The real cost of outsourcing your compliance work

If your firm outsources its compliance work, you are in the majority. Between 60 and 65 per cent of accounting practices in Australia and New Zealand do the same, and for years we were one of them.

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For most of that time, it was the right call. We accepted the trade-offs because there was no better way to get the work done. That is the part that has changed, and it is why the case for outsourcing is worth looking at again.

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I am a chartered accountant with two accounting practices of my own. We recently hosted a webinar, The Real Cost of Outsourcing Your Compliance Work, to talk through what outsourcing actually cost us, and what we do differently now. This blog shares the main points.

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Why outsourcing made sense

When we started, outsourcing made complete sense. Wage costs were climbing across Australia and New Zealand, and good accountants, bookkeepers and administration staff are hard to find. Outsourcing let us move to a fixed price model and limit our exposure to what staff were wanting to be paid.

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The per job cost looked unbeatable. For most outsourcing, and this is separate to an embedded offshore team, the fee sat between 20 and 25 per cent of the fixed price on an annual compliance job. The original promise was that it would free up our senior team in-house to do more advisory work.

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So it all made sense when we started. And at the beginning, it did.

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The cost the invoice never shows

Then a few problems started to creep in. We were still getting swamped by compliance work, picking up jobs and putting them down, making adjustments and waiting a couple of weeks for them to come back. It got harder as time went on.

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Work would return and things stopped flowing seamlessly. Our seniors were getting drawn into the big journals being created and the balances being written off, and we could not always get to the bottom of them. So we reworked them, and that cost the firm money.

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The full cost of the job was always higher than that fixed fee, because we had to add a layer of senior labour on top. The waiting added to it. A job could take two weeks, it could take four, and a query answered overnight across time zones slowed everything down.

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Quality was the other issue. Our first year of outsourcing started off well. The next year, we seemed to be allocated a less skilled team member, and the work was not up to scratch. I have heard the same from several accountants recently, so I know we were not alone. In all honesty, I was getting less and less satisfied with the quality of the work and the outsourcing model, and I knew something needed to change.

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What has changed

For a long time, we accepted this cost because there was no better way to get the compliance work done. That is what has changed.

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My honest view is that in three to five years, most accountants will have a solution like this in their practice, whether they like it or not. When there is a real alternative, outsourcing is no longer the only way to get a compliance job done.

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For us, that change has already happened. My team have been using Abby in my practices for 18 months. She prepares the work papers, and the staff do the review and advisory now, not the compilation. Capacity has come back week to week, the team are less stressed, and they are spending more time with their clients.

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Run the numbers on your own firm

Before you decide anything, work out what outsourcing is actually costing you. In the webinar we shared a simple calculator built to do exactly that.

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Take an annual job you charge $3,000 for, with outsourcing at around 25 per cent, and a practice doing about 20 jobs a week. On those numbers, the weekly outsourcing cost comes to $15,000, and over a year it adds up quickly.

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Run your own outsourcing spend, your review hours and your per job cost through it, so you can see the full cost per job, not just the invoice line. Then ask yourself one more thing. If that time and capacity came back to your firm, what would your role look like? More advisory work, more compliance, or becoming the AI expert in your practice?

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Final thoughts

Outsourcing was the right decision for its time, and for many firms it still feels like the safe one. But it carries a real cost that the invoice never shows, and the reason most of us accepted that cost, that there was no better option, no longer holds.

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You do not need to change anything today. Run the numbers on your own firm, look at the full cost per job rather than the fee alone, and do it now, rather than in a few years when the profession has already moved.

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If you would like to see what outsourcing is really costing you, run the same calculator or book a demo to see how we work now.