What's the difference between bookkeeping and processing?
This week, I've spent a lot of time on LinkedIn comparing bookkeeping services to business processing centres. In Israel, bookkeeping services, including tax reporting and salaries preparation are very common. Some these firms provide outsourced CFO, financial controller and FP&A services as well in addition to the standard bookkeeping. By contrast, a business processing centre owns and operate the underlying processes which drive the business and have the ability to prepare these same reports making them a good service for growing businesses. The are one step deeper in the company operations and actually help to prepare the data used to produce the reports.
The challenge is determining when one is preferable over the other.
Outsourcing your finances vs. outsourcing your business
Outsourcing usually focuses finances, specifically the filing of accounts, taxes, and salaries preparation. The vast majority of business leaders do not know how to calculate all types of taxes, nor are interested in completing forms and payslips, so they hire someone to prepare it for them. This is an economical way to reduce the risk of incorrect financial reporting and allow the focus to remain on selling products. This arrangement requires the company to provide receipts, cash balances, and employee details to the bookkeeper who calculates deductions, completes, forms, prepares payslips and sends them back for approval.
As the business grows, the amount of data the bookkeeper needs to review and process increases. Staff increases, customer orders increase, and vendor payments increase. A medium sized businesses will have a C-suite who need more robust financial reports, and if there are investors, there may be a need to provide audited financial statements.
A standard bookkeeper is not enough anymore due to the volumes; therefore, the company considers hiring a finance operations manager, possibly a team, and invests in an Enterprise Resources Planning (ERP) system such as Priority, Netsuite, or SAP. The addition of this team adds additional expenditure to operate the business and will most likely reduce profits!
Just as the business can share bookkeeping services, a business can share business operations. How? A business can integrate its front office into a shared back office sharing ERP systems, staff, and expertise. This can even be done without changing the business's experience!
Business operations can be divided into to 3 or 4 general areas:
Order to cash (O2C): Order to cash processes monitor the orders the company has received, the collection of debts, and reconciles the payments back to the invoices. This can include payments made using a credit card, cheque, bank transfer, and even cash!
Procurement to pay (P2P): Every business has suppliers, and those suppliers need to be paid. For some, the number of suppliers will include physical spaces, staff, even the tax department! The payments process can include sourcing, ordering, and processing payments.
Record to report (R2R): Record to report procedures convert business operations and performance into usable information for external financial reporting, management reporting, and tax filings. Bookkeeping services rely on record to report processes.
Treasury: Sometimes treasury is grouped with record to report depending on the business's complexity; however, especially in multi-national companies with multiple legal entities and bank accounts, treasury really needs to be its own process. Treasury reporting also relies on the other processes to develop cash flows, hedge currency exposures, and ensure that operations remain solvent.
Very large companies, and manufacturing, may also have separate processes for fixed assets or further divide these general areas into sub-processes managed separately.
When is it time to outsource processes?
The best time to consider process outsourcing is when expenditure on bookkeeping services reach the salary of a full time finance manager and there's a need to invest in a proper ERP system.
Finance operations staff and bookkeepers are not the main expenditure when bringing services in-house, rather it is the ERP system that the company will use. ERP systems can range from USD 1,000 per month + 100 USD per user for simple programs up to tens of thousands of dollars! This does not include the system setup, consulting services need to implement, and changes to company operations to make it work. When bringing processes in-house, a company will most likely not get the most out of their ERP systems or their staff unless they invest in:
The right ERP modules. Every ERP system has a standard setup, but most also have modules which are used to support processes. Some of them come at additional cost, and investment in them does not always provide a good return. So, companies skip them or invest in a less appropriate solution.
A good system administrator. Maybe there are reports you don't want your staff to see. Maybe there's sensitive information, or maybe you need to implement good separation of duties to pass the SOX audit coming up. A good system administrator provides the right access, to the right people, and makes sure you stay compliant.
The right master data setup. Master data is what drives your reporting. Imagine have a stack of receipts which aren't organised. The right master data takes all of your business transactions, organises them, and makes sure that your management team is taking the right decisions and that your filings are prepared correctly.
It's worth adding that some companies should not outsource. Companies which have high areas of regulation - such as financial services - may find that there is too much regulation which makes the costs prohibitive.
What should my company do?
Making the right decision isn't easy. That's why there are experts, and Chayim Messer Consulting is an expert in process management, shared services, and ERP system implementation. Before you hire and before you move forward with setting up your finance operations department, get in touch with us for a free, no obligation consultation, and we can talk about what is right for you.
Chayim Messer Consulting provides ERP system implementation services, process development and enhancement, and can help you put together the right organisation design. We also maintains a business processing centre at your service who can help you keep your business costs down, your profitability up, and maintain your growth trajectory.
Contact us today:
+972 (0)53 628 2582