What stops SMEs from Outsourcing?

Small and Medium Enterprises (SMEs) often have many reasons to use offshore accounting and bookkeeping services. However, many SMEs still choose not to take advantage of these services. There are several reasons that stop them from enjoying the benefits of outsourcing.

One important factor is the way SMEs manage their finances. Research shows that both large and small firms can have different types of capital structures, making it hard to assess their overall value. Companies can fund themselves in two main ways: internal financing (using their own money) or external financing (borrowing money).

Interestingly, firms with long-term debts may face lower financial risks compared to others. This is because long-term debt helps build strong relationships over time, which can reduce the impact of financial risks.

Business practices prevailing in small and medium enterprises:

The business practices that generally prevail in SMEs are owner-manager driven. Most SMEs are organizations run and managed by the owners themselves. One of the implications of this approach is the informal behavior of SMEs and informal conduct of business practices in SMEs across various functions. SMEs tend to have a flat hierarchical structure and people easily switch departments. It is very common to observe an employee of department also rendering the tasks of department B, in SMEs. The practice of continually switching departments leads to the tasks not being accomplished with as much expertise as was required. As a consequence, SMEs face a backlash.

Practices followed by Accounting Departments:

Talking about the accounting departments and accounting firms in UK and the business practices carried by them, the firms in UK function across various industries. Accounting firms in UK, especially in London, are naturally, geographically, and economically important from a strategic point of view. Such practice raises the valuation of the accounting outsourcing firms in UK. Unlike SMEs, the accounting firms recruit employees trained in specific domains and deliver the tasks as per the timeline and quality demanded. The big difference in business practices thus laid down by firms in SMEs and firms in accounting departments is the chain of command and expertise level.

Services that have the probability of being Outsourced by small and medium enterprises:

Bookkeeping refers to the documentation of a company’s financial statements including ledgers, profit and loss statement, cash flows statement, etc. Bookkeeping differs from traditional accounting in that it deals with data entry and creation of invoices whereas accounting deals with business planning, taxes, to aid in the creation of financial statements. Firms like SMEs can choose to go for bookkeeping outsourcing and accounting services for several reasons. SMEs can also opt for payroll outsourcing services which makes the job of the employees in SMEs even easier. Payroll outsourcing is a business practice where companies transpose their payroll administration to an external third-party. The contacted party can aid in monthly processing payroll, withholding taxes, preparing returns to government agencies, etc.

Issues that are faced by the SMEs while outsourcing are highlighted in the below:

1. Control and Security Concerns:

Loss of Direct Oversight: SMEs often feel more comfortable having direct control over their financial data and processes. Outsourcing means entrusting sensitive information to an external party, which can feel like a loss of control. This fear is often rooted in the perceived difficulty of monitoring the outsourced provider’s activities and ensuring compliance.

Data Breach and Misuse Risks: Data security is paramount. SMEs worry about the potential for data breaches, cyberattacks, or the misuse of their financial information by the outsourced provider or its employees. They may question the provider’s security protocols, data encryption methods, and disaster recovery plans.

Confidentiality Concerns: Sharing sensitive financial data with an external party requires a high level of trust. SMEs may worry about the confidentiality of their information and the potential for it to be shared with competitors or used inappropriately.

2. Cost Considerations:

Perceived High Costs: Outsourcing costs can seem higher upfront compared to the perceived costs of managing accounting in-house. SMEs may focus on the hourly rates or project fees without fully considering the hidden costs of maintaining an in-house team (salaries, benefits, software, training, etc.).

Budget Uncertainty: Variable pricing models or unexpected additional fees can create budget uncertainty for SMEs, making it difficult to forecast expenses and manage cash flow. Clear pricing structures and transparent communication about potential additional costs are essential.

Return on Investment (ROI) Concerns: SMEs may struggle to quantify the return on investment from outsourcing accounting. They might not immediately see the benefits in terms of cost savings, improved efficiency, or access to specialized expertise.

3. Communication and Responsiveness:

Slower Response Times: SMEs often worry that outsourced providers will be less responsive to their urgent requests or inquiries compared to an in-house team. They may fear delays in receiving critical financial information or getting timely support.

Communication Barriers: Distance, time zone differences, or language barriers can create communication challenges, making it difficult for SMEs to effectively communicate their needs or resolve issues quickly.

Impersonal Interactions: Some SMEs prefer the personal touch and face-to-face interaction of an in-house team. They may be concerned that communication with an outsourced provider will be less personal and more transactional.

4. Lack of Trust or Familiarity:

Building Trust: Establishing trust with an external provider is crucial. SMEs may be hesitant to share sensitive financial information with a company they don’t know well or haven’t worked with before.

Industry Expertise: SMEs need to find a provider that understands their specific industry and business needs. They may worry that a general accounting firm won’t have the specialized knowledge required to handle their unique financial challenges.

Cultural Fit: A good cultural fit is also important. SMEs want to work with a provider that shares their values and work ethic.

5. In-House Expertise:

Belief in Existing Skills: Some SMEs believe their current team has the necessary skills and knowledge to handle their accounting needs effectively. They may underestimate the complexity of accounting tasks or the benefits of having access to specialized expertise.

Strategic Importance of In-House Accounting: Some SMEs view accounting as a core function that should be kept in-house for strategic reasons. They may believe that outsourcing this function will weaken their control over financial planning and decision-making.

6. Change Management Challenges:

Employee Resistance: Existing accounting staff may resist outsourcing due to concerns about job security or changes in their roles and responsibilities. Managing this transition sensitively and communicating the benefits of outsourcing to employees is essential.

Process and System Transition: Migrating accounting processes and systems to an external provider can be complex and time-consuming. SMEs may worry about disruptions to their operations during the transition period.

Integration Challenges: Integrating the outsourced accounting functions with existing internal systems can also be a challenge. SMEs need to ensure seamless data flow and compatibility between different software platforms.

Despite of the difficulties/challenges, there are various perks that these small businesses get and because of that they tend to outsource their work, find the benefits of outsourcing below.

Benefits of outsourcing various services:

It is extremely important for businesses to acclimatize themselves to increasing requirements of obligations. Often the in-house administration is unequipped with the required knowledge because of which the departments like HR feel overloaded and the business faces certain shortcomings. These might include delays in making payments to the employees, incurring fines due to compliance issues, etc.  Consequently, companies rely on outsourcing which gives them security against a risky administration process. Outsourcing helps in increasing the efficiency of the overall business by handing over the job to experienced and expert payroll providers and is becoming a viable option for many business organizations by replacing in-house processing of payroll.

Outsourcing of bookkeeping services:

After having discussed the business practices conducted in each kind of organization, we realize that SMEs have a way of functioning which stops them from changing and adapting to a new technique of operations. SMEs have the scope of outsourcing its various processes (discussed ahead) to the accounting firms. These firms promise timely delivery of tasks. Also, in the world of complexities, organizations are constantly faced with compliance issues. Due to a flat structure and swapping of departments, SMEs face constant backlash. Thus, SMEs should choose to go for outsourcing which will help them in saving both time and resources.

Offshore accounting services- An overview

Accounting services for small businesses have become their own much-awaited saviour as these services provide many advantages to small-sized businesses. Mostly, small businesses do not have the adequate resources to meet the requirements of tax regulation authorities. Accounting companies will provide expert teams in accounting to suit your business needs to make it grow. You can thus concentrate on the core issues of your business and save the wastage of time and energy by bookkeeping outsourcing. Accountants are required to be flexible to adapt to the needs of the businesses. Depending on the needs and size of your company, you can hire these accountants on full-time or part-time basis.

Benefits of offshore accounting services:

There are a wide variety of advantages if a firm decided to outsource its services of bookkeeping and accounting.

• A versatile bookkeeper can help your company in fulfilment of tax obligations, and provide financial analysis
• Bookkeeping services from home have become common among bookkeeping. They can work at their convenience to provide you easy business solutions
• Bookkeeping can help in adhering to obligations and avoid compliance issues
• It reduces the entire toil of maintaining all the records and provides benefits of outsourcing
• It saves the essential time and money spent to get the work done by your own employees who might lack the expertise in the domain of bookkeeping

Overall, the employees can focus on one kind of work and devote their 100 percent to a particular task.

With business growing, more and more people are to be hired such as marketer, sales representative, receptionist, bookkeeper, and even janitor. There comes a point when an accountant realises the importance and need of accounting outsourcing. Like every aspect has its own pros and cons. The bookkeeping outsourcing services also has its own pros and cons. There are various reasons due to which the accountants in UK SMEs are not preferring bookkeeping outsourcing and not realising the benefits of outsourcing.

Conclusion

Outbooks.co.uk offer offshore accounting services in the United Kingdom and accountants can take the advantage of their bookkeeping outsourcing services as now the organisation would be able to take care of their core business areas. In the long run, businesses also have to focus on expansion and diversification and as a result, huge records are required to be prepared and dealt with. Outbooks would ease the accountant’s problem of handling large number of records efficiently. The problem of managing investors, clients, and finances of a business in a timely and economic manner is resolved and it ultimately leads to increased business productivity.