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Total Cost of Small Business Financial & Accounting (F&A) Offshore Outsourcing
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For the pasts several years’ fortune 500 companies have been offshoring the financial and accounting business processes (BPO) to
countries like India, Philippians, China, etc. These companies have big budgets and a team of consultants to analyze the total cost
and ROI of sending their financial and accounting work to the service providers in offshore locations. Smaller companies have just
started offshoring their financial and accounting work to offshore locations, unlike big corporations small businesses do not have
huge budget to hire consultants to identify the total cost of offshoring 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. Small businesses will then be able to use this report as a guide to
determine the ROI on their offshore engagement.
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1. Different Costs of Offshoring Financial & Accounting Work
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Often times when small businesses 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. Though the hourly
rate is the direct cost small business will pay to the offshore vendor, there are several other additional hidden costs small
business will incur 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
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Small businesses go through the above steps when they outsource their financial and accounting work either to an onshore vendor or
to an offshore vendor. But there is significant costs difference when the work is performed in onshore Vs offshore locations.
For example when on onshore vendor performs the work, then small business can meet face to face with the onshore vendor, explain
what needs to be done and handover the accounting and financial documents. The onshore vendor will finish the work, meet face to
face with small business customer to deliver the finished work. The other alternative for small business is to either use courier
service or UPS to send the accounting and financial documents to the onshore vendor and they can communicate over the phone regarding what
needs to be performed. The small business cannot use any one of above mechanisms when working with offshore vendors in a cost
effective way. For one thing, the offshore vendors will be physically located in a different country and there are significant
culture differences that will exist between the small businesses and the offshore vendors. Finally both small businesses and the
offshore vendor will be in different time zones. So the small business cannot use the same mechanisms that they used in dealing
with onshore vendors. Small business needs to use High speed Internet connection and other related software, and hardware technology
infrastructure to work with the offshore vendors. All of these can be done in cost effective way and small businesses can save
significant cost in working with offshore vendors.
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.
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3. Cost of sending the work to an offshore vendor
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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.
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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
Small businesses need secure FTP software to securely send accounting documents to offshore vendor and can receive it back from
them securely. For this purpose small businesses can use several open source FTP software. The open source FTP software is free
and small business need not spend any money to use it. The FTP software will be installed in the computer that is connected to the
High speed Internet.
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.
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4. Managing Financial & Accounting offshore vendor
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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. Small businesses will go through
the same process even if they outsource the work to an onshore vendor, but as explained earlier due to the fact that the offshore
team is in a different country and time zone, small businesses may need work little harder with the offshore team in understanding
their cultural and communication differences. So the initial cost associated in working with the offshore team might be more but
gradually it will come down and will reach a fixed cost.
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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.
By carefully going through the cost benefit analysis small businesses can find other ways they can save money. For example, by
digitizing all their paper accounting and financial documents, small businesses can significantly increase their efficiency of their
internal operations, which will directly increase their bottom line. While performing ROI analysis, small businesses need to consider
all these factors in their calculations to get accurate total cost of doing business with offshore vendors.
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Small business F&A offshore outsourcing - Fixed Cost Vs Monthly Cost |
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| Iteam |
Fixed Cost |
Monthly Cost |
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| Offshore vendor selection |
Negligible, but varies based on how detail small businesses want to go through the process |
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| Scanner & Scanning software |
$1000.00 |
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| High speed Internet connection |
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$60.00-$100.00 |
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| Secure FTP software |
Free |
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| Backup server |
$1000-$3000 |
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| Accounting software License |
Varies, based on accounting software license fee |
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| Offshore vendor management |
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Varies, based on complexity of the work |
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| Offshore vendor wage |
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Varies, based on type of accounting & financial work |
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