Whether your firm has been doing it for a long time or you’re still weighing your options, deciding on an outsourcing model for your accounting practice requires expertise, dedication, and most of all, research. Unfortunately, most accounting firm owners don’t have the time and energy to do all of this – so we’ve done the work for you!
Here is a compilation of accounting outsourcing models to help you with deciding on which to adopt for your practice.
Weighing Your Outsourcing Options: Setup, Location, Pricing
To narrow down your options, we’ve categorized the outsourcing methods according to (a) what the relationship is like between the client, the workers, and the accounting firm owner, (b) where the employees will work, and (c) how the workers will be compensated.
Relationship-based Outsourcing Models
Outsourcing models can be classified according to the relationship of the employees, the accounting firm, and the client.
The Freelancing Model
Freelancing has become more popular over time. It provides accounting professionals with the freedom to set their own hours and rates. Accounting firms from around the world can connect with freelancers on sites like Upwork. Freelance accountants are assessed according to their track record, specifically their milestones and client ratings.
The Pros and Cons of Freelancing
In terms of overall benefits, the freelancing model is cost-effective in most cases, as you have access to different accountants and agencies bidding for your firm’s work. This outsourcing business model can also be quick and seamless, especially if you hire accountants with the right skill set.
However, there could also be drawbacks like the possibility of security risks, especially if there are no processes for protecting sensitive data. On top of this, freelance employees may not be as invested or committed as in-house employees, as there is little to no job security.
The Business Process Outsourcing (BPO) Model
Popular among outsourcing solutions in the market, the business process outsourcing (BPO) model involves accounting firms hiring professionals from countries with lower labor costs. In the BPO model, the company provides the programs, devices, and facilities required for your accounting firm’s offshore teams, as well as human resources, payroll, and IT equipment.
The Pros and Cons of Business Process Outsourcing
If your chosen BPO company caters to your firm’s niche, you won’t have to worry about your outsourced team’s level of expertise, credibility, and clean track record. On top of this, your partner BPO company will also be taking tasks involving staff management, HR, leave filing, and the like off your plate and onto theirs.
The downside of this outsourcing business model is that operations can become expensive when your team grows bigger. Additionally, if you end up choosing a BPO company that doesn’t specialize in your industry, your overall experience with outsourcing could be impacted significantly — and most likely, negatively.
The Build-Operate-Transfer (BOT) Model
Last among the relationship-based outsourcing frameworks is the build-operate-transfer (BOT) model, which is perfect for growing your team. If your firm reaches 25 team members or more, your practice hires a third-party firm to create a new subsidiary. When you reach 15 team members, it’s good to consider the build-operate-transfer (BOT) model especially if the direction of your practice is to scale up.
The Pros and Cons of Build-Operate-Transfer
Some advantages that come with this outsourcing business model include creating your own environment and culture, as well as controlling the whole process of forming your subsidiary. However, there could be many adjustments in the beginning.
Furthermore, the process of creating and submitting documents could be tedious and even risky if you don’t have someone in your team who’s well-versed in the legal and technical aspects. Not to mention that the learning curve could also be somewhat steep, especially when understanding the culture of your firm’s chosen territory for outsourcing.
Relationship-based Outsourcing Models: What’s the Best Choice?
Based on a research-backed analysis, business process outsourcing significantly slashes costs, allows your firm to focus on the core capabilities of the in-house team, and helps inject client firms with supplier resources such as skills and expertise. This is being done to ultimately improve the business process performance of your firm’s clients, as well as its scalability and delivery speed.
Read More: Everything You Should Know About Outsourcing Models for Accounting
Location-based Outsourcing Models
Aside from the relationship-based models, you can also classify your model based on location. Most firm owners choose the traditional way to outsource talent, which is offshoring from territories with low labor costs. Aside from the fact that this method is the most widely known, it’s also tried and tested. Know more about the outsourcing strategies based on the location below.
- Offshore outsourcing
- Onshore outsourcing
- Onsite outsourcing
- Nearshore outsourcing
- Multisource outsourcing
As most firm owners may know, the offshore outsourcing model involves taking accounting workers from distant locations – which are usually ones with lower labor costs. Onshore outsourcing means getting employees from a third-party company, but still within the same country or territory.
Meanwhile, onsite outsourcing means hiring a contractual employee to work with your current in-house roster. There’s also nearshore outsourcing, which means getting employees from territories that are nearer but have cheaper rates.
If accounting firm owners decide to combine more than one model, then they can use the multisource outsourcing model. This is a strategic decision for accounting firms to optimize their resources, increase employee productivity, and lower operational costs.
Location-based Outsourcing Models: What’s the Best Choice?
When choosing among location-based outsourcing models, accounting firm owners should consider factors like cultural compatibility, language proficiency, time zone differences, political stability, disaster resistance, and the cost-effectiveness of the chosen location.
Especially when it comes to cost-effectiveness, developing countries such as the Philippines often offer lower labor costs, making them attractive options for outsourcing certain functions in the field of accounting. Ultimately, the best outsourcing business model will still depend on your specific business needs and goals, so it’s crucial to evaluate all these factors before deciding.
Pricing-based Outsourcing Models
Some firm owners who choose to outsource give a fixed rate, while others opt to incentivize. One of many outsourcing strategies, pricing your outsourcing setups in different ways helps minimize costs and maximize benefits.
Examples of pricing-based outsourcing models include the fixed price models, cost-plus models, and time and materials (T&M) models, as well as the shared risk-reward model and the profit-sharing model.
One of the more well-known outsourcing models is the fixed price (FP) model with 3 subcategories. Below are the definitions for the FP model and its subtypes.
- Fixed price (FP) model — established or standard rate set by the service providers that is given to accounting firms who want to outsource .
- Fixed price with incentive (FPI) model — bonuses are given when teams exceed their quota for the month or the quarter.
- Fixed price with economic adjustment (FP EPA) model — considers additional costs coming from upgrades, resources, and salary levels of employees, among others
- FPI successive target (FPI ST) model — leaves room for cost adjustments for clients
We also have the cost-plus model, which is also feasible when it comes to accounting firms. It’s important to note that your firm should set the profit margin and find the right motivation for your clients to pay premium. Below are the definitions of these models along with its 3 subtypes:
- Cost-plus model / cost reimbursable model — pays the service providers through the fixed fee in lieu of incentives.
- Cost-plus fixed fee model — establishes no standard rate to be paid
- Cost-plus award model — depends on the work performance of the employees
- Cost plus incentive (CPI) model — depends on the standards or metrics from the client
Moving on to the T&M model, this is where the client pays for the actual time spent by the service provider on a project, including the resources and material. There is also a T&M model with cap, which can help your firm prevent excessive spending.
- Time and materials (T&M) model — the client pays for the time, materials, or resources used on the project
- Time and materials (T&M) with cap model — this provides flexibility for clients and prevents excessive spending
Finally, we have the shared risk-reward model and the profit-sharing models, which will be defined below.
- Shared risk-reward model — involves the sharing of ideas, concepts, and responsibilities with each other
- Profit-sharing model —lets clients pay the third-party service provider with their profit, with an agreed-upon percentage
Bonus: Pricing-based Strategies
Aside from the pricing models, there are also general pricing strategies, which are value-based pricing, cost-based pricing, and competitor-based pricing. Value-based pricing means that the clients pay for the perceived value of the services offered. Meanwhile, cost-based pricing involves setting a selling price based on production or acquisition costs. Finally, competitor-based pricing means setting prices based on your competitors’ services.
Pricing-based Outsourcing Models and Strategies: What’s the Best Choice?
Some accountants prefer value-based outsourcing strategies because they have the freedom to control the rates more easily — they determine the price of the services they offer. However, others would like a more fixed arrangement so that the amount they receive is guaranteed regardless of how well they perform.
Ultimately, your choice of pricing-based model and strategies depends on what works for your firm. With the right pricing model, you get to connect and work with the offshore team that’s best suited for your practice. Overall, thorough planning and assessing helps you find accounting staffing services that fit your needs.
Is There a One-Size-Fits-All Model for Outsourcing?
The short answer? Yes and no — ideally, you’d want your firm to get as many benefits as possible. However, the location-based, pricing-based, and relationship-based models you’ll choose for your practice must be compatible with your firm’s needs and goals.
For instance, you may be able to significantly reduce costs with the freelancing model, but the employee commitment and quality of outsourced accounting services may not be up to your standards. You may also find the build-operate-transfer model a good choice if you’re scaling up, but you also must make sure that you have at least one team member who’s well-versed in legal and technical aspects of BOT to prevent any liabilities or unwanted expenses.
To prevent any misunderstandings or miscalculations, it’s best to leave your accounting operations to a trusted and reliable outsourcing company so you can increase your capacity, reduce costs significantly, and leave room for scaling up.
The Best Possible Outsourcing Options with TOA Global
Outsourcing can unleash your firm’s full potential if you tap the right resources. TOA Global connects you to elite accounting talent across the globe. We give accounting firm owners the power to decide on the right outsourcing model for their practice — from location to pricing to the type of setup.
Want to know if we’re a good fit? Book a no-obligation consultation with us and let’s work together.
