In a fast-changing economy, business success relies heavily on maximising output in the shortest possible time. In recent years, business process outsourcing has come to play a significant role in ensuring operational efficiency, especially in small and medium-sized businesses (SMBs) that may lack the resources to host all the competencies in-house.

Outsourcing the finance and accounting (F&A) functions deserves special mention. Especially after the pandemic, as SMBs struggle with the exigencies of layoffs, suboptimal work conditions, and declining revenues, finance and accounting outsourcing (FAO) services are driving sustainability by enabling lean operations and cost-effectiveness.

The increasing popularity of FAO is evident through its market growth. The global FAO market is expected to grow at a CAGR of 5.9%, reaching $53.4 billion by 2026.

Why FAO spells cost-effectiveness

FAO significantly lowers hiring and overhead costs for SMBs.

Large companies can afford to house elaborate finance and accounting departments, and startups can get by with basic accounting tools. However, SMBs face different challenges as they struggle to balance upscaling with efficiency.

As SMBs scale up, so do their accounting needs, including payroll, bookkeeping, invoicing, management of payables and receivables, and tax management. Business owners are often tempted to manage everything independently to cut costs. In doing so, they divert a significant portion of their time and resources from their core competencies and essential growth.

Hiring an accountant could be a feasible option for some. However, SMBs should consider the following expenses in computing in-house accounting costs:

• Recruitment and onboarding
• Salaries
• Essential benefits such as insurance and healthcare
• Resources such as office space, electricity, and supplies for physical establishments
• Overhead expenses
• Accounting software
• IT support

Besides these expenses, there are hidden costs stemming from accounting mistakes, compliance issues, and subpar management of taxes and spend. Outsourcing, on the other hand, only involves service charges while guaranteeing accuracy and efficiency.

Benefits of outsourcing F&A

Outsourcing F&A has multiple benefits besides cost-effectiveness. The most significant of them are:

• Access to cloud technology

Outsourcing takes your finance and accounting functions to the cloud. Cloud accounting can provide:

• End-to-end automation
• Real-time visibility into financial data
• Automated software upgrades
• Customisation according to business needs
• Increased storage
• Scalability and flexibility of operations
• Ease of compliance and auditing
• Enhanced data security and fraud management features

Additionally, cloud technology has simplified and automated manual tasks like data entry and invoice processing, so SMBs can save precious time by outsourcing labour-intensive F&A functions.

• Leveraging expertise

By outsourcing non-core operations, everyone does what they can do best. In-house teams can utilise their skills to achieve business goals, while accounting teams optimise financial processes with their knowledge and experience.

Accounting professionals can also offer helpful financial and tax advice, enabling SMBs to unlock growth in ways other than direct development strategies.

• Scalability

Many SMBs see seasonal ups and downs in sales at various times of the year. Outsourcing takes the stress out of scaling up or down and allows business owners and managers to focus on growth and development.

• Optimising accounts payable (AP) and accounts receivable (AR) with process automation

AP and AR are at the heart of financial functions in any enterprise. They impact crucial operations such as cash flow management, payment cycles, vendor relations, and customer experience. FAO optimises AP and AR with smart technology, resulting in streamlined payment cycles and improved working capital.

Moreover, automating AP and AR cycles simplifies audits, compliance, and fraud prevention.

How to make the most of F&A outsourcing?

Here are some pointers to derive the best value of FOA:

• Evaluate your business needs

Since businesses may have specific accounting needs, FAO cannot offer a one-size-fits-all solution. Find a partner who can tailor the solution to fit your unique requirements.

For instance, you may want to outsource only bookkeeping and tax management while your in-house teams handle payroll. Taking stock of which services you want to outsource lets you find a sustainable and cost-effective middle ground.

• Compare outsourcing companies

Make a list of the outsourcing firms that suit your requirements. Visit their websites, evaluate their reputation, and compare their offerings and pricing models. When you do a cost-benefit analysis, remember that the intangible advantages of outsourcing, such as efficiency, flexibility, and scalability, can outweigh upfront cost savings.

• Set your expectations

Once you choose an FAO partner, compile a comprehensive service agreement with crucial details such as payment terms and expected working schedules to avoid potential conflicts. This is especially important if you are offshoring your finance and accounting functions.

Conclusion

SMBs are increasingly looking at finance and accounting business process outsourcing as a sustainable growth strategy. Although its prime benefit is cost-effectiveness, outsourcing positively impacts businesses in many tangible and intangible ways. By choosing to outsource finance and accounting, SMBs can focus better on their core operations.

New-age outsourcing solutions add significant value to businesses by providing access to cloud technology and financial expertise. Moreover, it is also possible to customise the outsourcing solution to suit specific business needs.