To Outsource or Not to Outsource: A Comprehensive Guide

Deciding whether to outsource can be a significant challenge for young companies. When it comes to outsourcing smaller projects like website development or a three-month ad campaign, the decision is relatively straightforward as the scope of work is well-defined and has a clear timeframe. According to a Clutch survey, 90% of small US businesses planned to outsource a business process in 2022, a 10% increase from 2021.

However, outsourcing financial planning and analysis (FP&A) services is a much more complex decision. Unlike a targeted ad campaign, financial planning is an ongoing and indefinite process, making it challenging to measure the output. Therefore, it is crucial to carefully assess all aspects before reaching a conclusion.

Advantages of Outsourcing

Outsourcing offers several advantages that can benefit companies in various ways. Below are some of the most significant advantages:

1) Cost Savings

The most apparent benefit of outsourcing is cost savings. Outsourcing service providers often offer lower prices than in-house staff, especially for services that require specialized skills. Companies can save money not only on wages but also on benefits, overtime, and workplace expenses. Outsourcing allows companies to cut costs and redirect the saved money to other areas of the business.

2) Availability

With the growth of online services and remote work, outsourcing has become a more accessible option than ever before. Some countries have become hubs for outsourcing, with a large pool of talented workers and globalized opportunities available. This enables companies to get work done quickly, often faster than in-house work. The availability of outsourcing services has expanded to include a wide range of tasks, from simple graphic design to complex data analysis.

3) Shortage of Talent

Companies can also benefit from outsourcing in cases where there is a shortage of skilled labor in their local area. For instance, some countries have a shortage of talent in the tech industry, making it difficult for companies to find suitable candidates. By outsourcing, companies can tap into a broader pool of talented workers from around the world, ensuring access to the best and most skilled workers. Outsourcing can also help companies overcome challenges associated with filling leadership positions, which can be especially challenging to fill with local talent.

4) Expertise

Outsourcing enables companies to access specialized expertise that may not be readily available in-house. Many outsourced service providers have a wide range of experience and knowledge in their field, allowing them to complete tasks more efficiently and effectively than in-house staff. Additionally, outsourcing can provide companies with access to specialized technologies and tools that would be too expensive to develop or purchase in-house.

Disadvantages of Outsourcing

On the contrary, outsourcing also has several disadvantages that can negatively impact companies in various ways. Below are some of the most significant disadvantages:

1) Planning for the long-term

One major challenge with outsourcing is ensuring that the contractor understands and integrates the company’s long-term vision into their work. While outsourcing can work well for short-term projects with well-defined goals, FP&A requires ongoing attention and may be more difficult to manage from a distance.

2) Limited control over the quality

Outsourcing also entails risks, as even after careful selection and contracting, the outcome may not meet the expected quality standards. Without close monitoring and oversight, it may be challenging to ensure that the contractor delivers high-quality work that aligns with the company’s standards.

3) Fostering company culture

Maintaining a strong company culture is crucial for any business, but it can be challenging to build and maintain it when relying on outsourced work. Although remote work has become more prevalent, the importance of in-person interactions and shared values cannot be overlooked. It can be challenging to create a sense of team spirit and shared commitment when working with external contractors who are focused on delivering specific outputs rather than aligning with the company’s broader mission and culture.

Outsourcing CFO services

Outsourcing CFO services involves similar advantages and disadvantages as outsourcing FP&A services, but on a larger scale. An outsourced CFO, also known as a Fractional CFO, can provide invaluable expertise and insights that would be hard to find elsewhere, but finding someone who can not only perform the necessary services but also provide strong leadership and vision can be even more challenging. As with outsourcing FP&A services, it can be difficult to monitor the work of an outsourced CFO until it is too late, raising concerns about the risks associated with this arrangement.

Tailoring Outsourcing to Your Needs

After examining the advantages and disadvantages of outsourcing, the specific needs of each company must be taken into consideration.

• Outsourcing is recommended for FP&A due to its technical nature which requires background knowledge of legal, taxation, and payroll. This workload is too much for any single person to handle, and it’s not advisable to give someone in the organization double duties of FP&A along with another central role. While it may be possible for a small project with a highly skilled employee, it’s better to outsource FP&A in scenarios with budget restraints.
• Outsourcing is almost always recommended for one-off projects and analyses since it’s not worth the time and money to hire someone full-time for temporary projects, particularly if the company is not yet ready for full-time FP&A. Outsourcing provides peace of mind, and in this instance, a professional with outside experience is an asset.
• Outsourcing is recommended even for the largest companies during M&A since crunching the numbers and gaining an outside perspective is ideal, even if there is a full-time FP&A team. There is no harm in outsourcing, particularly for major changes such as M&A, to obtain additional assistance and professional opinions.
• Outsourcing can also be beneficial for the CFO, not only for young companies or temporary work but also when the full-time CFO requires part-time assistance. The company CFO remains the leader, while the outsourced tasks will alleviate some of their burdens. Again, outsourcing is particularly helpful for one-off tasks or situations where outside perspectives add value.

Although there are many circumstances where outsourcing is advantageous, it’s a decision that should not be made hastily. For young companies that are uncertain whether to hire a full-time CFO or FP&A, reconsidering may be worthwhile as hiring full-time is a recipe for long-term success when done at the right time.

During periods of temporary overload, such as yearly budgeting, forecasting, or seismic changes, it’s not always best to immediately turn to outsource. FP&A software can perform many of the manual tasks that outsourcing would do and are a long-term investment for more established companies. Instead of hiring someone for temporary work, these software tools are simple to implement and can save money while improving the company’s FP&A analysis over time.

Conclusion

In summary, outsourcing can be a valuable solution for companies to improve efficiency and reduce costs, but it should be approached with careful consideration. While outsourcing can bring unique expertise and perspectives to a company, it is important to weigh the potential benefits against the risks and costs. In some cases, it may be more advantageous to hire in-house staff or invest in new technologies to improve financial analysis. Finding the right balance and timing can lead to successful outcomes and increased efficiency for the company.