Introduction
The accounting industry has seen a significant shift in recent years with the rise of freelancing and outsourcing. According to Clutch, 37% of small businesses outsource their accounting to other firms or freelancers while 24% of B2B organisations in the UK outsource accounting processes, according to YouGov. Due to remote working opportunities, accounting professionals are also opting for freelancing. According to Upwork, the majority of professionals who started freelancing found that their income remained the same or improved by up to 75%. While these trends have created opportunities for accounting firms to reduce costs, increase flexibility, and improve service quality, they have also led to concerns about job loss, job quality, and unfair labour practices. In this article, we will explore the pros and cons of freelancing and outsourcing in the accounting industry, as well as best practices for ensuring success.
Pros of Freelancing and Outsourcing in Accounting
Freelancing and outsourcing have become increasingly popular in recent years, and the accounting industry is no exception. Accounting firms are now outsourcing many of their non-core functions, such as bookkeeping and payroll processing, to freelancers and external service providers. This has numerous advantages, including cost savings, increased efficiency, access to specialised skills, and flexibility.
One of the biggest advantages of freelancing and outsourcing in the accounting industry is cost savings. According to the U.S. Bureau of Labor Statistics (BLS), the mean hourly wage for accounting services is $38.23. The same is $47.43 in New York and $34.92 in Florida. If outsourced to other countries like Asian or African countries where labour is even more affordable, small businesses can save hundreds of dollars in services. By outsourcing non-core functions to external service providers, accounting firms can save a significant amount of money on overhead costs. This includes savings on salaries, benefits, office space, equipment, and other expenses associated with in-house employees. For small and midsized accounting firms, outsourcing some of their workloads is particularly beneficial. It allows them to access high-quality services at a fraction of the cost of hiring in-house staff.
Freelancing and outsourcing will increase the efficiency of the accounting industry. By outsourcing non-core functions, accounting firms can free up time and resources to focus on their core competencies. This allows them to provide better service to their clients while also improving their overall efficiency and productivity. Hence, they can set themselves up as niche experts and attract fewer but higher-paying clients in some accounting niches.
Outsourcing also allows firms to access specialised skills and expertise that they may not have in-house. For example, they can outsource tasks such as tax planning and compliance to experts in those fields, ensuring that they are providing the best possible service to their clients. This expertise includes areas like tax planning, auditing, financial analysis, and more. This can be particularly beneficial for smaller accounting firms that may not have the resources to hire specialists in these areas. According to UpWork, 53% of workers with postgraduate degrees perform some kind of freelance work including accounting. By outsourcing to external service providers, they can access these specialised skills and expertise without having to hire additional staff.
Finally, freelancing and outsourcing offer flexibility that can be extremely beneficial to accounting firms. External service providers often work on a project-by-project basis. This allows accounting firms to scale up or down as needed. This can be particularly beneficial during peak seasons or when a firm is experiencing rapid growth. Outsourcing to freelancers or other firms also allows accounting firms to access services on an as-needed basis rather than having to commit to long-term contracts or investments in equipment and infrastructure.
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Cons of Freelancing and Outsourcing in Accounting
While freelancing and outsourcing have several advantages in the accounting industry, there are also potential drawbacks that firms should be aware of. Some of the most significant disadvantages of freelancing and outsourcing in the accounting industry include security and confidentiality concerns, a lack of control over work quality, communication challenges, and cultural differences. In an UpCity survey, which included 600 US and Canada-based small businesses, 21% of participants said that outsourced teams were difficult to communicate with, 14% of them said that teams failed to meet deadlines, and 12% said teams didn’t follow instructions.
Security and confidentiality are the single most important concerns with freelancing and outsourcing in accounting. Accounting firms handle sensitive financial information for their clients, and there is always a risk of data breaches or other security issues. When outsourcing to external service providers, firms must ensure that appropriate security measures are in place to protect their clients' data. This includes cybersecurity measures like encryption, access controls, and employee training programs. In the wake of increasing cybercrimes, no amount of caution is enough for accounting firms and freelancers. Accounting firms must also ensure that service providers have proper insurance and indemnity coverage to mitigate any risks associated with data breaches or other security incidents.
Lack of control over work quality is another major concern for accounting firms when they outsource their workload to freelancers. When outsourcing non-core functions, accounting firms are reliant on external service providers to deliver high-quality work. While most service providers are reputable and deliver quality work, there is always a risk that the work will not meet the firm's standards. To avoid this risk, accounting firms should carefully vet service providers before outsourcing work and establish clear guidelines and expectations for quality.
Communication challenges can also be a significant concern when outsourcing in the accounting industry. As outsourcing means remote communications, communications can be short and filled with misunderstandings. Effective communication is essential for collaboration and the delivery of high-quality work, but it can be challenging when working with external service providers who may be located in different time zones or have different communication preferences. Accounting firms must establish clear communication channels and protocols to ensure that communication is effective and efficient. This may include regular check-ins, status updates, and feedback sessions to ensure that the work is on track and meeting expectations.
Cultural differences can also be a potential challenge when outsourcing in the accounting industry. Accounting firms may be working with service providers from different countries or cultures, which can lead to misunderstandings or miscommunications. It is essential to establish clear expectations and protocols for working with service providers from different cultures, including language barriers, cultural norms, and work styles. Accounting firms must ensure that service providers have a clear understanding of their client's cultural and business practices to ensure that the work is delivered appropriately.
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Impact of Freelancing and Outsourcing on Employment
The rise of freelancing and outsourcing has had a significant impact on employment across various industries. According to UpWork, there are 56.7 million total freelancers in the US comprising 36% of the US workforce. These freelancers contributed $1.3 trillion to the US economy in 2021. However, if American companies start outsourcing services to other less expensive countries, the antigen freelancer workforce might go into unemployment. On the one hand, freelancing and outsourcing have created new opportunities for workers who may not have been able to find traditional employment. It also opened up global opportunities with better payments for those in poor and developing countries. Outsourcing has created opportunities for these workers in areas with lower labour costs to participate in the global economy and become financially stable. Some freelancers have entered freelancing for the flexibility it offers. Freelancers can work with a variety of clients and take on projects that match their skills and interests.
However, there are also concerns about the impact of freelancing and outsourcing on employment. One of the primary concerns is that these trends may lead to a decrease in the number of traditional jobs, particularly in certain industries or geographic regions. When companies outsource non-core functions, they may no longer need to employ workers to perform those functions in-house. This can lead to job loss, particularly for workers in industries that are heavily impacted by outsourcing, like manufacturing or customer service.
There are also concerns about the quality of jobs that are created through freelancing and outsourcing. Freelancers do not receive the same benefits and protections like health insurance, retirement plans, or paid time off as traditional employees. This can lead to financial insecurity and a lack of stability for workers who rely on freelance work as their primary source of income. Similarly, workers in other countries who participate in outsourcing may not receive the same protections and benefits as workers in the countries where the work is being performed. This will lead to exploitation and unfair labour practices.
Freelancing and outsourcing may also lead to a "race to the bottom" in terms of wages and working conditions. When companies can outsource work to countries with lower labour costs, they may put pressure on other companies to do the same to remain competitive. This unhealthy competition will only lead to downward pressure on wages and working conditions as companies seek to cut costs to remain competitive. This will be bad for the economy and the workforce in the end, as economic structures may start to crumble. You might be interested in this blog - How Can A Masters in Accounting and Finance Accelerate Your Career?
Best Practises for Freelancing and Outsourcing in Accounting
Freelancing and outsourcing are highly effective for accounting firms looking to reduce costs, increase flexibility, and improve service quality. However, to succeed, accounting firms must follow best practices that minimise risk, maximise benefits, and ensure compliance with regulations. Here are some best practices for freelancing and outsourcing in the accounting industry.
1. Clearly define the scope of work.
Before outsourcing any work, firms must clearly define the scope of the work and establish expectations for deliverables, timelines, and quality. This can be done through detailed contracts or statements of work that clearly outline the requirements and expectations for both parties. It will maintain discipline across the outsourcing phase, as goals and rules will keep the work in order and within a structured system.
2. Vet service providers
It is crucial to carefully vet service providers before outsourcing any work. This includes checking references, verifying credentials, and conducting background checks to ensure that the provider is reputable and qualified to perform the work. Moreover, it is important to make them understand the scope of work and stress the importance of maintaining a strong work ethic throughout the phase.
3. Establish clear communication channels.
Effective communication is essential for successful outsourcing. Accounting firms should establish clear communication channels and protocols to ensure that communication is timely, efficient, and effective. This may include regular check-ins, status updates, and feedback sessions to ensure that the work is on track and meeting expectations. As freelancers often work remotely and live in different time zones, setting schedules with online meeting software solutions will help with communications.
4. Ensure data security and confidentiality.
Accounting firms must take appropriate measures to protect client data when outsourcing work. This may include requiring service providers to sign confidentiality agreements, establishing data security protocols, and using encryption and other security measures to protect sensitive information. In modern times, additional cybersecurity measures must also be established, and training against cyberattacks, especially through social engineering, must be provided.
5. Monitor work quality.
While outsourcing can reduce costs and improve flexibility, it is essential to monitor the quality of the work to ensure that it meets the firm's standards. This may include conducting regular quality audits, providing feedback to service providers, and establishing performance metrics to measure success. Communicating the findings with compliments and suggestions will improve the business bonds between the firm and the freelancers while also boosting work quality.
6. Ensure compliance with regulations.
Accounting firms must ensure that all work performed by external service providers complies with applicable regulations and standards. This may include regulatory compliance, like tax regulations or data protection regulations, ethical standards, and industry best practices. As different countries have different tax and labour laws, it is important to maintain a strong adherence to all the laws of both countries.
7. Build strong relationships with service providers.
Effective outsourcing requires strong relationships between accounting firms and service providers. Firms should work to build trust and rapport with service providers, establish clear lines of communication, and foster a collaborative working environment. Sometimes, firms hire the same freelancer for the quality of work they received during their previous outsourcing project. Sometimes, especially during peak seasons like the end of the financial year, accounting firms get bombarded with fresh projects and opportunities. In such times, having a closer relationship with freelancers will help firms tackle the challenge and grab opportunities. A personal relationship with freelancers will help companies when talent is scarce.
Conclusion
Freelancing and outsourcing are powerful strategies that can help accounting firms remain competitive in a rapidly changing industry. With the advent of remote working, accounting freelancers and the outsourcing of some accounting tasks to other agencies have become common. If used right, hiring freelancers and outsourcing can boost an accounting firm's productivity and reduce the workload of its regular employees. By leveraging these trends effectively and following best practices, firms can reduce costs, increase flexibility, and improve service quality. However, it is important to be mindful of the potential challenges and concerns associated with these trends, such as job loss, job quality, and unfair labour practices. By balancing the benefits and challenges of freelancing and outsourcing, accounting firms can position themselves for success in the years to come.
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