Offshoring vs Outsourcing: Which Solution is Right for Your Accounting Firm?

Accounting and CPA firms continually seek ways to streamline operations, enhance efficiency, and maintain a competitive edge. Two popular strategies that have gained traction and are now the go-to strategies for CPA and accounting firms are offshore staffing and outsourcing. Offshoring vs outsourcing, both approaches offer distinct advantages, but understanding the nuances of each is essential to making an informed decision for your accounting firm's growth and success.

While it's commonly assumed that outsourcing and offshoring are interchangeable terms that signify the delegation of tasks to external parties, this oversimplification needs to be more accurate. It's correct that remote work is a shared characteristic in both approaches, but the realities of accounting outsourcing and offshore staffing diverge significantly, each embodying its own distinct business model. Offshoring vs outsourcing has been an ongoing argument for accounting and CPA firms for some time, but considerations must be taken beyond the terms themselves.

For accounting and CPA firms thinking about expanding their workforce, knowing whether outsourcing or offshoring aligns better with their firms' needs becomes pivotal. So, what exactly differentiates accounting outsourcing and accounting offshoring?

Defining Offshore Staffing and Outsourcing:

There is no doubt that firms must streamline their procedures and eliminate any extra steps. Accounting can be made more affordable and less onerous by offshoring and outsourcing. But before we go into the offshoring vs. outsourcing argument, let's look at some significant distinctions you should be aware of while making your decision. 

What is Offshore Accounting?

Offshore staffing for accounting firms involves hiring skilled professionals located in different geographic regions to become a part of the in-house team. These remote team members work exclusively for the accounting firm, adhering to their policies and procedures. This model offers the advantage of having dedicated staff members who align with the firm's culture and goals. Offshoring means the work is done outside of the host country.

What is Accounting Outsourcing?

Outsourced accounting, on the other hand, entails contracting an external service provider to handle specific accounting tasks or processes. These tasks can range from bookkeeping and payroll to tax preparation and financial analysis. Outsourced accounting services allow firms to leverage the expertise of specialized providers or professionals, reducing the burden on internal resources. Accounting outsourcing can be done locally or internationally, offering firms a flexible and effective way to optimize operations and achieve cost savings while focusing on core business strategies.

Top Benefits of Offshore Accounting

Cultural Alignment: Offshore staff members can be integrated into your firm's culture, leading to better collaboration and communication.

Data Security: Since offshore staff works exclusively for your firm, you have greater control over data security measures.

Flexibility: You can scale your offshore team according to your firm's evolving needs.

No Infrastructure Costs: Accounting firms can optimize resource allocation and prioritize strategic initiatives over infrastructure expenses.

Provider covers benefit costs: Firms don’t need to pay for benefits such as health insurance, retirement plans, or paid leave as the offshoring partner covers this.

Save on HR & Overhead costs: Offshore staffing for accounting firms significantly trims HR costs—recruitment, training, and overheads—enabling accounting firms to redirect savings into more impactful investments.

Easy Scalability: Offshore staffing solutions allow accounting firms to scale quickly depending on seasonal increases or decreases of work.

Reduce Workload on Onshore Team: By delegating routine and time-consuming tasks to offshore staffing professionals, the onshore team can concentrate on strategic and high-value activities, leading to innovation and creativity within the core team. Hiring and retaining staff in CPA firms also increases as the onshore team's burden reduces.

Top Benefits of Accounting Outsourcing

Cost-Efficiency: Outsourcing can reduce overhead costs associated with hiring and training in-house staff.

Access to Expertise: Outsourcing gives you access to professionals with specialized skills and experience in various accounting domains.

Focus on Core Competencies: By delegating routine tasks, your in-house team can focus on high-value tasks that drive your firm's growth.

Prevent Unnecessary Hiring: There's no requirement to recruit additional team members for accounting services without reason. Outsourcing partners will offer comprehensive accounting and bookkeeping services, effectively saving you the effort and time of additional hiring.

Outsourcing vs Offshoring: Deciding the Best Accounting Model

Nature of Tasks: Evaluate the specific accounting tasks you need assistance with. If they are routine and standardized, outsourcing might be suitable. For more complex tasks requiring close collaboration, offshore staffing could be preferable.

Data Sensitivity: Consider the sensitivity of the data involved. Offshore staffing may provide better data security if you're dealing with highly confidential client information.

Resource Allocation: Assess your firm's current resources. It might be a viable option if you have the infrastructure to manage an offshore team. Otherwise, outsourcing can offer a seamless solution.

Budget: Your budgetary considerations will play a crucial role. Offshore accounting services might have higher initial costs, but it provides long-term value. Outsourcing, meanwhile, offers cost savings in the short term but there’s more to it than that.

Navigating Risks and Controversies in Outsourcing vs Offshoring

Offshoring and outsourcing have become focal points of both criticism and discourse, particularly within the political arena. Detractors, including politicians and displaced workers, often point fingers at offshoring as a harbinger of job displacement.

When anyone talks about outsourcing or offshoring the first criticism you hear is “they’re sending jobs overseas” or the classic “they’re stealing our jobs”. However, economic experts have concluded that offshoring plays a role in cost reduction for companies, fostering benefits that cascade down to consumers and shareholders. In fact, when speaking to firm owners who have implemented either of the strategies, they will highlight that their onshore team is now happier and more productive as they can upskill and focus on more value-based work. Thereby driving growth and prosperity for the accounting firm and its employees. And in a rapidly globalizing world, seizing these opportunities is essential for accounting firms.

However, it's crucial to acknowledge that offshoring does come with its share of risks. Chief among these is the potential for project failure, fueled by inadequate communication. Furthermore, the impact of civil or political turmoil should be considered. Governments might alter economic policies without notice to appease the public, thereby introducing unwarranted constraints on multinational corporations.

The limitations of the host country's underdeveloped infrastructure can cast shadows over the quality and punctuality of outcomes. However, India and the Philippines' leading accounting outsourcing and offshoring countries have dramatically upgraded their technical and physical infrastructure to ensure seamless integration and efficiency. These countries are now on par with their western counterparts. Regarding offshoring vs outsourcing, India and the Philippines are prime contenders.

The outsourcing landscape, although sharing common benefits with offshoring, traverses its own distinct set of challenges. One fundamental divergence lies in the political criticism spectrum. Unlike offshoring, outsourcing within the same country generally sidesteps accusations of job loss. Risks related to outsourcing often can be traced back to the accounting partners limited grasp of the client's requirements. Misalignment of long-term business goals between the firm and the partner can pose a risk. However, this can easily be avoided by establishing clear expectations from the start of the relationship.

Data security is another risk that can easily be avoided but should be considered. CPA and accounting firms should thoroughly research their outsourcing or offshoring provider, confirming they have adequate certification and compliances, such as SOC type 2, ISO 270011, and GDPR. Any reputable provider will have these in place and will be more than happy to explain how they maintain data security.

Recognizing the nuanced factors influencing offshoring and outsourcing will empower accounting firms to make informed decisions, ensuring their growth and resilience in an ever-changing global economic landscape.

Conclusion:

In the dynamic realm of accounting, making the right strategic decisions can significantly impact your firm's success. Offshore staffing and outsourcing are powerful tools that enhance your firm's capabilities and competitiveness. Choosing between them hinges on your firm's unique needs, goals, and resources. By carefully evaluating the nature of your tasks, data security requirements, resources, and budget, you can determine whether offshore staffing or accounting outsourcing is the ideal solution for your accounting firm.

FAQ’s

1. What is the difference between outsourcing and offshoring?

Outsourcing involves transferring operations to a third party, which can occur within the same country or internationally. On the other hand, offshoring exclusively takes place outside the country or its primary location. In offshoring, accounting firms essentially create an extension of their current team that is based overseas so as to tap into a larger talent pool and capitalize on the cost of labor.

2. When to outsource or offshore?

When an accounting firm wants to scale up and offer its clients more value, it should consider outsourcing or offshoring. Most firms feel the right time to hire offshore or onshore staff is when they have a seasonal rush, such as a tax deadline. However, offshoring and outsourcing should be implemented as a long-term strategy that utilizes a global workforce allowing your firm to grow while keeping costs minimal. To properly understand when to offshore, check out our recent blog, "Offshore Accounting Guide: Services, Pros, Cons, & Leading Providers."

3. What is the risk of outsourcing accounting?

The most significant concern associated with outsourced accounting is entrusting your clients highly sensitive business and financial data to individuals on the opposite side of the globe.

4. Why did the firm start offshore accounting?

• To scale up or down as needed
• To gain flexibility according the firms needs
• To gain access to a global talent pool
• To reduce operating costs
• To allow onshore staff to focus on more value-based work
• To reduce onshore staff workload and prevent burnout
• To address skill shortages
• To gain access to better processes, tools and technology
• To have a back up plan in case of emergencies
• To stay competitive
• To have access to better business intelligence

Entigrity™ is a trusted offshore staffing partner to 725+ accountants, CPAs, and tax firms across the US and Canada. Our flexible and transparent hiring model gives helps firms of all sizes to hire staff for accounting, bookkeeping, tax preparation, or any other task for 75% less cost. As a firm 'run by accountants, for the accountants,' Entigrity captures the hiring needs of accounting firms most precisely, providing staff that works directly under your control and management; still, you are left with the least to worry about compliance, payroll taxes, overheads or any other benefits. Let's have a quick call to explore a tailored solution that fits your requirements.