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Part 2 - The expansion of outsourcing to the mid-market

3rd Aug 2023
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Xledger is a leading provider of next-generation cloud-based finance software. 

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In the first part of this mini-series we heard from our CFO at Xledger, Knut Rønning about what he believed were two important developments in the accounting profession, AI and automation. In the second part we’ll take a look at another key trend: outsourcing.

The expansion of outsourcing to the mid-market
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Outsourcing has been part of the accounting profession for a long time, but with the recent skills crunch faced by finance teams and practices alike, its importance is growing.

Rønning believes we’re seeing a “fight for competent resource”: the struggle within finance teams to find and recruit the right talent. 

A skills gap has been apparent in accounting for some time, and the challenge has deepened following Brexit and the Covid-19 pandemic, with cross-border working becoming less flexible.

Population changes have also influenced this shift, with many accounting professionals entering retirement early following the pandemic. Meanwhile, the attitudes of the current workforce are changing; people are increasingly focused on the professional environment they work in, and are looking to work among a wide range of professionals whose expertise they can draw on to develop their own career. This breadth of knowledge and professional development isn’t always available in a traditional small finance department.

The changes happening in the UK at the moment aren’t unique, however – elsewhere, similar shifts have taken place.

“What we've seen in Scandinavia over the last 10 to 12 years is that this has also fueled outsourcing,” says Rønning. “When we started up, outsourcing was for small businesses, and for the very big ones that outsourced their entire finance process. Over the years, more and more outsourcing has taken place in mid-sized enterprises. 

“Some of it is related to the fight for resource. When those businesses struggled to find competent resource for their finance function, they decided to solve the problem by outsourcing. It's also easier for an accounting firm to create a broader professional environment for people to develop and thrive in.”

In Norway, for example, Xledger’s main market is firms providing outsourced accounting, with only a third of business related to direct customers. The clients of those accounting firms have changed over time, too, from a majority of smaller businesses to larger enterprises.

Going by those trends, we can expect to see a similar transition in the UK, as increasing numbers of medium-sized businesses look to outsource their finance function.  

It’s essential, then, for UK accountants to secure their position in the mid-size market in the years to come. But to do this, they need to adapt to the needs and expectations of those larger clients. That includes expert advice around financial management, using data, and applying advanced finance systems to improve business efficiencies and inform strategy.

As Rønning notes, accountants are developing from being responsible for completing manual compliance tasks to being an effective partner in the business’s success, operating on the same level and working cooperatively:

“The main thing is understanding the business processes that are key to the customer, and how to design those in the most effective way, with joint resource from both the accountant and the customer’s side. 

“It's about understanding the key success drivers behind the business. And it's more about being on top of their financial development than about registering what has happened before – going from meeting compliance requirements, to really developing the customer's business and making it more effective.”

By recruiting staff with experience running finance departments in mid-size or larger enterprises, developing the capabilities of their existing team, and implementing sophisticated accounting technology, accountants have the opportunity to capture a growing market. This also presents the opportunity to adapt their service to current clients’ needs, rather than being outgrown as those clients’ businesses develop.

Positioning your firm for success

The two major trends in the accounting tech world – the emergence of automation and the outsourcing requirements of the mid-market – are essential for UK accountants to consider in the years to come.

“To succeed, you need to handle both,” says Rønning. “But there are probably a few who will miss the train. 

“It requires some changes to the way you approach your work and how you serve your customers, but there are great opportunities for those who build the right resource base and position themselves to take advantage of this.”

Xledger’s specialist accounting and financial management software offers the advanced functionality you need to meet this challenge, meeting the needs of complex customers when they outgrow entry-level accounting tools.

Book a demo or contact Phil Chalmers on [email protected] to learn more.