A professional and proactive finance function is a recognised success factor and a vital growth driver in businesses of any size. However, especially for smaller companies, an inhouse finance and accounting team is not the ideal solution, given the cost implications and the challenge of finding the right expertise. For many businesses, outsourcing this critical function delivers a range of benefits – from cost-savings to access to high-level expertise, while for other companies a flexible approach of insourcing certain functions while outsourcing others provide an ideal and scalable solution.
At PSTM we believe in tailoring the perfect solution for your business, based on your unique finance, accounting, tax, compliance, and audit requirements. In this article, we share our insights, gained over decades of working with businesses of all sizes across diverse sectors, to help you make a well-informed decision whether insourcing, outsourcing or a flexible tailored solution is the best option for your company’s finance function.
In businesses of any size, and across sectors and industries, the finance function is crucially important, providing the information, reports and insights that allow owners and managers to make the right decisions at the right time, enhancing efficiencies and maximising profits.
Why is the finance function so important?
Solutions for many of the concerns that give business owners and managers sleepless nights can be provided by a professional and proactive finance function. These include for example, why the profits are so low, where the money is going, why the company is not growing as expected, why the tax liabilities seem so high, if the prices of the goods and services are correct, and even whether the company should buy or lease equipment or buildings.
Whether inhouse or outsourced, the right finance function will provide the right answers and solutions to these questions and challenges that directly impact the ultimate success of the business, at the right time.
A proper finance function will also ensure the business remains compliant with business, financial, accounting, tax and labour laws and regulations. Bringing into the mix finance, tax and accounting expertise, the right finance function can also assist in creating a financial roadmap for the business encompassing tax planning, disaster recovery and risk management, business continuity, succession planning and other aspects of financial planning.
It can provide invaluable financial analysis, delivering the financial reports and statements that meet the growing scrutiny from today’s investors, regulators, and other stakeholders, and help them to correctly assess the company’s financial position, its performance, and its exposure to financial risks.
Recent trends have seen companies outsourcing more complex financial functions: a strong financial function can deliver financial forecasts, modelling and projections, and high-level strategic insights that help businesses make informed, data-driven financial and strategic decisions proactively and timeously.
| What does the finance function encompass? | ||||
| Legal and regulatory compliance | Payroll and employee compensation | |||
| Internal and external financial, management and statutory reporting | Finance department assessments | |||
| Access to current financial information | Taxation planning and compliance | |||
| Preparing accounting schedules | Financial statements | |||
| Customer billing | Trend analysis | |||
| Set up of required internal controls | Growth initiatives | |||
| Accounts receivable | Audits (where required) | |||
| Accounts payable | Financial modelling and planning | |||
| Cash flow management | Insurance and risk management | |||
| Contract reviews and management | Strategic planning | |||
| Inventory management | Business succession | |||
| Fixed assets management and capital planning | Financial leadership | |||
| Board governance | ||||
Companies can either keep all these and other financial functions inhouse, or outsource the complete finance function, or opt for a flexible solution, outsourcing certain functions while retaining others inhouse with training, technology and oversight provided through an outsourced solution.
Why outsource the finance function?
Outsourcing ensures even small companies can have access to the same tools and expertise that were previously only available to large corporations. This is particularly evident in business functions that require specific expertise, for example IT Support, Recruitment, Sales & Marketing, Logistics and, of course, Finance.
In fact, the finance function is certainly the business function that companies should first consider for outsourcing, and for numerous reasons.
First is the high complexity of and constant changes in the field of finance, requiring advanced qualifications and continuously updated expertise. Due to severe local skills shortages, there is a limited pool of professional financial staff, which makes it both difficult and costly to retain all the financial skills inhouse.
Outsourcing the finance function not only solves these challenges by providing access to a range of specialists, backed up by teams of experienced professionals – from accounting advisory to tax and audit experts – but can also deliver substantial cost savings that can be quantified through a cost-benefit analysis.
In addition, outsourcing can also deliver access to latest technology tools, software, and systems, or become a pathway to introduce innovation into the business.
This ensures access to real-time and customised reporting that is more efficient, timely, accurate and professional; and reduces the risks of non-compliance and the implications thereof that can be significant, such as reputational damage or monetary losses due to, for example, fines.
Flexible outsourcing options further allow businesses to expand or reduce teams as the business grows or changes, and enable better utilisation of business resources, which can be focused on income-generating functions such as sales or marketing.
Most importantly, having ensured all the issues within the scope of the financial function is professionally managed via an outsourced solution, business owners and leaders can focus on their core business.
When is it time to consider outsourcing the finance function?
During the first few critical years of building a business, it is crucial to consider outsourcing the finance function. This is because statistics show that 50% of businesses fail within 2 years, and up to 80% of businesses fail within 5 years, for reasons such as poor business management and finance skills; the absence of proper records and financial systems; and the lack of systems and processes for planning, growth, or risk management – all of which can be outsourced.
An obvious red flag that it’s time to outsource the finance function is not having the critical numbers you need to make the right business decisions, or there may be errors in your financial records that could have dire and costly consequences and are time-consuming and expensive to resolve.
What are the outsourcing options?
In addition to outsourcing the full financial function to get all the benefits as discussed earlier, there are also other outsourcing options.
On the other end of the outsourcing spectrum is insourcing the entire financial function. This will require creating and setting up the right structure, identifying the right people, facilitating training, and implementing technology solutions to streamline or automate financial functions. Some, or all, of these initial requirements can be outsourced to a professional finance solutions provider who can provide recommendations and process enhancements, produce helpful guides, deliver training on applicable requirements, and provide detailed quality reviews.
Between fully outsourcing the finance function and, on the other extreme, keeping it entirely inhouse, there are tailored finance and accounting solutions that allow for a more flexible approach of insourcing certain functions while outsourcing others to provide an ideal and scalable solution. For example, you could strategically outsource your accounting functions, while maintaining a core finance team.
With this kind of flexibility, the business can respond to changing market demands and customer needs quickly.
How to outsource smartly
- Customised finance and accounting service packages can maximise the value of the finance function while containing costs.
- Find a solution that matches your specific business needs now, and in future, for example: do you just need help with taxes, or want to outsource specific tasks? Maybe you require complete financial service outsourcing, or perhaps CFO consulting services, financial leadership, and long-term financial forecasting?
- Is the solution based on an in-depth understanding of the industry you operate in?
- Does the solution allow you to work with the best professionals?
- Does the provider use best practices and modern software solutions?
- Business owners don’t know what they don’t know, so ensure the provider selected can highlight what you don’t know and attended to professionally.
- Do a cost-benefit analysis: the benefits of outsourcing can outweigh its cost in terms of focusing staff, time, and resources on core business functions.
- Check the solution providers’ credentials and reputation by looking at client testimonials and reviews. Ask for references and contact these.
- Insist on a Service Level Agreement to guide the relationship and the value derived.
In making your decision as to whether any solution is the right fit for your business, you will also have to rely to some extent on your gut feel.
We further suggest asking these questions when considering an outsourced accounting solution.
- Do they understand the uniqueness of my business?
- Do they listen to me and hear my concerns?
- Are they addressing my business’ pain points?
- Are they pointing out things that I didn’t know I had to do?
- Do I feel like this solution can add real value to my business?
- Do we get along?
- Am I comfortable with them working with my attorney and other advisors?
If you are considering outsourcing your finance and accounting function and want to make sure whether it’s the right move for your company, we invite you to connect with us on our website, Facebook, or LinkedIn or on +27 (11) 656 0061 and find out more what the ideal accounting solution for your business could look like.
