Strategic Application of Outsourcing in a Cpa Practice

Offshoring and outsourcing are headline news today.  Popular news sources as well as business publications carry daily articles on the virtues and vices of offshoring. How does offshoring affect the local CPA firm?
Let us state some axiomatic truths:

Every business today needs to focus on its key competencies.

The internet has made it possible for any job that can be done across town to be done anywhere in the world.

US wages and overhead are substantially higher than costs in other English-speaking countries.

 

Outsourcing accounting and financial services is growing by 30% annually. Sooner or later, every CPA will have to deal with competitors who are offshoring. It is our contention that CPAs who outsource will have more time to attend to their most profitable clients. They would also be freed from the headaches of recruiting and retaining qualified accounting staff. Making use of outsourced accounting services increases profits in the short run as well as the long run.

Outsourcing the responsibilities of one US staff accountant saves nearly $50,000/year.

Many people think of accounting and bookkeeping outsourcing  as simply a way to reduce cost. This perception misses the greatest benefit to be had – giving the CPA the gift of time.

For the overworked CPA, time is a tyrant. Important business functions which lack urgency are often ignored (e.g. business development, staff development, exit strategy etc.).

By outsourcing the less skilled work, the CPA:

gets the time to attend to the top 10 – 20% of their clients, who contribute 80 – 90% of their revenues. These clients are often the best sources of new business.

gets the opportunity to examine the client’s financial affairs and become a trusted advisor. This opens up a myriad of financial services that the client needs and the CPA can provide.

develops a better understanding of value of the CPAs service to the customer, making value-pricing easier.

trains fewer staff accountants, freeing time and money for in-depth staff training.

can invest in marketing.

can accept new business without having to worry about staff, space and equipment availability. 

 

While the strategic advantages take some time to become effective, CPAs gain immediate benefits from offshoring, including:

A simple solution to the vexing problem of recruiting and retaining bookkeeping staff and staff accountants.

An excellent way to handle peak load, especially during tax season.

Higher quality control: a lighter work load allows for closer review and eliminates the pressure which can lead to mistakes.

Significant cost savings. There are two parts to this cost saving  

 

             a. There is the labor arbitrage factor which can deliver 50-70% cost saving. We estimate that the true cost of a US Staff Accountant is $34/hr worked. When you consider that offshore vendors provide the same service for $10 ±/hr. the cost savings are obvious. We estimate that replacing one US staff accountant saves $47,000/year. (Please see the Excel object at the end of the article. You can substitute your own assumptions and derive your own estimate).

          b. The outsourced accounting provider has significantly larger scale than a single local CPA firm. It allows them to invest in process improvements, systematic staff recruiting and training. 

          c. It is not uncommon to see automation reduce the time required by as much as 90%. The CPA firm using an outsourced accounting services firm can improve its quality and lower cost at the same time.

Improved security: Offshore vendors make substantial investment in security, which is not feasible for a local CPA firm. Contrary to popular belief, offshoring improves security rather than reducing it.

 

 

Is an outsource accounting service right for your firm?  As with all tools, it is most effective when used in service of a strategy.   If you are ready to increase levels of service, grow or diversify your practice, or just have more time to yourself for other pursuits, then it is appropriate to consider offshore accounting as part of your business strategy.

Dev Purkayastha (CEO, Indevia Accounting, Inc.) holds an M.B.A. from Harvard Business School and is a qualified Chartered Accountant. In addition to his accounting experience, he has over 25 years of experience in the venture capital business as well as in investing in public enterprises. For more information on outsource accounting & bookkeeping services please visit: http://www.indevia.com

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