Practice Development News
The Evolution of Small Business Outsourced Accounting Online 		January 2007  
 
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  Low-cost Labor?
 
The business benefits of outsourcing to be derived by the accounting professional have been leveraged by an entirely new set of start-up businesses - the offshore business process outsourcers (BPOs).

An unfortunate outcome of the inception of the smb e-Accounting model was the belief that anybody could do the work. Many organizations emerged into the market, espousing the benefits of relieving the accountant of the �drudgery, mindless mechanical data entry� which was representative of the client�s bookkeeping requirement. Accounting professionals frequently take issue with this concept, as the performance of �mindless� work is not the service being offered to their client. However, there is a grain of truth in the fact that small business bookkeeping can be a laborious and time-consuming task. And the CPA credential is not a requirement in order to offer quality bookkeeping services.

Logically, any business can see the benefits of having every business function or process handled as cost-effectively as possible. Being provided with an opportunity to fulfill your requirements, but at a lower cost of operation, only makes sense. But this potential value proposition became the focus of the offshore outsourcing model, and limited consideration for how the model would actually perform was offered.

With nominal consideration for standards of operations or in policy, many accounting professionals engaged offshore processing entities based on their being �a wonderful group of inexpensive people� (actual quote from one offshore-accounting promoter). Unfortunately, much trust was placed in these organizations, and in many cases the engagements failed miserably due exclusively to the lack of fundamental business and control processes. Quality of work was low, timely communications with the offshore group was limited, and miscommunications and misunderstandings occurred with some regularity. Many who embarked upon this offshore outsourcing path early on did not stay on the path for long.



  There Is Success
 
There are numerous situations where successful offshore outsourced processing engagements have been won and fulfilled, to the benefit of all involved. In many cases, the work being performed is limited in scope. The most successful outsource arrangements are oriented towards a specific processing requirement, and are accompanied by strict and clearly communicated processes and controls. Knowing that the outsourcer not only understands the requirement, but is able to be easily communicated with in order to address changes or special circumstances is a key to a successful engagement.


  Process Re-Engineering
 
Only through a comprehensive review of the requirement and the engineering of the specific solution, with all conditions clearly communicated and understood by all participants, is the outsourced engagement likely to see a high level of success. This puts a significant requirement on the professional practice to create a systematic approach to performing the work and measuring the quality, and to be able to convey those requirements in detal to the outsourcer. Frequently, this means selecting and implementing certain technologies or services which can facilitate remote access and deliver comprehensive functionality to remote workers. Further, communications with clients, required disclosures in the engagement, etc. force the professional to not only adapt operational processes, but to also adapt agreements and business relationships to acknowledge and properly incorporate the performance of any outsource organization.


 



 


 		  
 
 
 
The small-business market, unlike the mid- and enterprise markets, utilize the general services of public accountants in much greater volume and typically for more fundamental business services � such as business bookkeeping. Larger organizations typically employ accounting and bookkeeping departments and/or personnel, and rely on outside accounting professionals for higher-level work. Small businesses, however, outsource much more of the core bookkeeping and checkbook management functions to their public accountant. This creates a volume of fairly mechanical work (data entry, document management and filing, etc. ) which can be burdensome and not terribly profitable for many practices. But this level of work is of significant value to the small business owner, and thus the value of outsourcing to the accounting professional is clear.

 


 
 
Early stages of marketing the online accounting model involved professional accountants selling bookkeeping services to small business, but offering a greater level of performance and cost-efficiency than the business could experience alone. The online technology model facilitates a closer and real-time working relationship between the accountant and the client, and results in better and higher quality information for the client. By using the online application model, accounting professionals are able to increase staff levels at reduced operating costs by allowing operators to work from home or other locations. Further, the elimination or reduction of time spent traveling to client sites, manipulating client data sets, and other similar activities helps to reduce the cost of delivering bookkeeping and accounting services to the client.

 

The Impact in India
India was one of the first countries to visibly enter the smb outsourcing market en masse. Large numbers of business people and accounting professionals from the US paid visits to groups in India, discussing the market opportunity and potential around smb outsourcing, and to enlist processors and head count to prepare for the deluge of inbound work from US businesses. In many cases, the participants in India were required to pay heavily for the privilege of participation  spending thousands (hundreds of thousands, in some cases) of dollars in training and education, building infrastructure, buying software and services  only to find that the return on investment was not going to come any time soon if at all. The US accounting market was not yet ready to ship its work offshore in wholesale. And, in reality, the outsourcers weren't ready for the business anyway.

 
Road shows, seminars, presentations, free offers, email and fax mail and junk mail of all flavors - all have been employed to attempt to convey the value of offshore outsourcing to the business market and to accounting professionals. This marketing was, in many cases, the use of funds from the investments made by the offshore entities. Those promoting the opportunity in India were garnering funds from participants there (while promising that work would be coming in immediately), and then returning to the US only to spend the money on trying to get the business that was already promised. Needless to say, this did tremendous harm to many of the offshore start-ups, and ran some of them out of business before they ever had an opportunity to perform. Certainly, some of these businesses were simply ill-prepared and were not ready for operation, but there were many which were, and some of these positioned themselves with partners that took advantage without delivering anything of value in return.

 
There were other models employed, as well. Postings on open job boards, offering e-Accounting work for a fee, and with a promise of huge returns, are prevalent. The representation is that, if the offshore processor would pay into the model, then the work would be forthcoming. Many paid into the model; few received any real revenue-earning work.

 
 
As with any new business model or technology, the �early adopters� are essentially the beta testers for the rest of the market. Models which are believed to be fully developed are found to be lacking in significant detail or insight. And many approaches are simply not realistic when applied to the larger part of the market. Having worked through a period of trial and error, many outsourcers are now finding their niche, and are delivering (very successfully and profitably) valuable services to their business and professional clients. This working model has not yet matured to the point where offshore (or domestic) outsourcing is an automatic solution for any practice, and there is no cookie-cutter model to follow to success. Accounting professionals understand the unique nature of each of their client businesses, and it is this unique aspect which represents the challenge in creating standards in processes and systems which are an absolute requirement for any successful outsourced engagement.

 
The question is not whether or not your client should outsource their work - the answer here is obviously yes, and that's why your client works with you. But whether or not YOU should outsource certain processes or functions remains a question. There are significant benefits to be derived, not the least of which is an improvement in workflows and controls to measure performance. The cost-of-service benefits may, for some, remain elusive. The primary reason many companies initiate outsource arrangements is based on the assumption of handling the existing work using the existing processes, but at reduced labor rates. In truth, the benefits more frequently arrive in the form of enhancements to workflow and control processes, and the development of a greater and more in-depth understanding of the work being performed on the clients' behalf.

 


 		  
   
practice development news | 2007