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Are accountants ready for the outsourcing revolution?

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20th Apr 2005
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Outsourcing in the accountancy profession is still a relatively new phenomenon. For as long as can be remembered the archetypal accountancy practice consisted of a partner; receptionist and a few accounts staff. Between them they would carry out all duties for their clients ' bookkeeping, payroll, accounts preparation and tax returns.

As the technical demands of keeping up with legislation changes grew, some accountants turned to tax consultants to carry out some of the more complicated calculations. Many accountants now use software to streamline accounts and tax production processes. The time saved can be spent by the accountant on looking after their existing client base as well as growing it. Over 70% of all accountants see software as an essential part of their business '20 years ago this was nearer 5%. The growth has been startling and due largely to competitive pressure. A basic tenant of business is that you either have the advantage or your competitor does. Either way, advantage is always put to good use!

In the 1990s the largest firms started to explore and appreciate the value in off-shoring a proportion of their work out of the UK. Here was a commonsense proposition ' get the same work done, with the same quality and all for a fraction of the cost ' in 90s speak a "no-brainer".

But there's always a catch. The larger firms found they had to find captive practices prepared to service them on an exclusive basis. This required deep pockets and well planned strategies for replicating their office practices abroad. The potential destinations for outsourcing were limited, but India and Pakistan became natural choices because of traditionally very high educational standards. In an Indian accountancy practice, it is common for over half the staff to be fully qualified. This far exceeded the UK average, even in large practices. Last year alone, India produced an estimated 4m graduates; this strength in depth is a considerable asset to Indian practices.

As with the software boom, the large firms have led the way. These firms have funded their own needs while the rest of the accounting community has been left waiting for the emergence of credible, reliable, widely available solutions.

This is where accountancy outsourcing stands at the moment. Between the early adoption phase and mass acceptance, the competitive advantage to be gained is, if anything, much greater. Only a brave software salesperson promises 50% overhead reductions, yet this is the proven norm with outsourcing. The early days of the software explosion saw a profusion of products. Yet only a few are left standing today ' the ones who provided the best service. The same pattern will probably happen with outsourcing. The early signs are there, with numerous companies offering seemingly the same promise, namely cheap accounts.

The degree to which accountants employ outsourcing depends on their circumstances and future ambitions. All practices reach points in their growth where workload begins to exceed current staff capabilities. These trigger points require either more staff or better use of current resource. Outsourcing can be one method of maintaining staffing levels while still allowing good growth in client numbers and fees. Few practices seem to view outsourcing as a complete solution for all their work ' or total outsourcing. While in corporate circles it is more common for complete finance teams to be outsourced, accountants in practice tend to use outsourcing as a means to offload particular segments of their work. This is understandable as it's a natural extension to using tax consultants and is an easier first step down the outsourcing road.

Quite commonly accountants will outsource high volume, lower value work such as sole trader accounts and tax returns. These can be time-consuming because of the varying quality of initial data received from the client ' everyone is familiar with the carrier bag set of accounts. Good outsource companies can turn these jobs around for significantly less cost than any UK practice can. If this can be done with no sacrifice to end quality, the cash saving is simply profit. The time saved doing these jobs can be diverted to other services that yield higher fees and expand the range of services the practice offers, thus increasing the potential client base.

As with the software model, the outsourcing companies that survive will be the ones that acknowledge the fears and potential pitfalls of their service and react to allay those fears. Security, confidentiality, good communication and workflow management are all critical to good outsourcing. Tightly managed security comes at a high cost but is essential. All these areas should be scrutinised with great care before any outsourcing relationship is entered into. Trial runs are recommended as this will provide a good idea as to the end quality, which, between outsourcing companies varies considerably. Arranging meetings with the Indian accountants (if the outsourcing company provides this) can definitely assist in quality control and creating an effective relationship.

In conclusion, accountancy outsourcing is here to stay. It's being used to great advantage already by the few. As with all business decisions there is the option to act now or wait and see. All previous experience of innovations of this nature tells us that those who recognise the opportunity and make the right choices in exploiting the potential will benefit beyond measure compared to those who wait.

About the author
This featured article has been contributed by Cogent Business Process Outsource ' leading suppliers of accountancy outsourcing services for over 15 years. To find out more information about the firm's services for small and medium size practices, visit Cogent's Partner page on AccountingWEB, or its website, www.cogent-bpo.com

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By martinfoley07
21st Apr 2005 14:17

hmmmmm
Two issues re the carrier bag/incomplete records, small business accounting end of things:
(i) short term. Of course it is far cheaper to have a qualified accountant in India do incomplete records and accounts than to have an unqualified/partially trained person in UK -the job is capable of being done better, faster, cheaper.
But there are just a few tinsey, practical issues to be overcome to achieve this!! Sales (and technology) folk who believe the reality is here today need a reality check themselves.

(ii)long term. Effectively, such tasks will barely be required at all.

Medium term? Well, I guess we'll all watch carefully.

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By Neville Ford
22nd Apr 2005 08:28

Should we be concerned ?
Whilst I understand the economic and load levelling arguments for outsourcing, and have a degree of comfort with the idea, I also have some concerns. The whole principle relies on arbitrage of wage/overhead costs between the UK and the supplier country. I have seen this in a number of areas of manufactured goods where 5-10 years ago they came from India, 5 years ago Korea and now China. Each time the cost of production has been pushed down, but then price competition has eroded margins and necessitated the push for an even cheaper source of supply.

Also the world is changing very rapidly, the standard of living (and hence costs) in these countries are rising very rapidly. How long will the opportunity for arbitrage exist, so in the short to medium term perhaps it is a strategy we should adopt but I'm not sure waht the long term future is. On the other hand I will probably be retired by that time.

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