Outsourcing FP&A Services: When is it a Good Idea?
“To outsource or not to outsource” can be one of the most pressing decisions for young companies. Outsourcing small campaigns such as website development or a 3 month advertisement campaign is an easy decision because the job is well defined and time constrained. In the United States, 68% of companies use outsourcing in one way or another, and executives are using it more and more frequently. However, outsourcing FP&A services is much more complicated. Financial planning is indefinite, and therefore much harder to measure output than a targeted ad campaign, for example.
This decision is not something to be taken lightly and all dimensions need to be examined before coming to a conclusion.
Pros of Outsourcing
1) Cost
The biggest and most common advantage is saving money. Outsourcing is always cheaper (at least at first glance) and for young startups or companies looking to cut down on costs, outsourcing can be the perfect solution. Besides paying a lower cost for the service, local labor laws usually don’t apply and therefore the money saved on benefits, overtime, and workplace expenses can add up to huge sums, which can then be used in other company investments.
2) Availability
With the rise in online services and remote work, outsourcing is much less of a big deal than it used to be, and many companies use these services consistently. Countries such as India have become world leaders in outsourcing, and with a huge market for tech talent and many globalized opportunities available, there is no shortage for competition. In addition to better prices, availability is through the roof and oftentimes outsourcing can be done quicker than in-house work. Whether it’s a simple graphic design or a 6 month financial data forecast and analysis, there is outsourcing available for it all.
3) Shortage of talent
Other than convenience and cost, many countries have a skilled labor shortage, especially in the field of tech. Countries such as the UK and Israel, whose economies rely heavily on tech, have reported immense trouble in filling skilled roles, especially with leadership positions. In addition to the trouble of finding the right fit for the FP&A team, a shortage also pushes up the salaries and requires more time and effort to recruit, further exasperating the desire for outsourcing.
4) Expertise
Thanks to the huge variety of talent in the outsourcing world, many times you can find someone to complete the work who has far more experience than a full time employee would have, taking into account the limitations of in-house hiring. Due to convenience or lack of opportunities in their local country, those who list their services can have many years of experience which you simply can’t always find, especially in today’s employee market.
Cons of Outsourcing
1) Envisioning long term goals
No matter how professional or experienced the contractor is, it is very difficult to teach them to integrate the long term vision of the company into the short term work. Outsourcing usually occurs for a defined period of time, and even if the job was done extremely well for the time period that was agreed upon, problems can occur later on that were not taken care of. With other services that are cut and dry this is not an issue, but FP&A is simply not something that you can afford to ignore in the long term.
2) No room for mistakes
Even after doing the proper research on the company or individual and signing a contract, a bad fit can spell disaster for a young company. Tracking progress and analyzing the work is more difficult in outsourcing, and for something as important as FP&A, the money saved may not be worth it.
3) Company Culture
Being involved in the company culture may seem less relevant with the rise in remote and hybrid work environments, but this element still exists just as strong as ever. For one, nothing will replace face to face meetings, and even if they occur less frequently than pre Covid-19, the connection is irreplaceable. In addition, it is very hard to envision the company culture based on outsourced work, as it is designed to be temporary before moving on to the next one.
Outsourcing CFO services
All of the pros and cons of outsourcing FP&A services apply to outsourcing a CFO as well, but on an amplified level. An outsourced CFO can come with invaluable experience and perspectives that would be extremely difficult to find elsewhere, but the cause for concern is greater in proportion. A leadership position such as a CFO is evaluated not only in their services but in leadership and vision aspects as well. Once again, with outsourced services such as these, it is harder to get a grip on the job being done until it is potentially too late.
What is best for you?
After analyzing the pros and cons, the individualized aspects for each company need to be taken into consideration and in these cases outsourcing is recommended:
FP&A has a highly technical nature which usually requires background knowledge of legal, taxation, and payroll, and it is simply too much for any one person. Therefore it is not advised to give someone in the organization double duties of FP&A along with another central role. For a small project and a highly skilled employee this may be possible, but in almost every scenario where there are budget restraints, it is better to outsource FP&A than try to give someone double duties.
When it comes to one-off projects and analyses, outsourcing is almost always recommended. The time and money it takes to bring someone in full time is simply not worth it for temporary projects, especially if the company is not yet ready for full time FP&A. Outsourcing will give the company peace of mind, and in this case a professional with outside experience is a benefit.
Another time where outsourcing is recommended even for the biggest companies is during M&A. Crunching the numbers and an outside perspective is perfect for this, even if there is a full time FP&A team. There is no harm to outsource, if for no other reason than to get extra help and professional opinions for seismic changes such as M&A.
In regards to the CFO, outsourcing can be beneficial not only for young companies or temporary work, but also when the full time CFO needs part-time assistance. The company CFO still acts as the leader (which is irreplaceable for long term growth), while the outsourced tasks will take a lot off of their plate. Once again, this is especially true for one-off tasks or situations where outside perspectives add value.
Although there are many circumstances where outsourcing is beneficial, it’s a decision that shouldn’t be taken lightly. For young companies that are unsure of whether or not to implement a full time CFO or FP&A, it may be worth it to reconsider, as hiring full time is a recipe for long term success when done at the right time.
In addition, in times of temporary overloads, such as yearly budgeting, forecasting, or seismic changes, it is not always beneficial to jump straight to outsourcing. Platforms that consolidate financial data 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 softwares are easy to implement and will save money and improve the company’s FP&A analysis in the long term.
Conclusion
When done right, outsourcing is a great tool that can save lots of time, money, and headaches for the company. However it is not something that should be taken lightly, as many times it is better to hire in-house or take the steps to upgrade financial analysis technologies instead. The right combination and timing can benefit the company and create great results and efficiency.