Outsourcing business finance: The pros and cons

29 October 2015 Karan Vidal

To outsource or not to outsource – that is the question. ‘Farming-out’ your company’s financial functions needs to be given serious thought before you take the plunge. Outsourcing business finance can either work wonders for your company or end like a Shakespearean tragedy.

Outsourcing business finance holds the appeal of freeing up resources to allow owners to concentrate on what they’re good at. Coupled with the savings that can be made, outsourcing may seem like an answer to your prayers. However, caution needs to be exercised when choosing a finance outsourcer and when managing the relationship.

You don’t need to look far for examples of outsourcing gone wrong. It was reported that a junior operative in India caused a computer failure that left millions of Royal Bank of Scotland’s customers unable to access their accounts.

The public sector has also had its share of outsourcing misery. Bedfordshire County Council paid over £7m to end a contract with HBS. The private company was taken on to manage support services, including finance.

Outsourcing business finances is not all about doom and gloom. There are also some plus sides. Weigh up the following benefits and disadvantages before deciding whether outsourcing your finance will be good for your business.

On the plus side

Saving money

Business is as much about saving money, as it is about making money. Any opportunity to save should never be ‘sniffed’ at. It has been reported that:

outsourcing can result in savings of 25%-50% on back office costs .

Outsourcing your finances means that you only pay for the services you need. Employee benefits like holiday and sick pay are non-existent. You can also save on work-space and equipment costs.

Access to the latest tech and best practice

Financial reporting requirements are always changing. Where the finance function is done in-house, you’re responsible for making sure that you’re aware of updates. If your finance is outsourced, there’s no need to worry about training staff and upgrading software. Although the responsibility for keeping up with financial best practices isn’t your responsibility, it’s in your best interest to ask your outsourcer for evidence of staff training.

Saving time

Hiring, training and managing finance staff takes time. It’s premature to breathe a sigh of relief after taking on someone in a finance role. There’s a hope that the person actually knows what they’re doing and is a good fit with your business. However, if they fail their probationary period, you’ll have to go through the whole recruitment process again.

Negotiating an outsourcer’s contract can be much easier than navigating around employee and HR issues. Outsourcers can save you time and headache, when it comes to dealing with finance staff.

The downsides

Loss of control

You have a certain degree of control over your employees. However, when outsourcing your finance, you have no idea how staff are being trained. The lack of control is one of the trade-offs to cost savings. You have to accept that you have no managerial control over your finance reporting. This can be a scary thought.

If you’re used to micromanaging, then outsourcing probably isn’t for you. You’ll need to trust that the outsourcer will refrain from doing anything to jeopardise your business.

Security issues

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Finance is one of the most sensitive areas of a business. Handing over your accounts and records to a third party takes a lot of guts. Most outsourcers are based internationally. This means that the requirements around handling data in the UK, may not apply in the outsourcer’s country.

Your insistence on sticking to certain policies in relation to your data will be met with a lot of “of course Sir”. However, you can never be sure of what actually happens when the outsourcer get’s their hands on your records. Protect yourself by including your requirements in the contract. That way, you can have recourse to legal action if anything goes wrong.

Hidden Costs

The related outsourcing costs are rarely as they first appear. The associated hidden costs can result in the savings you wanted, failing to materialise. One way to avoid spiralling costs, is to make sure that the services you need are clearly defined in the contract. Another cost that you need to budget for, is a legal review the contract. Keep in mind that the outsourcer reserves the right to increase their prices at anytime.

If you’ve grown to be dependent on their service, you might feel obliged to pay instead of going through the hassle of finding another reliable outsourcer.

Outsourcing can be a bit of a dirty word in some circles. This is mostly because it conjures up thoughts of customer service agents, not being equipped to resolve issues. However, when outsourcing business finance, the risks associated with dealing directly with customers are done away with. Many businesses outsource their finance with no issue. The choice of whether to go outside or stay in-house can only be made after weighing up the pros and cons.