Small Business Financial Software

Posts Tagged ‘Outsourcing’

Accounts payable along with Accounts receivable is an important process in financial accounting, the first being a liability and the second a liquid asset. . Proper management of accounts payable and accounts receivable ensures the proper inflow and out-flow of cash. In other words the cash flow depends on the skillful management of these two. The companies have found managing this particular task a crucial but a time consuming process.

Accounts Payable In-house

In the present day the accounts payable department started doing more tasks like checking and approving of invoices and bills for all types of payments. It is a challenging task for small businesses where the invoices mount in number daily, keeping track of them, even with the latest innovations in accounting software, it has become a difficult task. This occurs because the small business owners have varied responsibilities and establishing a separate department may have to incur huge expenses and it also delays in execution and duplication of work. Also small businesses may not need to have an entire department dedicated to accounts payable and they may need it only during their accounts payable time. In these situations it is more economical for small businesses to outsource their accounts payable work.

Outsourcing Accounts Payable

Outsourcing accounts payable may enable the managers to concentrate better on their regular work. On many an occasion it is reported that the manger’s valuable time is consumed in overseeing the regular administrative work. Next the HR may have to find the right people with the right qualifications and skills to manage such work. The infrastructure required to run such a department may have to be established. Many small businesses have realized the various benefits of outsourcing and have gone for small business accounts payable outsourcing. When small businesses outsource their accounts payable, they get relieved of the burden of doing the non-core works or oft repeated tasks.

For small businesses any lapse in accounts payable may end up in a loss. The losses may occur through penalties for delayed payments, loss of discounts offered for timely payment, and loss of goodwill. Accounts payable is accounts receivable to another company. Only when these two accounts are carefully managed the cash flow can be healthy. So companies allow discounts as incentives, when they get payment on time but collect penal sums when they are in default.

Following are some of the benefits of small business accounts payable outsourcing:

1. Paying the invoices on the due date as per the company’s policies.

2. See to the accuracy and the authenticity of the invoices that fall due and make a one to one co- relation of checks issued and invoices that receive payment.

3. Monthly, quarterly, half-yearly and annual reports are easily made available.

4. Tax related work is done without loss of man-hours at the company level and they all get ready on time for the CPA perusal.

5. Compliance to Sox is automatically carried out.

6. New improvements are incorporated immediately.

7. The company can demand the best service at the lowest cost from the provider.

8. When outsourced to India or other countries the cost of maintaining such accounts is much less compared to huge expenditure and capital needed for in-house department.

9. Any reference to any particular account can be assessed immediately and action taken.

10.Need for continuous training of personnel is avoided.

11. The expenditure connected to the provider will remain constant for a particular period of time since it of contractual nature.

12. The managers or CEOs of small business will have a clear picture of their liabilities and the nature of cash flow since the provider and details keep the account payable picture up-to-date are readily made available.

13. The managers or CEOs of small business can plan future plan-outlays with certainty.

Small business accounts payable outsourcings have some risk

Outsourcing financial accounts payable even by small businesses has come to stay. Hence it is imperative to be aware of the risks involved in outsourcing any or all the accounts payable processes to an outside service provider. The understanding of the outsource service provider of the needs of the clients and the provider’s quality of service may affect the performance of the small business. Other factors like the legal implications; the company has to take on the responsibilities for all acts-inclusive that of the outsource provider. Combined with this the lack of knowledge of the modern developments in accounts payable processes on the part of the provider may add to the problems to the small businesses. The loss of control is another risk that are faced by the small businesses. The outsource provider gets the information about the small businesses suppliers, cost, terms and conditions etc., this may be vital information for competitors.

By carefully doing their due diligence in selecting the outsource provider small businesses can completely avoid all the risks associated with the accounts payable outsourcing and at the end they will gain all the benefits of accounts payable outsourcing.

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Since outsourcing increases your efficiency and profitability so now small business is competing with big business in outsourcing their work. But some security problems are there in outsourcing. This problem is mainly for small business house.

Following are top ten security risks in small business:

1. In today’s world everything is Right Business Information. This information will keep you in higher position than your rival. BPO is nothing else than sharing information. Don’t go with the reputation of the company to whom you are outsourcing.

2. If proper secured software is not used to transfer your data to the outsource service providers then you are placing you company and business at risk.

3. Often the employees of the company you are outsourcing to may not be aware of the security software such as firewalls, anti-virus programs or for server safety that you may wish to utilize and thereby leave your business information vulnerable.

4. Most often the private data are sent to the vendors and it should be handled securly. This is especially true when the information includes names, addresses, social security numbers and credit card information of clients and employees.

5. Small businesses are liable for any misuse of sensitive data provided to offshore vendor. Furthermore issues such as how the data and information will be transferred to and from between the small business and the outsourced team and to what level the outsourced team would have access to the company’s information are serious security concerns.

6. Data storage, information sharing policies and training procedures for the outsourced team also need emphasis or they may lead to inadvertent misuse or mishandling of information. A clear understanding of the scope of the outsource provider team’s access and working can help sort out these issues.

7. It is vital that the number of people who will handle the business data and information in the outsource provider’s office is known to the small business. Issues such as the personal security of the service provider, security against industrial espionage and other such issues need to be adequately addressed. Simple issues such as if employees in the BPO vendor’s office can take home information that they have worked on or if sub-contractors will have access to the small business information need to be dealt with before the outsourcing contract is signed

8. Sometimes company you are outsourcing to is not professionally capable of handling the job that they are entrusted with then this can lead to confusion and increased security risk. For instance any certified public accountant would know that the financial information of a business and the manner in which they are processed has dramatic affects on its tax issues and the manner in which its budget is planned and earmarked.

9. Often the legal system where the offshore outsourcing service provider is located may not recognize the security threats and risks involved in outsourcing and may not be able to enforce the outsourcing contract effectively. This is something that small businesses need to focus on before outsourcing.

10. Since there are no standards exist of BPO projects so small businesses should come up with an overall security framework with their outsource provider and they should strictly enforce it in all stages of their outsourcing project.

Managing today’s businesses has been remarkably different. Everything, including in the business world, now happens in a wink of an eye or simply, with the click of the mouse. Outsourcing is a common thing in the business environment nowadays. It has now become a trend even of small businesses.

How Do You Make Outsourcing Work for You?

- Evaluate your expertise. Focus on what you do best and outsource the rest. Outsourcing small business bookkeeping is more cost-effective to have someone who would do the work for you, outside of the company. This gives you more time look after the activities that also need time and concentration.

- Be a supervisor. Not because you have entrusted a part of the business’s activities to somebody else, you leave them everything. It is important that you still keep a watchful eye on the quality and timeliness of the outsourced functions. A regular accountability and reporting should be considered for a guaranteed and effective service.

What Should You Outsource?

Ideally, outsourcing bookkeeping functions work for small businesses. Because the bulk of transaction is minimal, you tend to move fixed costs to variable costs through outsourcing your financial transactions. It is like hiring a part-time worker for your company, at times that you need them. Instead of paying for a fixed overhead cost for salaries and wages, with outsourcing small business bookkeeping, you either pay an hourly rate, or a one-time fee as the service is required.

It is the best solution to the entrepreneur’s myriad of concerns. Instead of struggling with the tremendous paper works of bookkeeping, the work becomes trouble-free and simple.

Advantages of Outsourcing Bookkeeping

It is equally effective to outsource the bookkeeping function than to have one permanently in the office. No more worries of high costs charged by bookkeepers as well as costs for software installation, and those associated with upgrading the program. With outsource small business bookkeeping, your data is secure and leaves you no worry of providing a back-up data.

Being a small business that is, running and sorting your accounts becomes an unwanted task. As business owner and manager, you would want to focus on other equally important tasks, and that is running the entire business. Through outsourcing small business bookkeeping, entrepreneur’s efforts are more focused on the non-core functions of leading the business into the more profitable and more productive way.

By outsourcing small business bookkeeping, you let the experts do the dirty work for your business and choose between the risk versus the reward, time spent versus the peace of mind and confidence versus the imprecision. It is relevant that even for small businesses, financial data is well taken-cared of, because the business relies on this set of information for future decision-making process. The business is at stake here. Be a smart entrepreneur and make the switch, for outsourcing small business bookkeeping is your business’s life saver.

A small business will generally mean an organization that is managed by a few people with a small number of employees. The number of employees is usually under hundred. Small businesses are very beneficial in nature because they run on lower costs and are easy to maintain. They are also relatively easy to maintain and can adapt to the changes occurring in the market faster. Therefore, the element of risk is relatively lower. Moreover, over the years, small business ventures have earned a lot of credibility for themselves and now are seen as the answer to many complexities of big bulky businesses.

Accounting is one of the most major processes in any business. It is the act of recording, verifying and reporting all the assets and liabilities of a company. It is of great use to decision-makers because it helps them take steps in order to reduce their costs and increase profit. Accounting is also a proof of a company’s goodwill and is referred to by auditors monitoring the financial dealings of a company. Small business accounting can be maintained and regulated in varied ways. If there is the need to divert all intellectual resources to other processes, then the business of accounting can be outsourced to companies that specifically deal with it. Again, accountants can be hired to look after the department of accounting. Accounting software makers like Quick Books and Famous Software also offer small business accounting software, which effectively reduces the cost of maintaining an accountant in the company.

Many are of the opinion that the Small business accounting can be handled within the company itself and there is no need to outsource it. For this purpose, the market offers books like Streetwise Small Business Start-Up, which is primarily a book of guidelines on how to manage the accounts of a small business. Also many business specific websites are on offer on the Internet, which provide essential tools for successfully running a particular venture.

When going about the business of small business accounting, it should be kept in mind that things like the method of accounting (cash flow or accrual), business records, issues of tax, internal control, employee benefit policy and financial assistance should be kept on the mind. Moreover, because small business accounting can be handled with the organisation itself, it is important to know the basics of things like the balance sheet, the income statement, cash flow control and accounting software.

Small business accounting might require less effort than the mammoth task of managing the accounts of a big company, but it is in no way less important and it should not be dealt with a callous attitude. If there any problem with the accounts of a company, then it will invariably run into trouble. Because any business runs on capital and if that is fudged then it cannot work smoothly. This is true especially for small businesses because financial credibility is of importance to them. A transparent and cohesive system of accounting will earn them respect.

Fortune 500 companies have been off shoring the financial and accounting business processes (BPO) to countries like India, Philippians, China, etc. These companies have big budgets and a big team of consultants who analyzes the total cost and ROI of sending their financial and accounting work to the service providers in offshore locations. Though smaller companies have started off shoring their financial and accounting work to offshore locations but like big corporations small businesses do not have huge budget to hire consultants to identify the total cost of off shoring their financial and accounting work to offshore locations. But small businesses can still perform their due diligence in calculating total cost of their offshore engagement and gain critical knowledge in finding ROI of sending their financial and accounting work to offshore locations. In this report we will go through all of the hidden costs of offshoring financial and accounting business processes.

1. Different Costs of Offshoring Financial & Accounting Work

Small businesses mainly consider offshoring their work, they will consider only the hourly rate they need to pay to the offshore vendor for various accounting works like bookkeeping, accounts payable, accounts receivable, etc. There are several other additional hidden costs small business have to face in their offshore outsourcing engagement. Typically a small business goes through following offshore accounting work cycle in their offshore engagement:

• Selecting an offshore accounting vendor

• Sending the work to the offshore vendor

• Answering questions for the offshore vendor

• Receiving the finished work from the offshore vendor

• Verifying the finished work from the offshore vendor

• Monitoring the quality of the finished work from the offshore vendor

2. Cost of Selecting offshore accounting vendor

The cost associated with selecting an offshore accounting vendor will be small compared to other costs. Most of the time small businesses can find a qualified offshore accounting vendor simply by searching in Google or by contacting other small businesses those who are already using an offshore vendor, for detailed discussion on this topic read Offshore Accounting Success. This cost is the one time cost and it will be similar to selecting an onshore vendor.

3. Cost of sending the work to an offshore vendor

Small businesses must consider various types of cost like Scanner, High speed Internet, Backup Server, etc, to send their financial and account documents to an offshore vendor, but the good news is that it will be a one time investment and most of the small businesses will have these in place already. There are three different offshore accounting models you can use to send your accounting and financial work to the offshore vendors and for these you will incur following one time cost.

3.1. Scanner & Scanning software

Most of the accounting and financial data will be in your accounting software like QuickBooks, Peachtree etc, but there will be other documents like Bills, Checks, Invoices, Goods received notes, etc will be on paper and these should be digitized using a scanner and a scanning software to convert it into PDF documents which will be stored in your computer. Once the documents are in your computer then you can give access to the offshore vendor to view the PDF documents or they can retrieve it from your computer to perform their work in the offshore location.

Most of small businesses already have a scanner, if not a scanner (scanning software comes with the scanner) can be purchased for less than $1000.00. The cost of the scanner will go up based on the volume of accounting and financial documents to be scanned in a given day. It will be a one time cost for the small business and also by scanning all their paper based accounting documents; you can improve the efficiency of overall accounting process.

3.2. High speed Internet Connection Cost

You need to have high-speed Internet connection to send and receive the work to and from offshore location. Again all most all small businesses already have DSL/T1 Internet connection if not they can get a DSL Internet connection for $60-100/month.

3.3. Secure FTP software

If small businesses are using Application Service Provider (ASP) like Quickbooks online, cpaasp.com, etc, then it is possible for offshore vendors to directly access your accounting data directly from the ASP vendor. In this case there is no need to use secure FTP software.

3.4. Backup Server

Once small businesses start digitizing their accounting documents for their offshore vendors, they need to start planning for the backup server to backup all their accounting documents. Most of the small businesses will have this feature already, if not it is a good investment to have a backup server to backup all their accounting and financial data from their main computer to the backup server. For any business “Business continuity” is a vital task and the backup server will help the small businesses to recover all the accounting data in case of main computer failure.

3.5. Additional Accounting software License cost

Small businesses use various accounting software packages like QuickBooks, MYOB, Microsoft Office Accounting etc, for doing all their accounting and financial work. When they offshore the work the offshore vendor will use the same accounting software to do the work. It is very difficult for the small businesses to find an offshore vendor who already owns the licenses for all the accounting software. As described in the offshore accounting models if small businesses decides to use Remote Server or ASP then there is no additional cost for small businesses. On the other hand if the small businesses decided to use Secure File Transfer then small businesses needs to buy additional accounting software license for the offshore vendor to use. Small businesses will incur this cost even if they outsource the work to onshore vendors. This cost is truly soley based on the accounting software package used by the small businesses. Accounting software packages comes with various flavors types of software licenses like concurrent users, fixed number of users, CPU based, Network based etc., Some times small businesses can completely avoid this cost altogether.

4. Managing Financial & Accounting offshore vendor

Once you send your accounting and financial work to the offshore vendor, you need to constantly mange and monitor the quality of finished work that comes back from the vendor. Initially you may need a full-time person educating the offshore accountants and bookkeepers about your accounting process and preparing proper instructions for them to follow in their work. Once you and the offshore team are comfortable in the working relationship then all you need is to verify the work periodically. Basically you need to consider the offshore team as your virtual team and educate them in your accounting processes and procedures, once you are comfortable with their work your own employee(s) will spend less time with the offshore vendors.

5. Offshore vendor wage

For the accounting and financial work performed by the offshore vendor, small businesses will pay either an hourly rate or a monthly rate to the offshore vendor. This will be the actual direct cost small businesses will pay to the offshore vendor and all other costs are indirect cost of sending the work to offshore vendor. Typically the wage cost will be 50-70% less than the cost paid to the onshore accounting and financial vendor. For small businesses this cost savings is one of the major reasons to use the offshore vendor for their financial and accounting work.

Small businesses need to consider several costs in their financial and accounting offshore engagement. As shown in the table Small business F&A offshore outsourcing – Fixed Cost Vs Monthly Cost some of the costs are fixed and some of them are monthly expanses incurred by the small businesses. Among the monthly cost only the offshore vendor wage is the direct cost paid to the offshore vendor. While performing ROI analysis small businesses must consider all these costs to find the Total Cost of doing business with offshore vendors. As shown in the table, for certain items finding out the exact cost may not be possible and it is highly based on the individual small businesses and the type of accounting and financial work that has been sent to offshore locations. The total cost may not be a fixed amount and it can change from month to month. For example in some months there will be more questions from the offshore vendor in clarifications and in other months there will be less questions, this cost will vary from month to month.