What is the true cost of outsourcing?

If you have considered outsourcing, you have probably wondered about the real cost savings your practice can make.

At Connect we understand that our clients need to be sure that outsourcing makes sense for their practice both financially and in the smooth running of the practice.

But not all outsourcing options are the same, and there are a few hidden costs that can come with some offers.

One of the main models of outsourcing available in the market today is known as BPO, or business process outsourcing. In this model you outsource your junior accounting staff roles to a country with a cheaper labour force. Most often this is the Philippines, but it may be India or Vietnam. In this example we outline the process for the Philippines.

How does BPO work?

On the surface this outsourcing model looks good. It works like this:

  1. You pay the outsourcing company a fee to source suitable candidates from the local labour market in the Philippines. You decide on the role and duties you want the candidates to fill, how much experience you want them to have, and what you are prepared to pay them. The outsourcing company acts as a recruitment agency and will place an ad on your behalf in job sites in the Philippines (just like advertising on SEEK in Australia).
  2. The outsourcing company narrows down the best candidates and sends the applications on to you. Candidates are usually accounting graduates with at least two years of work experience. You then assess the CVs and interview your chosen candidates through Skype the same way you would to recruit your internal team.
  3. Once you’ve chosen your preferred candidate, you sign an employment contract with them. You employ them at a cost that is usually a bit less than 50% of your local staff salary. For example, if you were paying a junior in your office a salary of $60,000, you could employ someone in the Philippines for around $25,000.
  4. You also sign a management contract with the outsourcing company. Your new employee will move into the outsourcing company’s office, which has a secure premises with high-speed internet. You pay the outsourcing company an ongoing “seat fee” to manage this.
  5. Once the new employee starts working for you, you need to spend time training them to be fluent in your work practices and in understanding the tax system so they can be a useful member of your team.

Fixed-cost summary for the BPO model

Average Recruitment fee $2000 AUD

  • Salary: Junior 2 years’ experience $ 18,000 to “Senior “ (5 years’ experience) $25,000
  • Monthly Seat fee $700 AUD x 12 = $8400

Yearly fixed cost: $26,400 – $33,400 AUD

Candidate interview and recruitment process – 2 hours

“We filled in a form to describe who we were looking for and the skill level we wanted. Within a week we were given three candidates to interview, our outsourcing company did the pre- interview process including background checks and reference checks before we met with them. The interviews with each candidate were quite quick – but we learnt we had to act fast as they were also shortlisted for many other roles at the same time.”

Staff training and onboarding process:

Once you have found your staff, you then need to train them.

Here are some of the training and recruitment issues that Connect client Maria Gussman described her practice went through:

“I found that what qualified in recruitment terms as a senior in the Philippines is at best probably in Australian terms a junior, and often their experience is not equivalent to our career path at all.

We paid our outsourcing company in AUD, which was then converted into Peso’s to pay the staff their local wages, so we were often exposed to fluctuations and risk from the currency exchange

Once our staff were hired they got a week’s training from the outsourcing company before starting with us. We got to choose out of a few modules such as- xero certification, gst, and income tax.

 I initially hired 3 Filipino staff after their first week of training we then allocated a senior accountant to begin their training in our tax laws it probably took up ¾ of his time in the first month to train them in our systems, we also had to call on one of our admin team as well who spent about 80 hours in the first month helping them with all the work paper protocols.”

After the first month, my team were still probably spending an hour or two a day coaching them.”

Connect Outsourcing Client: CA Maria Gussman

Training Time broken down:

Senior staff spent:  120 hours in the first month in (training in Australian tax law) 10 hours after that per month

Admin staff spent: 80 hours in the first month (establishing systems and protocols)

10 hours a month in additional admin support after the first month.

The hidden costs of the BPO model are the 230 unbillable senior accounting hours, and 190 unbillable Admin hours spent training your Filipino staff!

Issues with the BPO model

More comments from our clients who have used the BPO model:

In the first month my team spent about 20 hours a month training and reviewing the work of the new employee. We would spend about an hour a day going through tasks and explaining processes that we required. We also put the new employee through Xero and software skills training until they were up to speed with how we liked things to be done. It took about six months for the employee to become productive for the firm.”

Another thing they don’t tell you about the BPO model is that Filipino staff will frequently jump ship for a better job offer:

“As my Filipino staff became better qualified through working with me they were likely to be poached by other firms recruiting in the same process,” says Chartered accountant Paul Martin. “We learnt that in the Philippines there is a culture of staff expecting to leave after two or three years. We had quite a bit of staff turnover, and each time I replaced someone I had to travel back to the Philippines to train the new person.”

There are also some additional employment management issues that are not obvious in this model around staff leave and expectations:

“Our business shuts down in December and January so we had very little work for the Filipino staff to do,” says Martin. They would come back on 2nd of January with nothing to do for two weeks and I would pay for it!

Of course, there’s more to outsourcing than just cost considerations. You’ll also need to think about quality of service and timeliness of delivery.

Clients who have used the BPO model have had some issues with quality of service. “The outsourced employees were very smart and well-qualified,” says Martin. “But it was like hiring a graduate, because they didn’t know how accounting really works in practice.”

Also, Filipino staff usually can only do compliance to a draft stage, so they require a senior accountant to review the work papers.

When it comes to timeliness of delivery, your Filipino staff can only work as fast as anyone on your own team. If you suddenly need more capacity, you will have a lengthy training process ahead of you before you can scale up your remote team. This is a problem we’ve solved at Connect.

The hidden costs of BPO in a nutshell:

  • Ongoing recruitment fees
  • Seat fees
  • Many hours of your time to manage and train your staff
  • Time spent for your local staff to review and “double handle” the remote team’s work while they are learning the processes
  • Inefficiencies around off-peak times such as the Christmas break and end of tax season where you still have to employ staff to “twiddle their thumbs” until your practice comes back to work.

How do we do things differently at Connect?

Instead of recruiting an accounting graduate or junior accountant to work for you, we have our own permanent team of 800 fully qualified accountants.

Connect is founded by a Kiwi entrepreneur, we set up our team over 10 years ago. We partnered with an Australia accounting firm who oversees all our training programmes for our team.

We recruit the best accountants from Mohali university in India, where our company is based. Once they’ve been through our tax training programmes, they join one of our teams, paired with senior accountants to get them up to speed.

We invest in quarterly training programmes for all our staff, covering everything from all of the latest software or product upgrades from Xero and MYOB to any new tax laws and changes that the IRD release.

What are the advantages of the Connect outsourcing model?

  • Working with us, you’ll get a dedicated team to work with you on your business.
  • You’ll get the same teamallocated to your firm, so they’ll get to know you and your business protocols.
  • We allocate you the right number of people for the job depending on how much work you have. This flexibility means we can do more for you during the busy periods, and less during the downtime. You only pay when you actually need work done.
  • The team is made up of both junior and senior accountants, including a review team. This means we can produce work to a high standard from the very first job.
  • Because we offer our compliance services on a per-job basis, there is no increase in your overheads as you are not hiring us as an employee.
  • We can work on either a fixed-fee or a percentage per compliance job. (Usually this will be 25% of the fees you charge on to your clients.)
  • You pay us when the job is completed, saving your cashflow.
  • Even better, we don’t need any time to learn what to do. Our team are experienced in Australian tax law and it only takes us a couple of hours to set up the systems we need to get started.

The accounting industry is facing a turning point for its business model- is it time for you to look into transforming your accounting practice? Speak to the team at Connect to see how we can help you to transform your business into a powerhouse of productivity.

 

Ed Hayes  | Lead Outsourcing Strategist | Connect Outsourcing

Ed Hayes

Lead Outsourcing Strategist at Connect Outsourcing
Ed brings a wealth of experience to Connect Outsourcing. With a background in sales and marketing for a major corporate brand Ed managed the technical sales team for over fifteen years.

Over the past four years Ed has helped Connect position itself as the most trusted outsourcing solution for NZ accounting firms.

Ed is passionate about helping NZ accounting firms position themselves to better serve their clients and make more profit as the accounting landscape changes.
Ed Hayes

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About Author

Ed Hayes

Ed brings a wealth of experience to Connect Outsourcing. With a background in sales and marketing for a major corporate brand Ed managed the technical sales team for over fifteen years. Over the past four years Ed has helped Connect position itself as the most trusted outsourcing solution for NZ accounting firms. Ed is passionate about helping NZ accounting firms position themselves to better serve their clients and make more profit as the accounting landscape changes.