Nowadays, financial outsourcing, a new financial management model, has become more widely used, outsourcing versus insourcing.
To reduce operating costs and minimise or avoid the risks coming from the process of operations, many enterprises, especially the new or fast-growing entrepreneurial enterprises, and many small and medium-sized enterprises (SME) are choosing the way of outsourcing. The flexibility that Financial Outsourcing provides is more than most decision-makers would realise, hence this article’s purpose. Here these benefits will be expanded by looking at ease to complying with new regulations, reducing costs, avoiding risks, and better managing the business’s resources.
Improving the quality of management, compliance and financial transparency
Along with the constant upgrading of new accounting standards and tax reforms in China’s current high-speed developing environment, the internal financial management of enterprises is often difficult to catch up with. There are many upgrades, redesigns and new systems that an internal accounting team handles each year, all of which take a lot of time, planning and expertise.
Going with financial outsourcing enables small and medium enterprises to focus more on business strategy development rather than time spent on internal financial management and trying to accumulate experience. They can benefit from the outsourced provider’s infrastructure, continually upgrading and adapting their systems and processes for the production of financial information to aid management decisions. Particularly for new start-up enterprises, it could help them better avoid risks and better plan their trajectory and be better able to avoid financial pitfalls such as cash crunches etc.
Moreover, the economic principle lets people do what they are good at to maximise their value. The outsourcing of financial processes will certainly save managers time, which can focus on the enterprise’s main business and improve the management quality. The professional service and management ability of the outsource accounting company could minimise the probability of false accounting information to ensure the quality of financial information provided.
As an independent third party, the accounting firm could drive the financial information more objectively, and challenge anything that seems untoward, adding more credibility when a company faces its shareholders and investors. The information generated by listed companies through financial outsourcing is more recognised by regulators and investors. Also, through the substance of the outsourcing firm, proper information protection is in place to ensure the security of financial and sensitive information.
Reducing enterprise capital expenditure and operating cost
Does a company have insufficient operating funds and their finance team sufficient operating experience, e.g., finance management experience and systems experience for putting in place an infrastructure required for building their business in China. There are also local considerations, different accounting regulations, change in tax systems and law. Accounting outsourcing can help enterprises save compliance without large economic investment and put it in place quickly.
At the same time, as there are changes, the outsourcing provider can adapt rapidly to these. Saving on capital expenditure from financial-related hardware/software establishment and the implementation costs, which are one-off capital expenditures. Besides that, the daily maintenance costs and systems upgrading costs could be avoided. The enterprises then can focus on what information they need so that the provider can deliver this in a timely fashion to the management of the business. Enterprises could cut the cost by outsourcing low-value and complex working parts or unfamiliar parts.
Whilst cost savings can be achieved, at the same time, the services of the provider are also about the provider’s depth of resources and knowledge that an internal department might not otherwise have. And the cost savings achieved for the lower-end work could then be allocated to access knowledge and skillsets for adding value. Financial outsourcing could reduce labour costs such as hiring IT and accounting staff and the financial risks and scheduling risk of additional HR costs, including vacation, benefits, overtime, maternity and paternity, etc.
Avoiding financial risks
Professional financial outsourcing firms follow strict and professional service standards when conducting financial outsourcing work. They have professionals who are experienced in handling various accounts and can be objective but effective in the delivery of useful financial information. Outsourcing services can reduce risks and improve the accuracy and authenticity of accounting and tax-related information. Compared with outsourcing and internal accountant or tax professionals, outsourcing would be less risky and have better quality, where a company has limited resources. Then there are the risks of compliance.
A classic risk can be seen with domestic businesses being highly dependent on the government for taxation. The domestic tax system is very complex and always has high compliance requirements with short deadlines. This results in increased costs for the business to accommodate and even higher costs for violating the regulations. As it is difficult for businesses to find proficient employees in tax affairs while also being expensive to maintain, the risks and hassle can be reduced by seeking financial outsourcing services.
Better manage human resources
Financial outsourcing can not only reduce costs but also enhance HR management. Due to the segregation of duties requirement of a financial department, many roles should not be mixed up, e.g. cashier should not also simultaneously take on the accountant’s position, hold the chops and seals, etc. On the other hand, financial software and operations and maintenance also require support from IT staff.
In summary
Where a small business in China, be it an SME or start-up, might only afford one person to do everything, those who outsource, obtain a team with a depth of skills, multiple points of contact, proper segregation of duties and internal controls, processes, procedures and systems. Furthermore, they can enjoy clear and up-to-date information on changing regulations, management reporting, local compliance reporting, tax compliance and planning, and expertise in accounting and business in China.
How Acclime can help
What businesses need in China is the peace of mind that their financials are accurately and truthfully being kept while complying with all new regulation requirements from the minor changes to the complete overhauls as seen in 2019 with Individual income tax.
Upcoming changes are on the horizon, such as the obliteration of the fringe benefits for expats in China and further regulation changes for industries in China like a dose of the education sector. Acclime’s international accountants have decades of helping businesses from in and out of China keep operations running through all kinds of market situations.
Furthermore, Acclime can provide such review services in many other countries across Asia. Get in touch today for a free consultation with our experts by sending an email to infochina@acclime.com.
