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An in-house finance function is a fixed cost and a liability for growing companies, particularly during economic turbulence. When sales are unpredictable, and cash flow is constrained, identifying opportunities to minimise the cost of your finance function is a good way to maximise an early-stage business’ likelihood of surviving.
This blog discusses the benefits of outsourcing some or all the finance function and turning it from a fixed to a variable cost.
We also answer the following frequently asked questions:
- What does ‘variabilising the cost of the finance function’ mean?
- What is outsourced accounting, and how does it minimise costs?
- What are the benefits of outsourcing the finance function?
What does ‘variabilising the cost of the finance function’ mean?
Businesses can gain greater control over their variable costs (expenses that go up and down with business activity) than fixed costs. A variable cost base allows companies to quickly adjust and minimise costs in line with revenue changes, limiting the impact on margins and preserving cash.
Related article | How to manage cash flow in turbulent times
Variabilising the cost of the finance function involves transitioning from an in-house fixed-cost team to a variable-cost outsourced accounting service.
This feels like a big decision, and it is; however, choose the right provider and the benefits will far outweigh the risks. An outsourced accounting services provider will ensure you have an operationally well-run company and the best chance of weathering the economic storms that prevail in 2023.
Related Article | Accounting: How to bridge the talent gap
What is outsourced accounting, and how does it minimise costs?
Outsourced accounting means paying an independent services provider, like Isosceles, to manage your finance activities instead of hiring in-house accounting heads.
An outsourced accounting service is delivered against an SLA (service level agreement). It provides a full finance function to perform day-to-day transaction processing (purchase and sales ledger processing, credit control and payment runs, and management of bank transactions). The service is delivered within best-practice accounting policies and procedures, which maximises security and control of resources.
An outsourced accounting service is delivered with a blend of professionals to suit each client’s specific requirements. The resource pool ranges from a finance director to an accounts assistant, so you pay only for the required resource level.
Additionally, they have all the HR headaches (recruiting, training, managing and appraising) that come with employing people, not you.
What are the benefits of outsourcing the finance function for growing SMEs?
Access to the right resources at the right time
Variabilising costs has several benefits for businesses, but its greatest advantage is that it allows you to calibrate your costs in line with business activity and demand. This is particularly beneficial for early-stage and growing businesses that rely on cost minimisation to grow.
Additionally, blending resources to provide the right skill sets also becomes the outsourcer’s problem – worry about over or under-utilisation of staff becomes a thing of the past. If you need 10% of an FD’s time, 50% of a financial controller’s time but 120% of an accounts assistant’s, that’s exactly what your outsourcer will provide.
Fractional resources at a fraction of the cost of full-time resources
To understand the benefits of this service, it’s important to realise that the actual fixed cost of an employee is much more than just the salary. When you factor in recruitment costs, tools for the job, office space, healthcare, pensions, and bonuses, the cost is nearly double their salary. For a Financial Controller based in the South East earning an average wage of £64,000 (according to Reed’s Salary Guide 2023), this will be closer to £100,000 in fixed costs.
Provision of high-quality data
They will provide access to quality data faster, whilst it’s still relevant, enabling quicker, and therefore better, decision-making.
Access to additional resources for growth
If you choose your partner wisely, they’ll also be able to offer:
- Access to a part-time finance director to help with strategic finance challenges, for example, fundraising, as and when required.
- Provision of the sophisticated management reporting expected by investors.
- Financial forecasting to help you understand working capital requirements and identify short and long-term pinch points and gaps.
- They will also run the Payroll.
Reassurance to investors
Investment rounds can be extremely demanding and time-sensitive, often requiring specialist knowledge. An in-house team is unlikely to have the right experience or expertise to undertake this.
A specialist finance provider can provide additional short-term resources to manage the extra workload without impacting business-as-usual activities.
They can also provide specialist skills required to deal with investors, due diligence, and legal process and reassure potential investors that their money will be in safe hands.
Related article | Can outsourcing give an SME a higher quality finance function?
How can we help you implement this financial strategy?
Choosing the right outsourced accounting provider can be a challenging process. The good news is that there are a plethora of providers and options out there. We recommend you consider the following:
- Take time to consider the options
- Remember, you get what you pay for
- Flexibility is crucial
- Is the provider likeable and on your wavelength?
- A good quality provider will want to lead with a tailored SLA, not a pre-defined set of services.
We always offer our customers a team of named individuals and help them transition from their in-house set-up to a remote offering with cloud-based technology for file sharing, collaboration and conducting meetings.
Without fail, when a customer is presented with our invoice for payment, they ask the following questions:
- “Was this value for money”?
- “Did you deliver to my expectations? “
- “What was the nature of any issues that occurred?”
- “Were there any errors or omissions?”
- “What extra performance did I get that I wasn’t expecting?”
This level of scrutiny is a positive thing; it keeps our standards high. Our systems and process must be top-notch. Our people must be first class. We must continually strive to maintain high standards and vigorously search for the most efficient processes and solutions for our clients.
Related article | How should a growing business outsource its finance function?
