Outsourcing or in-house: How do you decide?
The accountants of a startup are not only the professionals who accompany the enterprises doing the financial statements and advising on tax compliance. They are essential allies when it comes to outsourcing. As they solve administrative and financial challenges in the different stages of growth. Startups are organizations that know how to adapt to changes. Therefore, they must review and make decisions regarding the level of service expected from their providers.
In this article, we answer your questions related to these topics. One of the most frequent doubts on this subject is the ideal form of contracting. We analyze the benefits of each case to make the best decision according to the moment of your business.
- What are the benefits of outsourcing?
- What are the advantages of an internal accountant?
- Is outsourcing a good option?
- Developing the software in-house
- Risks: which ones can I prevent and how?
- How can we help you obtain more information about In-house or outsourcing for your company?
1. What are the benefits of outsourcing?
Subcontracting or outsourcing is the process in which part of a company’s management activity is outsourced. Many startups often decide to outsource accounting services at the time of closings, affidavits, and other presentations.
But there are also those who decide to outsource to meet other objectives. Whether they are operational, such as:
- The registration of each of the economic events.
- For strategic issues such as the assembly of indicators whose result is a saving of time.
- Or to accompany the growth process with external support.
These are some of the advantages of contracting the service of third parties:
1.1 Cost savings
Having an accounting professional within the company requires a capital investment that includes everything from paying salaries. Also, training in the hardware and software you need to carry out your task. In addition, the professional profile that the startup requires in its beginnings usually changes in the short term. Generating in many cases the cost of rotating collaborators.
In the option of subcontracting the service, many of these expenses are assumed by the provider company within a monthly fee that is usually 35% to 40% less than the cost of an internal professional.
1.2 Best results
Not only because the company that is dedicated to providing accounting services is up to date. Also because it often works as additional help in matters of software consulting, finances, and controllers.
When you contract an accounting service, all the knowledge of the company is included in the fee. Not only basic accounting is paid. In turn, service providers often take a proactive approach, warning of problems and helping to resolve them. For their part, the founders of the startup focus on the business. Having a specialized third party take care of support activities.
1.3 Better responsiveness
When subcontracting payroll, there is a large team of professionals who can meet the demands in the face of considerably increased activity. Especially in seasonal or other business cycles.
2. What are the advantages of an internal accountant?
When it comes to a small business with very simple financial matters, hiring an accountant can be an unnecessary expense. However, when the company grows it also increases the financial complexity and the number of fiscal rules to comply with. In this situation, hiring an accountant is less of an expense and more of an investment that pays off quickly. If you are climbing, here are good reasons to start your search.
2.1 Share the company culture
An internal accountant knows the company culture in-depth, is related to strategic areas and feels highly committed to his task. That acquired know-how can be transformed into an indispensable piece to collaborate in the expansion of the business.
2.2 There are no hidden costs
Sometimes, as is the case with many paid services, outsourced accounting firms have hidden costs that the client did not know about or forgot about. If these costs accumulate, contracting the service ends up being less profitable than what was promised.
2.3 Full control of the operation
Some business owners prefer to have control over all aspects of their business, even though it can be time-consuming. Communication and cooperation between the CEO and the CFO are advantages of having an in-house professional.
Accounting is a support activity. Its importance lies in the fact that the generation of information for decision-making depends on it. In the early stages, subcontracting is generally advisable. In this case, it is advisable to work very well on communication so that the service providers are an ally of the business.
When reaching consolidated stages, it is ideal to have a business-focused CFO working alongside the founders. When the time comes, the CEO and the CFO will evaluate the convenience or not of outsourcing the service for certain functions or in its entirety.
More and more companies are outsourcing the development of their systems. Instead of doing it themselves, they understand that they must focus all their energy on their core business.
This mechanism is used by many organizations, especially in areas such as accounting, sales, human resources management, logistics, and, systems. According to statistics, eight out of ten companies in the Middle East outsource some type of service or area. Consequently, becoming 90% more productive.
3. Is outsourcing a good option?
Known as subcontracting or outsourcing, it is the delegation or assignment of one or more activities to another company so that it performs a service or works with its own human resources. Thus, the company that outsources is unconcerned about the activity to focus on providing a good product to its customers.
In the IT area, companies specializing in software development are usually necessary to delegate the construction of the system to them. This process should be a great benefit to the area. Allowing it to focus on resolving incidents and supporting existing systems in its own organization. However, there are some important disadvantages that we must take into account.
First of all, there is the matter of the charge. Because depending on the magnitude of the project or the size of the outsourcing company, subcontracting could be more expensive. Second, there is the learning curve, since outsourcing generally takes longer since the provider has to learn the company’s processes. Which in many cases is not really clear because there is no documentation. Additionally and related to this, outsourcing implies leaving a lot of confidential information of the company in the hands of third parties.
By having the support of an external party, it will be necessary to share information on the processes and the internal way in which work is done within the company. Although there are protection mechanisms. Such as confidentiality agreements, there is always the possibility that some relevant information will leak and reach the competition, causing the loss of competitive advantage. However, this problem also happens with staff leaving the organization, so it should not be the most important concern to take into account.
4. Developing software in-house
The other side of the coin is internal or in-house development. This consists of the company developing its own systems, with its programmers and analysts. The most obvious advantage of this approach is that the company knows its business and how things work. Since all the information belongs to them, in theory, they should develop it faster. Because the learning curve is zero, or almost zero, there is no need to train anyone.
With this option, there will also be better management of times and costs, as well as the personnel in charge of the project. On the contrary, in outsourcing, the external company defines its personnel, calculates the times, and establishes the total cost of the project. The main disadvantage of in-house development is that the staff would be occupied in the project, partially or totally, and they would dedicate less time to their regular activities.
If you opt for in-house development, the company must guarantee good project management, with experienced, committed, and competent personnel, as well as a good definition of roles and activities. The development team must act as if it were the expert outsourcing company and function as well as if the service was outsourced.
A third alternative is another kind of approach, that is, part of the project is in charge of the company and the rest by the third party. An example of this approach occurs when all the analysis and definition of requirements are in charge of the company, and only the outsourcer is necessary for the coding of the product. This scheme is frequently with consulting firms and software factories.
4.1 More value for organizations
If the company is organized and has the right staff, you can achieve an internal development area. However, if this activity will bring more problems than benefits, it may be more convenient to think about outsourcing, but you have to choose the provider well. He must have experience in his field and must also be able to quickly learn our business.
The value does not lie in deciding whether to develop or outsource, because both will allow obtaining a product. The true value lies in the fact that once the system has been built, what is the use that is going to be given to it, what are the benefits that it gives us if it gives us any competitive advantage if it is really aligned with our organization if it allows us to reduce time, if your information is reliable and, in general, if it helps us make better strategic decisions. That is where the correct worth of the structure lies.
The question we should ask our organizations is: at this time, should we develop or outsource?
5. Risks: which ones can I prevent and how?
Despite being an effective system, it is important to mention that outsourcing involves taking into account the existence of some risks for the company. Let us see what those risks are, which ones we can prevent and how we should do it:
- Negotiating an unsatisfactory or inadequate contract: to avoid problems of understanding in the future and the tensions derived from it, sign a contract with closed clauses and demand results. If the supplier does not comply with the agreement in the contract, look for a solution before it harms the operation of your business.
- Wrong selection of the contractor: before making your final choice, do a good search and make sure you have found the company that best suits your needs. Meet with the candidates, ask for a quote, compare, and make sure that they have the capacity to meet the objectives and standards you want. This way, you will ensure that you get the most out of the process.
6. How can we help you obtain more information about In-house or outsourcing for your company?
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Are you looking for assistance in the Middle East for your business? Send us an email at [email protected] or call us at +971 43 316 688 if you would like to learn about our services. Our well-informed representatives will reply to any inquiries you may have.
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