Which outsourcing engagement model is right for your accountancy practice?

As your accounting practice transitions toward using outsourcing services to increase capacity and profits, which engagement model suits your requirements? Should you move toward a Full-time Equivalent (FTE) model, a Block of Hours model, or an Ad-hoc model?

To find out, we spoke to Dishant Desai, Global CEO of QXAS. He is an FCCA and Xero certified accountant with experience in practice. He has been involved in the UK accountancy sector since 2003 and has over 10 years of experience providing outsourced accounting and bookkeeping services to 275+ UK accountancy practices from our four offices in India.

Here are some excerpts from our Q&A with Dishant.

Q. What are the advantages/disadvantages of the FTE model vs Ad-hoc model vs Block of Hours model?

A.  Dishant: All three models use the same infrastructure for us to complete the work. Either we remotely login to our clients’ computers using virtual technology like VPN/RDP/Citrix/GoTomyPC or our clients scan all documents into our secure FTP portal for the India team to complete.

Block of Hours

The Block of Hours Model is the most popular amongst our clients. The upside of this model is that you can buy pre-paid blocks of hours (general 1200, 2400, 3600 annual hours), and as the hours are delivered they are deducted from the total number of blocks purchased. This gives you complete control over the work you have outsourced. I recommend this model to accountants and bookkeepers who have small to medium volumes of work, or where the scope of work can’t be clearly defined.

The only drawback of this model is that hours elapse if you don’t use them within the agreed period of time.

FTE Model

A full-time employee (FTE) is when you hire a dedicated bookkeeper or accountant with an overseas provider at a fixed fee per month. It is our second most popular model, after Block-of-Hours. From a resourcing perspective, I recommend this model the most.

This is because talent needs are shifting in the accounting industry with the arrival of cloud accounting. Take for example, Making Tax Digital. Accountants now need staff at the front-end who can see the bigger picture and are comfortable with technology.

The only way to respond to this change is by training and upskilling existing staff. But you can’t ignore the compliance work as it is the foundation of any small to medium accountancy practice. So what do you do? Should you cultivate the talent you will need five years from now, or continue to keep existing staff tied up in compliance work as that needs to be delivered too?

This is where the FTE model comes in– it supports your core group of staff in the UK by completely taking over the lower-level tasks like accounting, bookkeeping, payroll and tax. Using an FTE model, you get immediate access to talent with highly coveted compliance skills. Many of our clients complement their in-house staff with QXAS staff so they can focus on developing their practice or have their senior staff spend more time on building client relationships.

The good thing about the FTE model is that it removes the hassle of recruiting and retaining staff. Turnaround time is generally better than you can deliver in your practice yourself, plus there is this added advantage of it being up to 50% cheaper than hiring an accountant in the UK.

The only downside is that if you don’t have standardised processes and a measurable service-level requirement, you will not be able to make the best out of this model. I always recommend this model to accountancy practices that have a large volume of work and who want to immediately scale their teams as per their requirements.

Ad-hoc model

The Ad-hoc outsourcing model is also popular amongst UK accountants and bookkeepers. You basically use the services on a pay-as-you-go basis and pay only for the number of hours you use. It is a great model if you have short-term workflow issues, meaning you have too much work but not enough staff. If can also be good if you have an immediate need to get work turned around, especially for seasonal times such as the busy season.

Most of my clients use this model to fulfil seasonal requirements or when they can’t ascertain the amount of work they need to outsource. I won’t recommend this model if you want a dedicated resource as the staff member working on your accounting work also simultaneously works on different practice’s work. The downside of this model is that it can cause issues if the cost of the job exceeds the estimated time.

Having said that, though, the ad-hoc model is often used by our clients when they are first starting out, but as their practice grows they generally move to the dedicated full-time employee (FTE) or Block-of-Hours model.

Q. Is the FTE or Block-of-Hours model the future of Accounting or the Ad-hoc model?

A. Dishant:  I really believe that both the Full-Time Equivalent (FTE) and the Block-of-Hours model (both provide dedicated resources), is the future for accountants. Two things drive my belief: the workforce is aging out, and we have more and more millennials at a senior level in accountancy businesses. Accountants who are now in the mid-30s are tech-savvy (as they grew up with technology), and they want to provide tech-based solutions to their clients. They are more ambitious and won’t be motivated to stay masters at compliance work.

The second factor are the ‘type of clients’ that work with accountants. As accounting services become more commoditised, your end-clients are looking for more than compliance services. They are looking for insight and analysis beyond basic compliance. As accountants move along to the changing landscape they need to add more value to clients. They need to focus more on client relationships and leave the compliance work to someone like QXAS.

Outsourcing of compliance work is driving efficiencies that is saving our clients months of employee hours. Most of our clients are now focused on working smarter, not harder. The more efficient their compliance work, the less time spent on admin. This frees up their time to drive more value to their clients.

Q. What kinds of accountancy practices should consider either of the outsourcing models?

A. Dishant: I think all ambitious accountants should consider either the Block-of-hours or the FTE model. I think there’s a misconception that you should use outsourcing when you have seasonal requirements. On the contrary, you should look at augmenting your in-house staff with outsourced staff. Technology is going to play an even bigger role in the years to come. I ask you to ask yourselves: Is your current technology portfolio up to the job? If not, what are the gaps?

I think the best thing is to revaluate your practice’s operating models. Okay, let’s think of your current accountancy practice like a triangle: a small group of partners/leaders/owners sit at the top, senior management personnel in the middle, and a wide base of production staff delivering compliance work. My question is: What if you are able to change it to a diamond model, one where you have roughly the same number of production staff but now augmented by an outsourced team. Does this allow you to create better career growth for your in-house production teams? Can you move them up the lander? Will it help you retain them longer, which in turn will reduce your hiring costs? Will outsourcing bookkeeping and accounting services to an overseas provider allow you cultivate the talent you need in five years?

With the accounting industry facing big changes on almost every front, it’s difficult to imagine your practice being successful over the long-term without you making fundamental changes to the way you operate. Hiring Full-time Equivalents (FTE) in offshore locations as an extension of your team will likely play a big role in facing those challenges.

Get a top quality service for either model

Hopefully you now have a better idea of the differences between the three engagement models, and which one is best for your practice. It’s up to you to choose the model that best fits your needs. There are no right or wrong answers, just preferences.

Regardless of which offshore bookkeeping/accounting service model you choose, QXAS can help you scale your teams, reduce costs and increase practice profitability. If you want to know more about how our engagement models can be put to work in your accountancy practice, book your 1-2-1 consultation or sign-up for a free trial.