COVID-19 has prompted many leaders to re-think their accounting 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 accounting 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.
01 - 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 accounting 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 accounting pressures, and then refocus on planning for the longer term and working to realise their new business vision.
02 - Are you behind with accounting and compliance? Are items not fully reconciled? Is your accounting 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 accounting functions reliant on desktop or paper-based solutions.
Effective remote working requires the right accounting technology to be in place and where accounting 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 accounting 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.
03 - Is management reporting slow or inadequate? Have KPIs, budgets and forecasts been aligned to the business’ strategic objectives?
Delays in producing your accounts, 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.
04 - Has the accounting 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 an accounting 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 accounting 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.
05 - 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 accounting 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 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.
06 - Are you considering a change of accounting software or accounting framework?
Changing accounting software or framework can be a daunting process. However, it may be recommended, for example, where your business is paying a substantial licence fee for software it doesn’t really need. Many SMEs have successfully switched to a Software as a Service (SaaS) model to access the accounting support they require.
At BDO, we can help you assess whether your current accounting solution is the right one, or what might be a better fit.
As outsourced service providers, we can also take away the headache of ensuring accounting systems remain fit for purpose. By investing in our best-of-breed technology, our service continues to adapt and respond to new innovations as well as changing business needs. A choice of solutions is available, depending on the size and complexity of the specific business and management’s information needs.
If you are re-imagining the future of your business, see scope to improve resilience through outsourcing some or all of your accounting function or would like to discuss any of the issues highlighted in this article, please contact Brona Lambert on [email protected] or your usual BDO contact.