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.
Article Source: http://www.articlesbase.com/
small-business-articles/small-business-financial-accounting-
fa-offshore-outsourcing-cost-227152.html About the Author
Mani Malarvannan is cofounder of Cybelink, a
company specializes in small business financial and accounting
outsourcing like Bookkeeping, Tax, Accounts Payable, Accounts
Receivable, etc. For more info visit www.cybelink.com |
