Let us state some axiomatic truths:
- Any 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.
Finance and accounting offshoring is growing 30% annually. So sooner or later the CPA has to deal with competitors who are offshoring and can undercut fees.
Embracing offshoring creates profit in the short run as well as the long run. Replacing one US staff accountant with offshore service saves nearly $50,000/year.
Many people think of offshoring as just a way to reduce cost. This perception misses the greatest benefit of offshoring. Outsourcing gives the CPA the gift of time.
CPAs are overworked. Their day is controlled by the tyranny of the urgent. Things that are not urgent but most important, (e.g. business development, staff development, exit strategy etc.) get short shrift. By outsourcing the less skilled work, the CPA:
- gets the time to attend to the top 10 – 20% of the clients, who contribute 80 – 90% of their revenues. These clients are often the best sources of new business.
- gets close to the client’s financial affairs and becomes a trusted advisor to the top clients. This opens up a myriad of financial services that the client needs and the CPA can provide.
- develops a better understanding of value to the customer, making value-pricing easier.
- trains fewer 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, to include:
- solution to the vexing problem of recruiting and retaining staff accountants.
- excellent way to handle peak load especially during tax season.
- significant cost savings. There are two parts to this cost saving
- 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).
- The offshore 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.
- It is not uncommon to see automation reduce the time required by as much as 90%. The CPA firm using an outsourced accounting provider can improve its quality and lower cost at the same time.
- 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 reduce security.
- The offshore accounting cost/quality becomes a benchmark for internal operations.
Is an offshore 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.
Resource: Dev Purkayastha (CEO, Indevia Accounting, Inc.) holds an M.B.A. from Harvard Business School and is a qualified Chartered Accountant.