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Outsourcing Vs Insourcing – when should your financial firm resource on demand?

Created: May 2017

Financial firms are outsourcing an increasing variety of tasks, from IT and fintech to lead generation and customer relationship management, back-office functions, and accounting.

There are compelling reasons for both boutique firms and established operators to seek outside help, provided they adequately assess the risks. There is also a time to insource – as long as you’re not passing up more pressing opportunities.

In this blog we’ll explore when to insource and when to outsource and what to consider when you do.

When should financial services firms insource business processes?

When setting up any business the natural inclination is to keep costs to the bare minimum. If there’s anything you can do yourself, you’ll do it. If you can afford the time and you’re familiar with the tasks, it often makes sense to keep things in-house.

Just be wary of diverting resources from business development, particularly if you’re just starting out.

Whether you’re Ltd or LLP, don’t be surprised by the level of admin. For instance, there are a lot of accounting obligations to keep track of. Some apply to all businesses, like VAT, PAYE and NIC, holiday pay and sick pay, bookkeeping, HMRC submissions, record keeping, and annual returns. There are also specific requirements for FCA registered businesses (see our FREE guide).

There aren’t really any ‘optional’ obligations. Aside from cash flow, accounting and compliance are critical to the long term success of your business.

However, employing an in-house accountant is a fixed cost that may well be overkill, especially in the early stages of your business. Larger firms are typically more able to absorb fixed costs and ensure a consistent pipeline of work to maximise their investment in supporting staff – even then they may prefer the level of specialism and cutting-edge knowledge that a dedicated expert brings.

Accounting obligations to remember

Take charge yourself or appoint a trusted provider to deal with the following:

  • Year end accounts – filed at Companies House (and FCA)
  • Year end tax obligations – for both LLPs and limited companies
  • Bookkeeping – monthly record keeping and ensuring you’re on top of ingoings and outgoings (including VAT)
  • Payroll – ensure your staff (and you) get paid
  • Auditing – confirming assets and liabilities, including income and expenses, and ensuring profits and losses are fairly stated
  • Company secretarial obligations – informing of changes in directors etc
  • Personal tax affairs – optimising your income

When to outsource

Outsourcing is particularly favoured by start-ups and boutique financial firms for whom a culture of agile service provision is second nature. Outsourcing is typically more expensive than insourcing, at least by hourly rate, but the gains in flexibility, time and quality can quickly outweigh the upfront costs and prove more cost-effective.

Crucially, outsourcing gives you time to focus on the future. Start-ups have enough on their plate. At this stage your energy and resources are usually best directed towards developing your core services and selling yourself, rather than being consumed with time-sapping administrative tasks (or learning how to code!)

Similarly, established firms may appreciate removing any extraneous burdens that distract them from expansion, in addition to instantly acquiring valuable skills that lie beyond their comfort zone.

Outsourcing: the benefits at a glance

Outsourcing enables you to:

  • Streamline your business and reduce fixed costs
  • Achieve greater flexibility
  • Focus time on your core service offering
  • Upscale seamlessly as you grow
  • Get rid of compliance headaches (never miss a deadline for submission!)
  • Ensure you’re always up to date with the latest legislation
  • Access an experienced team that understands the unique requirements of your firm

Maximise your revenue with expert advice and financial planning to reduce overheads.

Don’t outsource all your due diligence

Any time you outsource you transfer responsibility to a third party and expose your business to risk. The level of that risk depends on the supplier and the nature of the work.

Be wary of outsourcing overseas to territories which don’t have similar levels of regulation. The costs may be compelling but corners may be cut. Will your cheaply procured financial technology stand up to scrutiny? Can you hold your accounting provider to account if the books don’t stack up?

If outsourcing goes wrong and impacts on a core aspect of your service, your firm could be left on the wrong side of the law, with little recourse of your own.

To mitigate risk:

Research your chosen provider – determine what constitutes a good supplier. Where are they based? How long have they been established? do they have any similar businesses on the books? Ensure everyone in your organisation follows the same procurement policy.

Agree SLAs – get everything in writing and be confident you will be able to enforce terms should anything go wrong.

Establish risk management procedures –  where is your information and customer data stored? how will you retrieve it in the event of switching suppliers, or if your current supplier goes out of business? Have a contingency plan.

Outsourcing is a sensible business practice that opens up a world of possibilities – the most critical functions are left in safe hands. In most cases, it’s wiser is to opt for a UK based specialist with a proven track record. Find a provider who really knows the industry and how to help your business handle the challenges of the financial services sector.

Outsourcing is just one way to maximise your margins. Discover more lateral approaches to financial efficiency in our FREE guide.