In recent years, outsourcing has become the go-to for many enterprises because of its variety of benefits. One specific area that has seen a rise in outsourcing is financial and accounting outsourcing (FAO).
A recent Deloitte survey carried out in 2020 indicated that some of the primary reasons for this growth are cost reduction (70%), flexibility (40%), speed to market (20%), access to tools and processes (15%), and agility (15%).
If you’re considering outsourcing your business’ financial and accounting needs and want to learn more about what it entails, this post is for you.
The 5 pillars of accounting
Before getting started, it’s important to consider the five pillars of accounting and what each entails. These are:
- Assets: which add to the growth of a business, and these can be tangible or intangible
- Revenue: this refers to the income that is the result of the sale of goods and/or services
- Expenses: costs that a business incurs in order to keep the business going
- Liabilities: what is owed to other stakeholders in various business relationships
- Equity of capital: the standard formula for calculating owner’s equity is subtracting liabilities from the assets of a business, which amount is then used to conduct business activities.
The basic accounting books and principles
With the above basics in mind, accountants and bookkeepers use specific books of accounts and follow specialized principles to ensure that they provide a thorough service to their business clients. In terms of the accounting books, these are the general journal, general ledger, cash receipt journal, cash disbursement journal, and sales journal.
As for the basic accounting principles, which are the rules of reporting financial information, accountants look at principles of accrual, conservatism, consistency, cost, economic entity, full disclosure, going concern, matching, materiality, monetary unit, reliability, revenue recognition, and time period.
What is finance and accounting outsourcing (FAO)?
While many organizations previously did their accounting in-house, today, many use external, third-party providers to achieve their financial and accounting reporting needs. As such, FAO is the outsourcing of one or several finance and accounting processes.
And if you’re wondering what you can outsource to FAO, here is a quick breakdown:
- Accounts receivable/accounts payable (AR/AP) management
- Record management
- Payroll management
- Creating and maintaining ledgers
- Cash management
- Subscription renewals management
- Invoice processing
- Setting up a modern bookkeeping system
- Preparing financial reports
- Controller services
- Financial planning and analysis
The reasons behind outsourced FAO
So, why are businesses and organizations opting for outsourced FAO? There are several reasons and here, we name just a few.
It is important to note that many businesses are increasingly using outsourced FAO strategically. The purpose of this is not just to reduce costs but to also improve business performance. Hence, businesses outsource due to:
- Competitive and budgetary pressures
- Keeping abreast with technological advancements, and
- Demand for the transformation of the finance and accounting function.
10 benefits of FAO
FAO comes with a wide range of benefits, not least of which include the following:
- It’s a cost-reduction measure
The rise and developments in technology mean that some FAO providers are better suited to offer strategic and cost-effective ways of performing a generally costly and cumbersome business function. It’s a significant way of delivering economies of scale. It also means you have an entire team behind you as opposed to one employee who is only capable of handling one task at a time given the limited time frames for operations.
- Organizational transformation
Greater value can be created when outsourcing FAO while supporting corporate objectives. Because outsourced FAO can enable broad structural change, it’s a value-add that organizations shouldn’t pass up.
Partnering with the right FAO outsourcing supplier means that organizations are better able to access the expertise and superior capabilities of their outsourcing provider. The “outside-in” view means that you can get an external perspective on how to optimize your business’ use of resources to ensure the ultimate levels of profitability and limited wastage of resources. It’s also a highly effective way of improving financial decision-making.
Because outsourced FAO means outsourcing low-value, non-core processes to an external provider, organizations are better able to focus on their strategic activities and gain a competitive advantage. Resources can be shifted towards greater innovation.
- Save time and improve productivity
When you outsource your FAO functions, it means greater time is freed up for you to focus on your organization’s vision and mission. It’s also a way of reducing cumbersome tasks to ensure that you can improve productivity at the same time.
Your FAO service provider should offer automation services, which means greater potential for you to scale your business more successfully. In addition to this, the expertise and wise advice you will get in terms of financial planning mean you’ll be much better positioned to allocate the right resources to scale your business better.
Since accounting is a fundamental yet time-sensitive operation, any disruptions in the accounting function can lead to delayed payments, loss of essential records, and even financial penalties. This is often the case as a result of poor infrastructure, system downtime, human capital shortages, and others. Businesses that outsource their finance and accounting tasks are much more likely to enjoy greater business continuity as they will not be dependent on internal bottlenecks.
Financial and accounting data, unless it is a legal requirement to be published to the public, is generally confidential. Companies therefore have strict responsibilities and obligations to ensure that this data remains protected. This could refer to both internal or client-based data. Many smaller organizations often leave out or partially fulfill their data security and protection obligations. But with the right provider at your side, this will no longer be a concern.
The ability of an FAO provider to help ensure reduced risk of errors is much greater because they are specialist teams that do cross-checks of each other’s work. This is in great contrast to companies that hire an in-house bookkeeper or accountant, who may make mistakes that end up being costly for the business further down the road.
Outsourcing your finance and accounting needs also means access to greater business intelligence. Your competition in the business world is great and when you are able to analyze your position and standing in comparison to them, you’re better positioned to make better and smarter business decisions through a trusted advisor.
In a nutshell…
It’s evident that FAO plays a huge role in today’s business landscape. And outsourcing your finance and accounting needs is something that should be seriously considered for greater business benefits and wiser business intelligence. At StorsenDigital, we help you with classic accounting and supplier invoices; payment preparations financial reports and analyses; vendor matching; general ledger, master data and expense management; as well as business accounting. In a nutshell, we offer a comprehensive suite of accounting services that help take your business to the next level as you surpass your competition and make greater strides in your market.