What is outsourcing?

In general, outsourcing involves the contracting out of a business process or processes to another party. It allows the sharing of specialised skill and infrastructure across many organisations at affordable prices. In the context of accounting services, it entails the contracting out of all or certain processes relating to the collection and administration of financial data, capturing of transactions and the preparation and review of financial results.

Outsourcing of finance and accounting functions is a well-established and growing practice. It is one area where outsourcing makes sense as despite the unique nature of businesses, the underlying accounting and financial processes remain largely generic across most organisations. During tough economic times, outsourcing can provide instant cost savings and also improve the quality and timeliness of information to enable better cost monitoring and management.

Why outsource?

Finding the right balance in your finance function in terms of employee numbers, skill and experience is an ongoing struggle for many organisations. This is not surprising given the fluctuating workload within the function, the spectrum of skills required and continual operational changes that constantly demand a new mix of capacity, skill and expertise. The effect of these variables are often exorbitant costs, capacity miss matches, poor quality, unreliability and ultimately adverse business decisions and results.

The sustainability and reliability of an in-house function is also never guaranteed. The untimely departure of a key resource can throw the function into turmoil and also mean the loss of valuable information and experience which have vested in that person over time. Very few organisations have workable contingency plans in place and normally throw cash at the problem in the form of costly temps and contractors. Finding a replacement is disrupting and costly and no guarantee that the cycle won’t repeat itself. Each time this happens, there is a dip in the quality and reliability of information and an increased risk of fraud.

The challenges and complications associated with the management and administration of employees are major distractions from focusing on core business objectives. Labour laws and employee contracts make it almost impossible and extremely expensive to implement any swift changes that could affect employees. This puts significant strain on managing costs in challenging times. The overall well-being, development and retention of employees require significant investment and support systems. This effort is often overlooked when considering the overall cost of employment.

Outsource partners specialise in providing you with the right level of financial and accounting support within flexible and affordable terms. When considering that these risks and challenges can be passed on to someone else through an affordable outsourcing arrangement, the business case for outsourcing becomes almost indisputable.

Benefits of outsourcing

By sharing specialised infrastructure, processes and resources with other businesses through a mutual provider, the following benefits are realised:

Improved quality and reliability
It is inevitable that when financial and accounting affairs are managed by dedicated specialists, the quality and reliability of financial information will improve. In an outsource arrangement it is possible to continually assess and provide the right level of skill and experience required for changes in complexity and size of your business.

Cost reduction
The direct cost of personnel is already a significant expense for most companies but usually does not take into account the associated overheads of housing these employees. For example, add in recruitment costs, training, insurance, office space, support personnel (e.g. HR), a computer, software licenses, a mobile phone, etc. and soon the direct cost doubles. These costs are now absorbed by the outsource provider and spread over many organisations in an affordable manner. Large portions of IT related costs, e.g. accounting software licenses, servers, upgrades, etc. can also be eliminated within an outsource arrangement.

Outsourcing allows you to focus all your energy on value creation for your clients as opposed to dealing with the daily distractions and challenges of running a finance and accounting function. Any good outsource provider will quickly identify and eliminate any inefficiencies and duplications as it is not only in your interest, but also in their own. An effectively run finance function will compliment all other areas of your business and generally serves as the link between all business units.

Flexibility and scalability
Outsourcing allows you to add or remove skill and capacity as and when needed, on a temporary or permanent basis. The headache of when and how many staff to recruit is removed. During busy or slow times resources are added or removed without any complexities, e.g. over year-ends, budgeting, etc.

Sustainability and reliability
The sustainability of your accounting and finance function is guaranteed under an outsource arrangement. It is the responsibility of the provider to ensure the right levels of staff are available at the right times. Conformance to this is stipulated in SLAs and used to measure the performance of the outsource provider. The outsource provider will also have processes and measures in place to ensure data is backed up, contingency plans are in place and knowledge of the business is documented and retained.

Administration and control
The administration of individual employees are costly and requires care and attention to avoid unnecessary legal issues or unhappiness in an organisation. Unfavourable labour laws in South Africa also deters from recruiting employees which often causes huge capacity restraints and adds to the burden of existing employees. Outsourcing significantly reduces the risks associated with the recruitment, retention and termination of employees.

Contrary to belief, outsourcing results in better control as opposed to the general concern over the loss control. This is because it is easier to manage an outsource provider more stringently than in-house resources. The metrics for measurement of an outsource provider are also likely to be clear, e.g. savings, service-level achievement etc.

What can be outsourced?

Each business’ needs and circumstances are unique and will determine the right level and combination of outsourced services. The size, complexity, geographical locations and number of employees are all factors that will be considered in determining the optimum arrangement. Processes typically outsourced include:

  • Payroll
  • Bookkeeping/accounting
    • Accounts payable
    • Accounts receivable
    • Fixed asset management
    • Bank processing
    • Month-end
  • Management accounts
  • Financial statements
  • Year-end preparation
  • Budgeting and business models
  • Company secretarial services
  • Taxation (VAT, PAYE, Income tax, etc.)
Outsourcing models

There are various outsource models that can be considered, these include:
Full outsource – the entire finance function is outsourced.
Partial outsource – the outsource partner works in collaboration with internal staff.
Limited outsource – the outsourcing of specific areas e.g. only the cost accounting function or payroll.

Temporary outsourcing – filling in during a temporary vacancy, e.g. maternity leave.
Project outsourcing – outsourcing of specific projects or tasks e.g. a business model, a budget model, year-end preparation.
Managerial outsourcing – secure managerial oversight and guidance from outsource partner at agreed intervals, e.g. two days a month.

Why choose Moonwater as an outsource partner?

Moonwater provides the full spectrum of financial and accounting outsource services. What differentiates us from the pack is our unique blend of skill and experience which is ideal for the services we are offering. We are commercially experienced and our advice and solutions are based on hands on experience gained from working in, managing and improving finance and accounting functions and processes.

You will benefit from our wide range of exposure gained from other businesses, but our solution to you will be uniquely tailored to your needs and means. We work with you to ensure the selected model is cost effective and agree SLAs which support the drivers of your business. We are confident that our skill and experience will improve the success of your business by saving you costs, improve quality and allow you to focus on the core activities of your business.