outsourcing finance Archives - The Finance Team

Three myths about outsourcing finance

Your company outsources its IT services, its legal services, and probably outsources its annual HR reporting requirements too. You outsource these non-core functions so that you can focus on what you do best: selling your product and growing your business. But for some reason you are dead set on keeping your finance in-house. You’ve heard some of your peers talk about outsourcing finance management, but there’s something about it that holds you back. Perhaps it’s just because it’s not the traditional way of going about things, or maybe you’ve heard a few things about outsourcing finance that put you off. Let’s take a look at separating the myths from the truth surrounding this practice.

1. Outsourcing finance myth one:

You can’t trust someone external with sensitive financial information.

“Keeping it in the family” is one of the big reasons that companies steer away from outsourcing finance. After all, information about salaries, profit and debt is sensitive material. In non-listed companies, this information is often withheld from most of the employees of the company, let alone outsiders. And if competitors got hold of that information they’d have a field day. So why trust this with someone you don’t know?

The answer is that your information may well be safer with an external source than with a fulltime employee of the company. A permanent in-house employee, by nature of their role, develops close relationships with other people in the company. They are more likely to have the motive to divulge sensitive information to others in the company than someone who has an outsource relationship. Third party (outsourced) finance executives are bound to rigorous confidentiality agreements. They are fully aware that leaking sensitive information will put their reputation and livelihood at stake. And if company information is leaked, third party executives know that they will be the first suspects. For this reason, an outsourced finance executive is often more likely to guard the information they are privy to than an employee who might casually mention a thing or two to his colleagues over a beer after work.

2. Outsourcing finance myth two:

An external finance manager does not fully understand your company’s operations and systems.

Your rationale is logical: he or she hasn’t spent years with the company; how can they fully appreciate the way things work there? While such a concern is understandable, remember that interim finance executives specialize in adapting to new environments. They may not have worked for your company for years, but they’ve likely worked in companies like yours several times prior.

Most interim executives only need between three to five days in a new company before they are able to start functioning fully. Because of their varied experience, they are generally also very comfortable adapting to new systems. Experienced interim finance executives say that most systems have certain characteristics which repeat themselves in companies of a similar ilk. Chances are that he or she has worked with your accounting software before too.

3. Outsourcing finance myth three:

An outsourced financial manager would lack insight as a senior member of the exco or board.

If they’re not there for the day-to-day operations of the business, can they give useful insight on the board or management committee? The answer is yes. Outsourcing finance management will allow someone with a fresh perspective to sit on your senior management team. They’ve got a broader focus and have more insight into competitors and the industry at large. While your perspective might be limited by the sights and goals of the business, they have a broader view that will help to inform strategic decision making. It’s almost like getting insights from a member of the competition, minus the conflict of interest!

Outsourcing finance takes a paradigm shift and a willingness to try something new. But many companies attest to the fact that this new way is often more effective, more efficient and yields more powerful results. If you are considering outsourcing finance in your company, speak to The Finance Team. We have an impressive team of highly qualified finance executives who can provide advisory or ongoing financial leadership for your organisation according to your needs.

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June 2, 2015 / No Comments /

Four reasons for outsourcing finance

The business world has seen an upward trajectory when it comes to outsourcing finance; following in the camber of the greater global trends around outsourcing. The past decade has seen a growing number of businesses embrace the outsourcing model as a way of attending to non-core functions.

This year has been a tough one for South African businesses. While at the beginning of 2014, economic growth was projected to be about 2.7% of the gross domestic product (GDP), the national treasury has now revised that significantly downward to 1.4%. The interest rate, while remaining accommodative, has been adjusted upward. Banks have become more wary of handing out unsecured loans. Inflation has exceeded the 3%-6% target band, and consumers have, out of necessity, tightened their belts. These factors have combined to require a certain scrupulousness from decision makers in South African companies. With these and other constraints, more and more business owners are considering outsourcing finance in their organisations.

Outsourcing finance requires the realization that while healthy finances are integral to the success of your business, they constitute a support function rather than a core one. Because of that, someone else could probably do the job more effectively – and leave you more time to excel at yours. Here are four reasons why you should consider outsourcing finance:

Save on costs: The biggest reason why companies consider outsourcing finance is because of the potential cost-saving involved. Instead of paying the (often sizeable) fulltime salaries of qualified financial experts and running a department in-house, you’re paying only for the services you need, as and when you need them.
Ensure finance-related deadlines are met timeously: In small to medium-sized companies, responsibility lines become blurred. Most people juggle several roles, often having to respond to company needs on an ad hoc basis. If your business falls into this category, you will appreciate how easy it is for an employee who wears several hats to let financial reporting requirements fall through the cracks. For example, SARS deadlines could be missed without realising it, or you could go months without revising your cashflow projection. Outsourcing finance ensures that the various financial requirements that will ensure your company’s health, are met every month. Focus on your core operations secure in the knowledge that your tax returns are being filed timeously and your financial control mechanisms are being attended to.
Attract high quality expertise with no risk: We all know how difficult it is to find and attract the right financial talent. The risk of hiring the wrong financial person (or people) is high: not only do they command large salaries, but they are making decisions that will affect the future of the business. Moreover, once you have taken such a person on-board it can be rather difficult to get rid of them if there is a bad fit.
Outsourcing finance allows you access to high levels of financial advice without the risk of taking on an employee fulltime in order to do so. If the “fit” isn’t right, you can arrange for another executive to take their place without battling through HR requirements to do so.
Allows the space to focus on core activities: The classic reasoning behind outsourcing finance also provides a compelling case. It gives you the freedom to do what you do best, which is run your business and sell your product. Finances are required for a framework in which to operate, but shouldn’t be consuming the time and effort it takes to grow and operate your company. Outsourcing finance understands and respects the need for division of time and labour where appropriate.

The notion of outsourcing finance may seem almost counterintuitive to some, because of the great importance of the financial function. It’s hard to let go of the reins in an area where much stands to be lost in the event of mismanagement or incompetence.

If you are wondering where to find a trustworthy source of financial expertise to fill your needs as part of an outsource solution, The Finance Team could be your answer. Our qualified associates are handpicked for their skills, trustworthiness and competence. They can help to form an outsource solution that fits your company’s needs as well as your budget.

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November 17, 2014 / No Comments /

Embarking on outsourcing finance – the smart way

Ever considered outsourcing finance functions in your company? You are part of a growing number of business leaders moving in that direction. According to a study conducted by US-based research company Ovum, the number of finance and accounting projects worth more than 1 million dollars has increased over the past two years.

An article featured by Forbes says that as the outsourcing market matures, “companies contracting for outcomes are exploring fresh ideas and seeking new answers to streamline finance and accounting processes.

This means the practice of outsourcing finance is expanding to new areas. Responses from 150 companies interviewed by Ovum showed that driving efficiency was a major rationale behind the movement.

“There is a wider trend in outsourcing as a whole,” Ed Thomas, an analyst for Ovum told Forbes. “Cost reductions are the table stakes, and companies want to know what else their outsourcers can do to make their processes and technology run more efficiently.”

The study found that companies are “moving up the value chain” in terms of the accounting and finance processes they outsource. Years ago, outsourcing finance was limited to basic or transactional functions such as debt collection. However, companies are increasingly delegating more strategic tasks. One out of three respondents in the Ovum research had outsourced finance by way of internal auditing – seen as a strategic and often sensitive undertaking.

The cost benefits to outsourcing finance and accounting functions can be leveraged as the number of delegated functions increase. The wider the angle of insight that the person or company appointed to provide the outsourced services enjoys, the more valuable the service he can provide. One example of this, cited by Jag Dalal, managing director of thought leadership at the International Association of Outsourcing Professionals (IAOP), is accounts payable and receivables. An outsourcer delegated to follow up on accounts payable will do only that. However, someone outsourced to oversee accounts payable as well as receivables will be able to see when cash comes in and goes out, and therefore plan around and optimize on cash flow. Overall, he will provide more value to the business.

Potential pitfalls

Despite its growing popularity, outsourcing finance is not without its risks. Business blogger The Curious Manager shares some potential pitfalls of outsourcing finance. Among them is listed:

You are no longer among colleagues. Because the person appointed is not an employee of the company, there is the possibility of encountering less flexible service. Also, anything that’s not part of the job contracted for could be charged for. Outsourcing contracts often hit the company with a number of unforeseen “extra’s” that are billed for as the project unfolds. Your company’s task is to look for a service provider that adopts a team-player mindset and also comes with a transparent cost model.
An initial dip in quality or lengthened turnaround times. It’s almost inevitable when outsourcing finance. Teething issues arise when the outsourcer assumes the functions that were initially handled in-house. When you take the decision to go external, you run the risk that quality never quite recovers. Your task is to appoint someone well-suited enough to the task, and with enough experience, that down-time is minimized and the quality of your company’s output is maintained.
Loss of motivation internally: In some cases, outsourcing finance results in redundancies. At other times, it merely means a shift in the way something is done or the need to accommodate a new team player; someone who will bridge the gap between the internal environment and the outside world. In either case, it will require prescient management to anticipate where existing employees might resist the change. The outsourcer should be able to anticipate and tactfully – and effectively – deal with what could potentially dampen productivity.

Whilst there are definite benefits to outsourcing finance, there are simultaneously risks inherent in making the shift. The answer to successful financial outsourcing is to manage the internal reaction to the change and appoint an outsourcer skilled enough to ride the almost inevitable backlash that will accompany his or her appointment.

The Finance Team helps to connect companies with skilled and experienced finance executives who can head up outsourced finance and accounting functions. These professionals have the experience and know-how to ensure your company derives the cost benefit of outsourcing while simultaneously avoiding the potential pitfalls that can accompany the practice.

September 29, 2014 / No Comments /