Financial outsourcing – what can SMEs learn from big corporates?

Article by Anil Swarup, Director, SKS Business Services

What do household names BP, Sainsbury’s and Amazon have in common? They all outsource at least part of their finance function. This may not be a shock: resilience, flexibility and cost control are critical to large listed companies. However, it may surprise you that outsourcing is also an option for mid-sized SMEs.

Here are five things they can learn from large corporates:

1. Recognise when to outsource (it is earlier than you think)

As a company grows, it is typical for the finance function to organically scale with it. A startup, for example, might have a part-time bookkeeper before appointing an FD around the £2 million mark. By the time its turnover reaches £5 million, it will typically have a couple of accountants, two bookkeepers, payroll and employ an external accountant for year-end accounts.

Large corporations and their shareholders (if they have them) recognise the significant overheads associated with headcount, so outsource non-core tasks. This saves on cost: outsourcing, for example, can save around 40% of running a finance team. Other benefits include CapEx-free access to the latest technology, the flexibility to scale, and less time spent on people management.

So, when is the right time to outsource? Earlier than you think! It may be when you realise your part-time bookkeeper cannot provide thorough management accounting or is only sometimes available. It may be when your year-end accountant becomes too expensive. Or it may be that you are looking for external investment and need financial modelling, forecasting and investor reports.

2. Outsource the right roles

Corporates use outsourcing to liberate their senior personnel from the day-to-day minutiae of people management, including staff sickness, performance reviews and recruitment. As mentioned in our previous article, this headache has become more severe amid the industry’s current recruitment crisis.

It is typical for large corporates to keep their CFO in-house along with a team of finance heads for different business functions, such as marketing, technology or operations. Meanwhile, task-driven roles, such as payroll and bookkeeping, are outsourced. This frees the in-house team to look at strategy and growth.

Smaller companies may not have section heads, but the same principle applies: outsourcing should free your senior team to focus on strategy. Early-stage companies in which the CEO is responsible for the financial function may even choose to outsource the FD role.

3. Do your due diligence (look for sector-specific expertise)

A large corporate will run a tender process for any major supplier, most likely involving three or four candidates – a mixture of large brands and smaller outliers. SMEs looking for financial outsourcing can do this on a smaller scale. As well as fees, SMEs should consider testimonials and service level agreements (SLAs) with well-defined deliverables. 

Sector experience and specialism are essential factors. For example, a high-volume, low-margin business, such as a restaurant that deals with multiple daily transactions, has very different needs from a business consultancy that relies on a few high-margin contracts. Areas of specialism might include care homes, retail, online sales, pharmacies, hospitality and natural resources.

4. Build open communication channels

Large corporates have the resources to travel to, say, India or Poland to meet their outsourcing teams in person. While this expense may not be viable for smaller companies, work-from-home technology has fortunately made remote working relationships easier. 

In addition, a good outsourcing firm will also have a UK point of contact to ensure accuracy, communication, and the timely delivery of reports. It will also invest in the latest technology to provide real-time reporting and cloud access to data.  

5. Embrace change

Larger corporates constantly review, update and streamline their operations. At the same time, they acknowledge that change is hard and have departments dedicated to managing transitions in business processes or technology.

In contrast, it is typical for a ‘this is how we’ve always done it’ mindset to block growth in smaller companies. The FD, for example, may have been working with the same team for several years. Often, they only consider outsourcing when a problem arises, such as a rising cost base, recruitment difficulties, sudden staff sickness or sub-standard work. To futureproof operations they should explore outsourcing as an option when times are good. 

Outsourcing has been in the DNA of successful large corporations for decades. Now it is a viable option for smaller companies wanting to keep pace in a tough market. 

About The Author

After working in senior roles for major leisure brands, Anil Swarup joined SKS in 2012 and helped steer it through rapid organic and acquisitive growth.

Interested in exploring financial outsourcing for your business? Please get in touch.

Ready To Get Started?

If you would like to understand more about FFO and how it can help your business, or you would like to speak to one of our team about starting the process of implementing FFO into your business, please complete the form below and we will get back to you as soon as possible.