using IXBRL format.
  • Financial statement preparation
    Preparation of financial statements, including income statements & cash flow, is done by experienced professionals. These are in line with the applicable financial reporting standards, like FRS or IFRS.
  • Invoice processing
    The company’s reputation is directly affected by an incorrect invoice mechanism. Therefore, quick and accurate invoicing is the need to overcome this issue.
  • Financial planning & analysis
    Analysing cash flow & financial data turns out to be a 24/7 process, and it can be done more efficiently through this arrangement.
  • Cash flow management
    One of the critical but time-consuming tasks in accounting could be forecasting cash flows which are made easy once you outsource it to efficient accountants. Effective cash flow management often requires frequent updates to your cash forecasts and doing variance analysis.
  • Accounts receivable/payable management
    The significant services included here are order management, collections management, cash forecasting & debt management. Credit control and supplier management can easily be outsourced to professionals.

Benefits of outsourcing

The general perception among some business owners is that businesses should try to manage accounts and finance themselves, as the information can be sensitive. Most outsourcing companies work with standard technologies, harness the power of cloud computing, added server-level security and professional team to ensure that appropriate security is maintained.

The decision is also driven by the benefits mentioned below:

Benefits of outsourcing
  • Risk sharing
    The outsourcing facility helps the businesses share risk attached with timely completion of projects that they previously shoulder individually. It also manages to delegate responsibility to a certain extent.
  • Cost & time savvy
    The primary reason outsourcing was accepted as a practice was the benefit of cutting costs without compromising quality.

    In addition, a considerable amount of overheads are saved by this process as it helps to substitute the need of hiring full-time employees, paying salaries, taxes and other benefits.

    Hiring a team or even an employee is a rigorous process involving an entire cycle from recruitment to induction, demanding a lot of business time that otherwise could be utilised at other core areas.
  • Expertise benefit
    Small businesses cannot hire expert accountants and bookkeepers, but they can enjoy the requisite expertise by outsourced bookkeeping facilities. Dedicated firms with a team of professionals are established to provide you with the most appropriate knowledge about solutions, trends, and tools.
  • Advising facilities
    Companies have constant access to advice that could make their accounting more efficient and scalable. It can be related to taxation, software application or financial analysis.
  • Real-time information
    Some organisations work on your data as soon as it enters the processing system leading to a more current up to date environment.
  • Automation technologies
    Outsourcing companies use software like Xero, Sage, Quickbooks, A2X, Dext, Hubdoc, Microsoft Dynamics, SAP for accounting and bookkeeping tasks. Training employees on these and new software will be an additional cost.

When to outsource?

Now, the question arises when it is feasible to outsource?
The answer is quite simple.

Outsourcing of accounting or bookkeeping should be done in the following four situations:

In general, there are businesses where accounting does not makes it to the core competency domain.
Core competency is the area of competitive advantage that helps the company to grow. Therefore, outsourcing allows the senior management to focus on more critical areas and remove the in-house burden.

Basic drivers behind accounting outsourcing

A 2020 Deloitte survey reported various factors that businesses look after while opting for the outsourcing mechanism. The major ones are:

  • Cost-cutting benefit
  • Flexibility
  • Speed to market
  • Accessibility to tools & processes
  • Agility

Outsourcing models in the United Kingdom

How much does it cost to outsource my bookkeeping, or how much it costs to outsource my accounting?

There is so no simple yes, and no answer; however, following models and price guide will provide you with an indication of available options.

  • Ad hoc or Pay As You Go model: An hourly rate is determined that ranges from £15/hour to £35/hour for accounts, and £12hour to £16/hour for bookkeeping.
  • Full-time employee: Accountants with experience are hired on a fixed monthly basis at the cost of £1,000/month to £1,800/month.
  • Block of hours model: In this model, a block of working hours are fixed and purchased beforehand. As hours are used, they are deducted from the total amount purchased.
  • Project basis: This price is bespoke and varies with various factors, like skill level required, frequency and quantum of work.

Constraints attached to outsourcing

The belief that outsourcing eases the flow of operations is widely accepted, but as a business, the need to evaluate whether it is beneficial or not comes into the picture.

To know that certain constraints need to be understood clearly. A detailed description of it is as follows:

constraints outsourcing

Changing practices in outsourcing

Outsourcing has changed since last year due to the wide range of challenges faced by businesses globally. It has now become more value additive and disruptive. Although the outsourcing industry is on the right path, specific changes or trends would impact the working cycle. The primary ones are:

  • Virtual collaboration
    The companies strive to set up correct tools to keep everybody, everywhere, in sync with even the minutest detail. It is a step to make work more easy & pleasant. The standard tools are Asana, Zoom, Google Docs, Skype and Slack.
  • Eliminating Back-sourcing
    Lately, outsourcing generally ended up at back sourcing.

    Back sourcing is the process where tasks that were outsourced are brought back into the primary department. It was pretty popular during a pandemic, but as soon as businesses made peace with the new normal, things are getting back to the original pace. Companies are of the view that back-sourcing is not a very successful approach.
  • Co-sourcing
    Co-sourcing is an arrangement where the externally hired team and internal teamwork add more value to the process. It is come up as a teamwork option for companies to cut costs and mitigate risks.
  • Relationship building
    Value chain networks will be the new focal point as they will help service providers cope with complex demands & challenges. Meaningful relationships would be placed at the core of this arrangement.

    Outsourcing is a crucial element in business processing, irrespective of which domain it is concerned with. Competitive dynamics of business have made it difficult for companies to ignore the cost & quality factor.

Therefore, the decision of what, how, and whom to outsource should be taken quite wisely because it’s not just about getting the work done but also getting it done to stay ahead of the competition.

Innovation and transformation should never be compromised.