The Franciscan friar Fra Luca Bartolomeo de Pacioli was reportedly the first person to document, in Venice at the end of the 15th Century, the principles of double-entry bookkeeping in his work Summa de arithmetica, geometria, proportioni et proportionalita.

Although accounting tools have changed over time, the basic principles are essentially the same as we use to this day.

Pacioli also cited the three main ingredients in his recipe for entrepreneurial success:

• Sufficient cash or credit

• A good accountant

• An accounting system that shows the financial position at a glance

Cash fuels your business

Finding cash or credit to run your business is time critical. Lehman Brothers found this to their cost when credit flows in the international system dried up. Since the global financial crisis banks have tightened their lending criteria significantly and businesses cannot survive just on directors’ capital and family cash injections. A good accountant will point you in the right direction, or even put you in touch with the right contacts, and can prove invaluable.

A good accountant is the entrepreneur’s best friend

A good accountant will have experience across many diverse industries and will have built a good network of contacts. But you don’t need to employ your own. In fact, there are many advantages to outsourcing your accountancy needs to a good accountancy firm. A firm will offer a broad range of skills across a team of accountants and the tools to exercise those skills; you will find it difficult to recruit and employ someone possessing all these skills.

Taking the outsourcing approach

Accounting firms have access to a bank of qualified accountants who all want to work in the accounting field; they have the right training and want to develop professionally, and working in a professional services firm environment allows them to develop in different areas. They have a lot to offer to the small and medium-sized business.

An advantage of outsourcing is that it allows you to buy in specific skills for specific projects. These accountants are also part of a network of like-minded experts, a network they can call on when necessary. Many accounting firms are also members of international networks enabling them to access accountancy support in other countries. You cannot recruit these skills, knowledge, and contacts yourself in one person.

Making the most of up-to-date software tools

When you outsource to an accountancy firm you gain access to the modern software tools that they can afford to invest in. Small and medium-sized businesses cannot justify the large investment just for occasional use.

But that’s not all. An accountancy firm will have researched and chosen the right software, and trained its people so they know how to make the most of the software and use it to its full effect inside your business. This saves you time and money.

Choosing an outsourcing partner

So what do you need to consider when choosing an outsourcing partner?

Your main consideration is ISAE (International Standard on Assurance Engagements) 3402. Your audit function must satisfy itself that the controls in place at the outsourcing partner are fit for purpose. When you outsource to an accountancy firm that has already been assessed as being in line with ISAE 3402, your auditor’s job is made easier.

You should also document comprehensively the functions you are outsourcing. This should be detailed enough to cover all the activities but flexible enough to deal with your changing requirements.

Information technology considerations

Virtually all financial management processes use IT in one way or another. So it is important that you consider carefully your company’s IT security when outsourcing financial management functions. Your outsourcing partner must be able to convince your auditor that it can manage your IT security safely. If the outsourcing partner has its own servers, and its owned trained staff under its direction, clearly it is responsible. However, you can still affect the security and the behaviour of your outsourcing partner in the management agreement.

Outsourcing: the benefits

Outsourcing your accounting functions can bring you many benefits:

• It allows you to focus on your core business activities and strategy

• The cost is transparent and easier to manage

• You do not suffer the consequences of employee absence, whether through holidays or sickness.

The most important document when outsourcing is the engagement contract. This sets out clearly the activities you’ve outsourced and therefore what your outsourcing partner is responsible for. It is important you regularly monitor performance against the contract as only this way can you be sure you are getting what you are paying for.

An advantage of outsourcing is that it allows you to buy in specific skills for specific project

Author Ilkka Pesonen, COO, WaBuCo Financial Services Oy

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