COVID-19 has prompted many finance leaders to re-think their finance operating model and consider how to ‘future-proof’ the function. As businesses adapt to remote ways of working and pivoting business models – how might the transformation of your finance function support the continued success of your business?
In this article, we explore some of the common drivers, and benefits of, outsourcing elements of your back office finance and accounting function.
1. Changes to business activities – are you starting up, experiencing rapid growth, restructuring or winding down?
Almost every business’ lifecycle will typically include periods of growth and retrenchment. Whilst COVID-19 has dented the performance curve of many businesses leaving them facing a long and slow recovery period, many businesses are experiencing high demand for their specialist goods or services. Either way, the rapid scaling up or down of your operations creates challenges for finance functions, which are relatively inflexible in terms of their human resource capacity. Systems and processes may also be designed to perform within set operational boundaries.
To mitigate this risk, you should consider the fact that outsourced accounting service providers have the ability to flex their service provision in line with your business – even on a quarterly or monthly basis. Regardless of whether your business is a new venture or established, you’ll be able to access levels of expertise that may be beyond reach if dependent on recruiting in-house resources. Such flexibility may be particularly important as all businesses seek to build resilience by anticipating financial pressures, and then refocus on planning for the longer term and working to realise their new business vision.
2. Are you behind with accounting and compliance? Are items not fully reconciled? Is your finance function able to operate at full capacity remotely?
Now is not the time to fall behind with accounting and compliance obligations. Apart from supporting timely and informed decision-making (see below), accurate financial information will be essential for accessing new finance, whether from government-backed loans or other your existing financiers. However, the need to work remotely will have challenged many finance functions reliant on desktop or paper-based solutions. Effective remote working requires the right finance and accounting technology to be in place and where finance functions are unable to operate at full capacity, falling behind with regular accounting and compliance tasks will most definitely follow. Even in normal conditions it can be challenging for in-house finance teams to meet compliance deadlines while still delivering day-to-day operations. For those with global operations, you face the real risk of significant penalties if you fail to meet your compliance deadlines in those territories.
Remote working is no challenge for outsourced service providers, whose model is based on multi-location activity. The outsourcer’s deep resources, in terms of both people and systems, give it the ability to meet clients’ compliance deadlines and keep the accounting and reporting flowing, even at periods of peak activity.
3. Is management reporting slow or inadequate? Have KPIs, budgets and forecasts been aligned to the business’ strategic objectives?
Delays in producing your financials, whether due to remote working or any other issue, make it harder for management teams to take effective decisions. In the current fast-changing environment, businesses need clear cashflow forecasts, KPI information and reports on performance against budget. This is vital for managing working capital and reducing credit risk. If management information (MI) is slow or inaccurate, steering the business through the current turbulent period and potentially sustained recession will be challenging. Existing stakeholders, including banks and existing investors, may lose confidence in a business where there are weaknesses in the MI produced.
Outsourced accounting service providers have high quality systems and processes to ensure the production of accurate, timely financial information. Management reports can be tailored to specific needs, ensuring that business leaders have the KPI’s and other information they need to run operations effectively. Along with outsourcing processing and compliance activities, you should also consider leveraging the expertise of your advisors to support with planning, forecasting, scenario planning and stress testing – all value-adding activities, particularly as businesses build resilience and then realise new goals post COVID-19.
4. Has the finance team recently gone through, or is about to go through, major changes? Is there a key person risk within the team?
Managing people is rarely straightforward and restructuring a finance function to respond to changes in business operations can be time-consuming and costly. Building resilience into the team can also be difficult when there are budget constraints that determine the headcount available. Many in-house teams will be dependent on certain key people who ‘know how things are done’ or have particular expertise. COVID-19 has highlighted the need to mitigate the risk of key person dependency in order to ensure smooth ongoing operations.
Again, this is an area where outsourcing your finance function can provide a solution and the outsourced service can be adjusted to respond to the current needs of the business. Key person risk can be eliminated, due to the depth of resources and sector expertise upon which the service provider can draw.
5. Are processes out-of-date or inefficient? Are you failing to leverage new accounting technology and still reliant on a lot of manual tasks and duplication?
Introducing new technology can be expensive and disruptive. So it’s not surprising that in-house finance teams can be slow to invest in new IT, systems and processes. Unfortunately, failure to upgrade tends to mean more reliance on manual tasks and isolated spreadsheets, as well as duplicated activity. This not only reduces efficiency, but also increases the risk of both innocent errors and deliberate fraud.
Outsourced accounting service providers use best-of-breed technology, systems and processes – and importantly, can draw on specific sector or industry knowledge to tailor solutions to your business activities. Cloud-based apps and other digital innovations have transformed remote connectivity, reduced manual interventions and improved the speed and accuracy of accounts processing.
Something we see quite often is that business owners and finance leaders do not realise how quickly and easily they could access the financial and management information they need. Through your advisors, you’ll not only be able to implement cutting-edge solutions customised to your business, but you’ll also reduce the potential for fraud - giving you improved peace of mind.
6. Do you operate from multiple locations, either in the UK or overseas, and can senior management access systems and management information dashboards remotely?
Remote access to systems and MI dashboards is no longer only essential for businesses with multiple locations. COVID-19 has necessitated remote working by many key personnel, highlighting the need for the right digital technology. Many businesses will have found solutions to help them through the initial stages of the COVID-19 outbreak and to build resilience for the medium term. As they look to the longer term, management teams can take the opportunity to re-imagine how their business can and should operate in future.
As mentioned earlier in this article - meeting global compliance obligations is a complex and time consuming task. Having the ability to tap into advisors who offer a centrally coordinated approach whilst applying the knowledge of local, in-country teams, can ensure compliance with all local deliverables and provide you with real time visibility and control over your global compliance obligations and deadlines, wherever you may be.
Turning to an outsourced service provider could be the best way to ensure that current and future accounting and financial reporting needs are met. As your business transforms and realises management’s vision for the next phase in its development, the reliability, flexibility and remote access enabled by an outsourced service could provide a high quality, yet cost-effective finance function solution.
7. Is your current payroll provider fit for purpose, scalable and able to spot and advise you on non-payroll issues including employment tax implications arising from legislation changes?
Payroll is often a natural starting point when businesses outsource part of their finance function. One reason is that it is a highly technical area, where smaller businesses can be highly dependent on key staff. It’s also an area of regular change. During the COVID-19 outbreak, for example, we have seen frequent changes in government policy and support packages, often with complex and detailed rules to digest. Keeping on top of all such developments is a big ask for all but the largest in-house teams.
From a global perspective, many businesses are looking to payroll advisors with specialist experience in managing the logistics and local compliance challenges presented by running payroll across multiple countries or regions.
Outsourced service providers such as BDO don’t only have highly experienced payroll experts who can take the strain. We also have employment tax experts who can decipher the legal and regulatory codes and ensure that clients maximise the opportunities available to them. We can tackle international factors, such as the international movements of managers and the rules around non-resident directors. Our expertise extends beyond payroll issues to encompass other specialist areas such as VAT risks and research and development reliefs.
If you are re-imagining the future of your business, see scope to improve resilience through outsourcing some or all of your finance function or would like to discuss any of the issues highlighted in this article, please contact us.