Outsourcing Finance and Accounting Functions: When, Why, and How?

By Chris Cook

Outsourcing business processes continues to be a popular strategy for many companies with an eye toward value optimization through cost reduction, increased efficiency, and capability-finetuning. The advent of cloud-based software and SaaS, BPaaS (business process as a service), and PaaS (platform as a service) technology solutions over the past decade have only strengthened this trend. More recently, growing familiarity with remote work-from-home and hybrid staffing models has fueled the outsourcing trend even more.

In fact, in finance and accounting, longstanding users of part-time technical consultants, this has spawned the growth of an entire industry of Client Accounting Advisory Service (CAAS) firms. CAAS firms leverage technology and the cloud to provide clients with back-office support services in bookkeeping, payroll management, tax preparation and filing, advanced reporting, and sometimes extending to human resources management, software/IT management, and business process management. In the finance function, outsourcing can occur at all levels – from C-suite CFOs to senior accountants.

But under what conditions should a company consider outsourcing its finance and/or accounting function and what are the pros and cons of moving in this direction?

The Case for Outsourcing: Business Benefits

Outsourcing can be a win-win for many companies if planned and implemented thoughtfully. Advantages of outsourcing include rapid deployment of specialized, experienced talent allowing a company to scale more quickly, lowering labor costs, buying time to make permanent hires, and shoring up internal controls (checks and balances), among others. Outsourcing solutions typically offer automated business processes and system solutions that improve efficiencies, speed up reporting, reduce the risk of fraud, and lower costs. Outsourcing can be very valuable in hyper-growth situations where outsourcing frees up management’s time to focus on aspects of the business that drive sales and service and, ultimately, profitability, while eliminating the time and expense associated with recruiting, training, and managing additional staff.

But depending on how you implement the outsourcing of your finance department, it can go well or not so well. For example, scope creep can become a significant issue if you don’t accurately gauge requirements upfront. Write your outsourcing contract carefully and onboard appropriately so that roles are defined, policies and procedures are clear, expectations are set, and communications are timely.

Key Considerations When Using Outsourcing Solutions in Finance

Here are some key considerations to make when deciding whether to outsource your finance and/or accounting function:

• Timeframe: How fast do you need your new team in place?
• Do you need full-time versus part-time/fractional help?
• What specialized skillsets does your company require?
• What about local versus global outsourcing solutions?

Practical Realities of Outsourcing: Be Aware

How you implement your outsourcing strategy can make all the difference in terms of your probability of success. For example, not fully vetting your outsourcing team can be risky. The outsourced team could be with you longer than you expect, so scrutinize your temp hires as you would a person interviewing for a long-term role. At one client the interviewing was done too casually because it was expected to be a short-term interim assignment, and ended up overcompensating for the outgoing individual’s weaknesses. That person was quickly replaced with a person who lacked attention to detail, which is a showstopper. Following that person was a micromanager! Lesson learned: take the time to fully understand exactly what you need in the outsourced role, then take the time to fully vet your candidates.

Outsourcing is often popular at smaller startups that are unwilling to invest in the cost of a permanent finance and accounting team. Yet I have seen this go sideways if there was no solid plan in place to build infrastructure, policies, and procedures in the finance function to begin with. Someone must be put in charge of the outsourced team’s work. In situations like this, when I am brought in as an FLG interim CFO, I often perform a full assessment of policies, controls, systems, reporting, and staff capabilities before making any decisions about what outsourced resources to retain versus rehire. These full-scale assessments are also very useful when shared with the CEO and the rest of the C-suite and facilitate better planning for growth and scaling.

You should also always bear in mind that it may take you much longer to hire your permanent staff than you might think, so you may be living with your outsourced team for months versus weeks. Quality, experienced talent is scarce to begin with, and your preferred permanent candidates may not be immediately available. At one of my clients it took over 14 months between the time I was hired as a fractional CFO along with a part-time Controller until the company was able to attract and hire their permanent Chief Financial Officer and Controller. Often, sequencing these decisions just makes sense. Hire your permanent CFO first, using an interim Controller, then later bring on a permanent Controller.

Another key consideration is part-time versus full-time. Many companies find that using a team of fractional, part-time (but more experienced) consultants is actually less expensive and more effective than using two or three full-time outsourced employees. It is also possible to fully outsource one function, e.g., accounting or payroll, while keeping others, e.g., finance operations, in-house. When implementing outsourcing, you should also be wary of trying to use one full-time resource to “do it all” versus relying on a team of part-time, fractional experts. Asking one outsourced CFO or VP of Finance to do everything is risky if they can’t jump from strategic leadership to detailed accounting, or are missing technical skillsets your company might need, such as understanding complex lease accounting or revenue recognition rules, writing technical memos, etc.

Global versus local is another decision you should evaluate when outsourcing your finance and/or accounting function. With offshore solutions, you will obviously have to deal with any differences in time zones, but these remote teams can be much lower cost and more flexible, and can ramp up or down throughout a monthly or quarterly cycle, depending on your company’s need. At one of my clients, we were able to stratify our functional finance requirements between local and global, with the local team taking some functions and the remote, offshore team taking others. The local team was used for time-sensitive, customer-centric services that required immediate handling (loan and grant funding, for example) while we relied on the offshore team for check processing and back-office accounting. At another client, this also worked seamlessly, and when we needed to open a second legal entity at the company as we expanded, the offshore team was able to scale beautifully to accommodate our increased number of customer contracts and leases.

A final caveat with outsourcing is ensuring that you pay attention to the fine print in your outsourcing contracts. For example, who owns the company’s data is one issue you want to be clear about. Some outsourcing partners will try to insist that you use their systems and data repositories, in effect tying you to them with “golden handcuffs.” I recommend that you avoid these types of outsourcing partners and ensure your company owns its own data and systems access.

Outsourcing is a valuable strategy for all companies to consider. The devil is in the details of implementation, customization, and evolution, as it can be a temporary or a permanent solution. If you need help evaluating this applied in finance and accounting, do get in touch with us at FLG Partners. We’re here to assist.