For an innovative nation with a high proportion of SMEs and owner-managed
businesses, the UK has retained a surprisingly traditional approach to
As a business expands, bodies are added to the finance function and a finance
director appointed to the board. But why? Just what value is that finance
function delivering to the business?
Digby Jones, former director general of the CBI, recently caused a furore by
suggesting there will be no jobs for unskilled workers in Britain within ten
years. But the shifts in working patterns will have an effect beyond the
Over the next ten years a significant proportion of skilled finance staff
will find themselves relocating from in-house roles to join a growing number of
external finance providers, such as firms of accountants, delivering key
financial processes – from payroll to management accounts – back to businesses.
With such externally provided services offering improved business
information, cost control and quantifiable value for the first time – it seems
unlikely that many companies, particularly SMEs, will still have an internal
finance function within a decade.
How many businesses can actually assign a value to the finance department?
Cost, yes – but value? Certainly the information provided by the department is
critical to the business – but the department itself?
How many businesses still complain that key information from budget versus
actual to strategic forecasting is delivered too late, is inaccurate or
And how many highly skilled finance staff spend more time number crunching,
wrestling with inadequate, often outdated finance software, than analysing
information to improve the business?
Not only is the finance function failing to deliver value but skilled
personnel are not being truly exploited. This makes little sense. Few SMEs have
yet to consider using external resources to handle finance, however.
Some may use external payroll providers and, when smaller, rely on a local
bookkeeper. But how many really understand the options for replacing the entire
finance team with an external supplier?
Many businesses are cynical about the outsourcing process. And that comes as
no surprise, given that even some leading organisations happily combine
everything from wholesale outsourcing of a bank’s processing to India with the
use of local ookkeepers under a generic outsourcing tag.
No wonder that the results of studies into the efficacy and value of
outsourcing arrangements are often confusing and conflicting.
Opting to outsource the finance function to a third party is a different
service. This is not, necessarily, about cost reduction – although there are
potential savings to be made.
Many FDs spend time managing staff, coping with training, paternity/maternity
leave and illness rather than undertaking their key role of strategic
management. Removing recruitment costs can deliver a significant bottom line
But cost savings alone cannot be the primary outsourcing objective. Rather
the focus should be about measuring the value of the finance function and
leveraging the skills, expertise and infrastructure of a third party to attain
excellent, timely and relevant management information.
For many companies, the primary concern is one of control. How can a business
keep a handle on credit control for key customers and suppliers or ensure that
business critical changes are immediately reflected in the information provided
within the outsourced monthly management accounts?
Today’s online technology combined with the quality of financial software
used by an external provider, software generally that a small organisation would
not be able to justify the cost of, provides not only improved management
information but real-time, online access to up-to-date invoices, purchase orders
or credit control figures. Without question, most SMEs will see the quality and
relevance of financial information improve if they take the outsourced route.
Obviously, outsourcing is not something that can be undertaken immediately by
every organisation. Most will have an investment in infrastructure, including IT
systems, that cannot immediately be written off.
But for those undertaking significant change, from growth that demands new
finance software to MBO or acquisition, outsourcing should be a consideration.
Indeed, the trend in this direction comes to grow, with SMEs opting to
outsource virtually every administrative process. Costs are controlled, supplier
performance is contract based with strict service level agreements – and
financial penalties – providing a quantifiable cost versus value for every
In addition to enabling an organisation to flex up and down in line with
business performance, SMEs can leverage the specific skills of external
suppliers for strategic direction.
Accountants are often accused of not being proactive in providing advice. But
by undertaking the preparation of the monthly management accounts an external
provider has an excellent platform upon which to base strategic business advice.
Just as organisations are happy to use external marketing or PR expertise as
and when required, external providers can offer diverse financial expertise. At
a basic level, the management accounts can be supplemented by commentary that
highlights key issues – such as shrinking margins or escalating costs in
Such an organisation can also exploit its wide expertise in financial
management to aid strategic direction, leveraging the business insight within
the management accounts to provide relevant, tailored advice.
For any business without an FD, this level of strategic understanding and
input is invaluable, providing a different perspective on the business
performance and climate for change.
This approach is also far more beneficial for skilled employees – from
finance to HR. Rather than number crunching in-house, they can exploit their
expertise within an outsource provider to deliver business insight. While the
CBI may claim that there will be no work for unskilled workers within ten years,
it seems increasingly likely that there will be fewer jobs for skilled finance
or HR professionals,
particularly within SMEs, within ten years – as individuals relocate to work
for external providers delivering these key services back to the business.
Outsourcing the finance function is not simply about reducing costs – indeed,
any organisation with this simple focus is missing the point. Taking into
account IT infrastructure, office space and salaries, outsourcing can be a
cheaper option, but this is not about using a bookkeeper to undertake basic
This is a tailored service designed to deliver measured business improvement:
it provides cost control, improved business information and quantifiable value
from finance for the first time. So why retain a costly, in-house finance
function that is still failing to deliver the insight required for business
And for those that take up the option, where does this leave the finance
director? For SMEs that already have one, a straightforward process based
outsourcing agreement will provide the improved management information that
releases the FD from personnel management and administrative tasks to
concentrate on delivering real, quantifiable business value through strategic
But, for SMEs, if management information and strategic guidance is so readily
available from a third party, is the FD role prerequisite or simply following
David Rankin is the managing director of Vantis Outsource
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