Why does outsourcing deliver a higher value finance function to the SME?

Why does outsourcing deliver a higher quality finance function for the SME?

The world in which we live

Many of us pay for our internet, telephone, utilities and even settle our credit card bills using direct debits.  These types of payments mean we don’t forget and it makes life easy.  However, our ability to assess the quality of the product or service and measure it against our expectations before choosing to pay (or not!) is gradually being eroded.

The flip-side is when we do have the opportunity of true discretionary spend our expectations are significantly sharper because these decisions have become rarer.  We expect a greater degree of expertise from a service provider, and we expect a result significantly better than could have been achieved had we done it ourselves.  If we engage a builder, plumber or decorator, for instance, we find it easy to generate an expectation of the result we want and to measure output against this expectation.  We can be a very exacting customer, indeed.

The discerning but cost-sensitive SME is no different when it comes to assessing their service providers.  Don’t get me wrong this is a good thing for both the SME and the service provider. Still, as an experienced provider of outsourced accounting, I always start our journey together with a mixture of interest and trepidation.

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Outsourcing accounting, it’s all in the SLA

The first step is the creation of the service level agreement (SLA).  It forces the SME to identify and understand exactly what goes on in their business and in particular the finance process.  It establishes their priorities and determines the measurement criteria against which we, their service provider, will be paid. This would not appear to be too onerous a task on paper, but the reality is sometimes quite different.   Too often, finance is viewed as a black box.  I frequently hear “it requires ten full-time people” swiftly followed by “although I can’t honestly say why” before concluding, “but surely a professional outsourcer like you can do it in half time?”  Whilst I am confident we could do it faster, the accountant in me is always a little sad at the lack of understanding of this pivotal function.

Having agreed on the outsource accounting SLA, this must be kept as a living and evolving document, receiving continual feedback and refinement.  So at any particular time, it is a reconciliation of expectation against reality.

I encourage my clients to ask themselves (and me) frequently:

  • “What is the real cost of the finance function?”
  • “What value has it brought to my business during this period?”
  • “Are we monitoring and measuring the right things?”
  • “What could we do differently?”
  • “Can we do this better, quicker, or cheaper?”

By doing this, I know when it comes to asking the client to sign a cheque or sign-off an invoice, we are delivering the highest quality service and delivering the most value we possibly can.

Crucially the SLA can also help the business to drive better behaviours in other parts of the organisation.  It is sometimes easier to justify tweaks to processes to keep your outsourcing costs down than to point out inefficient parts of the organisation – for example in sales invoicing and cash collection (two key processes in any successful SME).

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Outsourcing value versus cost

The SLA depersonalises the outsource accounting service, focusing instead on the work being delivered to quality and timescales, not on the individual doing the work.  Through the SLA, a business has full and absolute power and control over the service.   It is much, much harder when dealing with employees.

The salary cost is often reviewed only as one or two lines in the profit and loss account page of a set of management accounts.  Senior management rarely looks at the equation of value versus cost.   How many companies measure the output and value of their employees?  How many companies set out a detailed service level agreement (SLA) for each employee? How many companies measure performance each month against the SLA before they pay an individual’s salary?   Our staff are answerable for their time.   This is rarely the case with employees.

Additionally, there are differences in motivation between employees and outsources.  An employee wants career development, personal development, a specific environment to work in and nice people.  Employees want training, latest hardware, paraphernalia which shows their rank and seniority and some need their egos massaged!  An outsourcer asks for none of this.

Signing the cheque

I believe the benefits of outsource accounting are more tangible and easier to quantify for the SME, firstly because money is tighter and value is therefore paramount.  Secondly, management bandwidth is a limited resource.  Management hasn’t the time to focus on the company minutiae.  They want to focus all their energy on revenue generation, profit optimisation and growing their business.

I genuinely believe an outsourced accounting service provides a better value for money to an SME than an in-house team where the monthly cost of finance has not been monitored and measured for a long time and gets washed into the general bucket of all the other salaries.

Without fail, when a customer is presented with our invoice for payment, they ask themselves (and sometimes me):

  • “Was this value for money”?
  • “Did you deliver to my expectation? “
  • “What were the issues that occurred?”
  • “Were there any errors or omissions?”
  •  Or indeed “What extra performance did I get that I wasn’t expecting?”

This level of scrutiny is a positive thing; in my opinion, it keeps our standards high.  Our systems and processes have to be top-notch.  Our people have to be first class.  We have to continually strive to maintain high standards and continuously search for the best, most efficient processes or solutions.

An SME’s high standards and low tolerance of error combined with the outsourcer’s eagerness to please and the simplicity of the commercial transaction results in significantly better quality work.  Like it or not, there is always a threat to the service provider of terminating the contract.  This is a much more complex process in the modern employment world and significantly more expensive and risky.  Because of our inbuilt tendency to avoid conflict, the option to terminate an employee relationship is rarely followed.

Does signing a cheque deliver higher quality for the SME?  In my opinion, it most certainly does.

Mike O’Connell, CEO, Isosceles Finance

First published in Outsource Magazine.

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