No matter what service you buy, prices will vary. I am not telling you anything new here. What I will attempt to do though is to help you find out how to get to the right price for the accounting services you will buy. And to do so I will help you to understand what […]
No matter what service you buy, prices will vary. I am not telling you anything new here. What I will attempt to do though is to help you find out how to get to the right price for the accounting services you will buy. And to do so I will help you to understand what drives cost and then I will suggest how to make these move up or down. Let’s start with the accounting cost drivers.
As per my previous post on understanding the scope of accounting services one can group the drivers of cost for accounting in three broad brackets: people, systems and processes. Let us start with people cost drivers.
Over 80% of the cost of accounting services is encapsulated in the people themselves. I shall perhaps use the term human here because it will provide a much better understanding of how much can be done by you and how much you can’t control.
As of today most accounting work is done by people unless you have a fully seamlessly integrated system that I have rarely seen. These people will literally take documents that they receive in different formats (we will talk about formats in systems) and will enter them into a system. The nature of these documents as well as the details you may want them to enter above and beyond the strict minimum for recording a transaction will have an impact. For example you can have them enter a simple purchasing invoice without a detailed description. If you decide to add a detailed description this will likely require more time and therefore increase the cost of entry of the very same invoice.
Needless to say that the amount of accounting documents the accountant has to deal with will impact cost. This is why most accounting services firms will require you to provide them with such information in order to provide you with a quote for their services.
As humans are also more or less effective in their job, therefore the work environment of these people matter quite a bit. The more enjoyable their workplace is the more enthusiastic and effective will they be. And although this may sound funny, particularly in the context of accounting (I’m guessing you are reading this because you are looking to outsource something you may not like), it matters a lot.
While the workplace should be dissociated from the geographical location, the country where your accountants work will impact the cost. Having your accountants in the Philippines makes a big difference on the cost of service versus in the US where stricter labour laws will apply, including minimum wage and working hours. Now of course you wonder whether this is even a possibility. And the answer is: yes it is. Being certified and familiar with the accounting practices is often-times all that is needed. Besides, many accounting services vendors have found an interesting hybrid model where back office tasks are taken care of in low cost countries and supervisory tasks happen in the home country. This reduces cost tremendously for the company while keeping quality in check if the process is well managed.
– what amount of transactions do I deal with on a monthly basis?
– where is my service provider located and where are their staff?
– does the company have reputable workplace management practices?
Lets first define the notion of system. At its minimum we are of course talking about the system used by the accounting firm itself. Some systems are known to be very complex and the more complex they are, the more cumbersome the entries will be and the higher the cost. One massive difference in this area is whether or not the system handles electronic invoicing. While systems in Northern Europe are often e-invoicing ready, the practice is not that widespread in the US. This of course increases the cost of entry of supplier documents massively Trust me it makes a difference when a transaction is entered in 4 mins versus 6 mins.
Besides the actual system itself and how old the system is, accounting firms will also consider the systems you are using besides their own. In our previous post we spoke about payroll being oftentimes one of the systems accountants in the US will have to interface with, but this is also true with bank accounts. So the more bank accounts your company has the more complex it will be and the higher the cost.
This gets worse where bank accounts and detailed debit and credit card transactions are handled in different places. In other words if your bank accounts do not show in its ledger the transaction details that means that wherever these details are they will have to be extracted for integration. I guess that by now you get the point: the more debit and credit card providers your company has, the more expensive the service will become.
And here the capabilities of your accounting firm comes into play again. We are of course talking about their ability to interface with these systems. If they have their own in-house built system and have thought about you should be alright if the APIs exist. But if not, you are in for a bumpy ride. Well known accounting systems generally have a long list of APIs that will make the integration work a breeze. But be very mindful of this as it can have a significant impact on your costs.
So here are the key questions summarised for you:
– How old is the system used and is it known for its easy of use?
– How many bank accounts and debit / credit cards do I really need to integrate?
– Does the system from the accounting firms have ready made interfaces (APIs) to integrate my systems?
People and systems costs will have a direct visible impact to your bill. What is often not considered but has an indirect and at times direct impact to your bills are process costs. These costs are driven by the way you and the accounting firm decide to operate. In practice what one needs to be very mindful about is i) the nature of touch-points ii) frequency iii) reactivity.
The nature of touch-points refer to how the exchange takes place. People being people like to have a personal interaction and meet, speak with others. This will of course generate more idle time not dedicated to the actual operation. It will consume most likely senior time on both sides and time is money.
The second is the frequency of these interactions. How often are you required to engage with your accountants? Now of course if the engagement is as automated as possible it will have less impact than if they require a meeting or a phone call. So if high frequency is needed, make sure to keep them as automated and as short as possible. Clarity of the task here helps (approve, review, inform and confirm).
Finally reactivity matters. You may wonder how. Well if I expect a response from you and I have to wait, someone will have to pay for my idle time. While this is perhaps less of an issue with outsourced services that can share people between clients, the cost of following up will have an impact let alone all other indirectly related costs (interest expenses for paying an invoice late, need for extra financing for not invoicing on time etc …).
In summary here are the process related questions you want to ask yourself as you manage your accounting services costs:
– In what circumstances do I need to engage with my accountants? Can these be automated and does the vendor know these best practices?
– How many times do I really need to interface with my accountants?
– How can I stay on top of things to make sure I get the job done on time to prevent cost creep?
Take some time to scope out your requirements before appointing an accounting firm, and it can save you time and money. Look for the right accounting services for your organisation on Koble.