finance and accounting outsourcing increasing among mid-market companies.
by rick telberg
for the finance executive
after years of fear and trepidation, finance managers and accountants are learning how to stop worrying and love outsourcing.
according to a boston consulting firm, 71 percent of middle-market companies, each with fewer than 5,000 employees, are now outsourcing at least some of their finance and accounting (f&a) functions. in fact, if you’re sending your tax work to a cpa firm or your payroll to an agency, then you too are already outsourcing.
cpa firms and finance executives have been reaping the rewards for years. but today, with middle-market companies looking to outsource some core functions, the vista is becoming even broader.
the number one reason for f&a outsourcing? cost cutting, cited by 42 percent of those surveyed by fao research inc. cost cutting was followed by “lack of internal accounting and finance staff,†cited by 33 percent.
middle-market managers also appear to be chasing quality. about 32 percent of the companies surveyed said they outsource to improve the quality of their f&a services. separately, the companies surveyed gave their internal accounting an average grade of 5.89 based on a scale of 1 to 10, with 1 meaning “extremely poor†and 10 being “exceptionally well.â€
as a result, even the smallest local cpa firms are launching “rent-a-cfo†services.
at the same time, the study found that middle-market companies are apprehensive about outsourcing, particularly about sending the work overseas. forty-seven percent of the survey respondents said they are concerned about losing control of the outsourced process and 37 percent are not especially confident of the security at outsource service providers’ facilities.
it appears that today’s shortage of skilled accounting staff is opening the outsourcing spigot wider.
“the outsourcing industry loves a labor shortage,†fao research chief executive lisa ross said. she added that the current staffing shortage is forcing companies to increase their outsourcing of “highly transactional†accounting work, such as payroll, accounts receivable and payable and sox compliance, but warns: “as the labor shortage gets tighter, this list will likely grow, including more ‘knowledge work’ functions.â€
outsourcing remains primarily the purview of larger, publicly traded companies cutting costs to appease shareholders, but ross has been warning that the business phenomenon is spreading to the middle market. she noted that middle-market outsourcing “is starting to gain more traction, with not only more contracts, but offerings from vendors who might have once thumbed their noses at buyers with less than $10 billion in revenues.†the report added, “look for the mid-market to really pick up steam during the next year or two.â€
[first published by the aicpa]
2 responses to “cpas find new opportunities in outsourcing”
jerry c
as an offshore f&a outsourcing destination located in the philippines, many of your comments hit home but need some clarification to be accurate.
first of all the trickle down to middle-market is a bit more than a trickle; more like a definite stream, not quite a river, just yet. the reason is because of data security, as you point out.
however, no one has lost data, at least in the philippines, so a reasonable person would have to agree that data loss, or corruption, is more theoretical than real. and to be strictly fair, how much data security does the company enjoy in-house? sometimes i think the news sources take great joy in discovering data loss (in india, for example) but the same thing may go unnoticed in la, where it is part of doing business.
security here is part of everyday business. it has to be since a little bit goes a long way in terms of reputation.
you say that cost arbitrage is the driving force. let me bring you up to date. companies’ ability to add value when outsourcing is a big deal. bpo is the low-hanging fruit; today knowledge process outsourcing is the name of the game and middle market likes the concept quite well as judged by their response to kpo marketing we have done. if you are not sure what the difference between bpo and kpo really is, have a look at http://www.icatchit.com/inside-outsourcing-forum/topic16-23-1.aspx?postid=16&displaymode=3.
you mention that 32% of mid-market managers are chasing quality, according to the survey. we find that quality is the main selling point for us. sure, cheap prices, but we have to offer more than that or they continue to shop.
well, anyhow. nice article and thank you for listening to my 1/2 penny’s worth.
jerry c for icatchit.com
robert stewart
i think this post is right on the money, but i have to admit that i’m somewhat bias. i actually just started a company that kind of caters to this space, greenbrim.com. beyond just running this business, i’m an audit director at a medium-sized mfg company. i saw many of the trends noted in this blog post and i continue to be frustrated with the incongruity that exists between the profits being reaped by the temporary staffing world and the actual value that they bring to the table (specifically with regard to talent and due diligence). at any rate, good post and i’ll be checking back regularly.