Pros and Cons of Offshoring Accounting and Bookkeeping: Expert Opinions and Facts
Offshoring Accounting is a profitable business operation that many successful enterprises use. However, every approach has its benefits and drawbacks. To determine if offshoring is suitable for your business, learn about its advantages and disadvantages. You should weigh the pros and cons to see if the benefits outweigh the drawbacks.
If you’re considering offshoring for your startup, you may have come across conflicting reviews online. To better understand, it’s important to know what it is and its potential implications for your business.
What is Offshoring?
Offshoring means moving a business process to another country. A subsidiary or offshore services provider can perform the offshoring operation. Offshoring can be either production offshoring or services offshoring. Production offshoring moves physical manufacturing processes to another country. While services offshoring relocates a company’s administrative and technical services. This includes accounting and finance, human resources, sales services, and software development.
As a business owner, if you are thinking of offshoring, you might ask yourself several questions. Like.
- What are the pros and cons of offshoring?
- What are the offshoring benefits and disadvantages?
- Who can help you build an offshore team?
- Should you establish a foreign subsidiary or hire an offshore services company?”
Benefits of Offshoring Accounting
Offshoring has become a popular trend in recent years, and it’s not hard to see why. With the help of technology, businesses can now outsource their accounting or bookkeeping tasks. Let’s dive into the benefits of offshoring accounting.
A. Minimize Errors:
One of the significant advantages of offshoring accounting is that it minimizes errors. By outsourcing it you’re tapping into their expertise, knowledge, and experience. These companies are experts in their field and have dedicated teams to ensure the accuracy of their work. They also have quality control measures in place to avoid errors, which can save you from legal trouble or costly mistakes.
For example,
According to a report published by the ACCA, by outsourcing businesses can reduce their error rates by up to 40%
B. Reduce Costs:
Offshoring accounting can also reduce costs. At a the low-cost destination can cut down on expenses without compromising the quality of the work. The cost savings come from lower labor costs, as well as reduced overhead costs. The cost of living in these locations is lower than in developed countries. So the salaries of accounting professionals in these locations are also lower.
For instance, according to a survey by Deloitte, businesses can save up to 50% of their accounting costs by offshoring.
C. Better Time Management:
Offshoring accounting can help businesses manage their time better. The third-party provider can free your time up and resources so you can focus on core business activities. You can divide your time to activities that generate more revenue or add more value to your business.
For example, You can expand your business, build relationships with customers, or develop new products or services in this time.
D. Access to a Global Talent Pool:
Offshoring accounting can also provide businesses with access to a global talent pool. By opting for a low-cost destination, you can tap into a broader pool of talent with specialized skills and experience. This can be especially beneficial for businesses that need a particular skill set but don’t have access to it locally.
For instance, a company based in the US can outsource its accounting functions to India. By doing this, they can take advantage of the country’s large pool of accounting talent.
E. Enhance Scalability and Flexibility:
Offshoring accounting can also enhance scalability and flexibility. Outsourcing allows businesses to scale up or down quickly without the need to hire or fire employees. This will be helpful for businesses that experience seasonal fluctuations in their workload
For example, a business that experiences a surge in sales during the holiday season can outsource to meet the increased demand. When the demand subsides, the business can scale down the outsourcing without any long-term commitments.
Disadvantages of Offshoring Accounting
Offshoring has some disadvantages for companies, despite the benefits it offers. These disadvantages include:
Language and communication barriers:
Language differences between offshore workers and their foreign counterparts may lead to misunderstandings. The accent of employees can also be challenging if it’s unfamiliar to their foreign counterparts.
Cultural and social issues:
Offshore countries may have different customs and social norms from the parent companies. This can cause miscommunication between the parties and lead to misunderstandings.
Quality control problems:
Ensuring that the offshore location’s manufacturing setup follows the parent company’s standards may be challenging due to differences in working culture, language, logistics, and supply chains. This can affect the quality of the finished product.
Effect on jobs in the home country:
Offshoring may result in the termination of some local workers’ employment. It can then contribute to high unemployment rates and negatively impact the economy. It can also lead to stagnation of wages, uncertainty about job security, and low morale among remaining employees.
Time zone adjustments:
It can be problematic for both manufacturing and services offshoring. Making it challenging for management in both countries to organize shift patterns that work for everyone. It can also affect the decision-making process and time-sensitive tasks.
Expert Opinions on Offshoring Accounting
Offshoring accounting and bookkeeping services has become a popular trend in recent years. Many companies looking to cut costs and increase efficiency. Yet, there are pros and cons to this practice, and experts have varying opinions on the matter.
Dan Geltrude-
A certified public accountant believes that offshoring can help reduce the shortage of accountants in the US. Especially for routine transactions. He also notes that technology can play a big role in making offshoring more efficient.
Jeff Bezos: Founder of Amazon
He believes that outsourcing non-unique heavy-lifting infrastructure is a wise decision. As it allows companies to focus on their core competencies.
Rob Satrom:
He is a CEO of a financial services firm. He believes that offshoring accounting services to firms can be profitable, as long as it’s done in a strategic way and with the right partners.
Brian Jones: A financial advisor
He says offshore staff can handle routine transactions. But complex tasks may need local expertise.
Warren Buffet: According to a renowned investor
Outsourcing jobs overseas, citing potential negative impacts on the economy and society.
Tim Ferriss, author of “The 4-Hour Work Week,”
Advocates for the efficient use of capital in outsourcing, as it can free up resources and allow businesses to focus on growth.
Larry Elder: a political commentator
He believes that outsourcing and globalization of manufacturing can have several benefits. Like as lower costs for consumers and increased competition.
Trends and Developments in Offshoring Accounting
It is gaining popularity in recent years due to its cost-saving benefits, flexibility, and access to skilled talent. In this section, we will discuss the latest trends and developments in offshoring accounting.
A. Adoption of Cloud-based Technologies
The adoption of cloud-based technologies has been a game-changer for offshoring accounting. With cloud-based software, accountants and bookkeepers can access data and work on projects from anywhere in the world. This has made it easier for businesses to outsource their accounting and bookkeeping tasks to offshore teams.
For instance, Xero has made it possible for businesses to collaborate with offshore teams seamlessly. The software provides real-time updates, making it easy for both onshore and offshore teams to stay on the same page.
B. Expansion of Offshoring Accounting to Smaller Accounting Firms
Offshoring accounting was initially popular among large corporations, but this trend is changing. Smaller accounting firms are now benefiting from outsourcing their tasks to offshore teams. This is due to the cost-saving benefits of offshoring and the availability of skilled talent offshore.
For ex. In 2021 Deloitte reports that smaller accounting firms have shown a massive increase in outsourcing. According to the survey, the main reason for this trend is to reduce costs, gain access to specialized talent, and enhance business agility.
C. Emergence of Offshoring Accounting to Latin America
Offshoring accounting to Latin America is a trend that has been on the rise in recent years. Brazil, Colombia, and Mexico are popular offshoring destinations for accounting. It is because of their skilled workforce, competitive prices, and favorable time zones.
For instance, a report by Tholons Global Innovation Index 2021 highlights several facts. It stated that Latin America is emerging as a top outsourcing destination for accounting and finance services. The report shows that Latin America is attracting more investment in outsourcing, and it is expected to grow in the coming years.
D. Increase in Demand for Value-Added Services
The demand for value-added services is increasing, and this trend will continue. Value-added services are services that go beyond traditional accounting and bookkeeping tasks. These services may include financial analysis, business forecasting, and tax planning.
Conclusion
In conclusion, there are several pros and cons to consider before making the decision to offshore.
The future of offshoring accounting looks bright. With more and more businesses recognizing the benefits of outsourcing and applying it. In fact, a recent report by Grand View Research projected that the global accounting outsourcing market will reach $25.47 billion by 2028.
In the end, it is important to note that offshoring is not a one-size-fits-all solution. Offshoring accounting can be a smart choice. For businesses that are looking to save money, improve efficiency, and stay ahead of the competition can opt it. But, it is important to consider the pros and cons of offshoring. And choose a reputable offshore accounting firm that can provide the highest quality service and support.
