The Pros and Cons of Outsource Accounting for SMEs in Singapore

Let’s face the truth. Why will a business owner like yourself wants to spend thousands of dollars a month to employ an accountant? I am not being cynical but well, realistically business owners are profit seeking.  More often than not, it is more financially viable to engage a professional firm to avoid high cost to build an in-house capability. 

You may wonder: what is the price difference of a small accounting team that you build in house compared to that of outsourcing this function? This cost savings can range from S$1,000+ to S$5,000+ or more per month! That is well, a good S$10,000 to S$60,000 a year! Certainly, a thick stack of spare cash?

Rising costs, data accuracy and the pure hassle of punching numbers. That’s roughly the top 3 reasons a business owner will face when their business reaches a certain scale. As small and medium-sized enterprises (SMEs) in Singapore continue to navigate a competitive business landscape, many are considering outsourcing accounting functions as a strategic move. As an accounting firm, we maintain a highly level of ethics and objectivity. So here we present you with the Good, the Bad and the Ugly of outsource accounting in particular. (Ok, its just the pros and cons of outsource accounting for SMEs, nothing too ugly.)

Pros of Outsource Accounting

1. Cost Savings

   
   

By outsourcing accounting functions, SMEs can save on general and administrative overhead costs associated with hiring full-time staff, such as salaries, benefits, and office space. For instance, instead of employing a full-time accountant with an average salary of SGD 4,000 to SGD 6,000 （A fresh graduate salary is around the range of S$4,000 to S$4,500 based on the latest Graduate Employment Survey[1]）per month. You will also be required to contribute CPF, AWS (if any), Fringe benefits, Office space and equipment for your employee. 1 full time accountant with minimal experience can easily set you back by approximately S$6,000 – S$7,000 depending on seniority. A small business can save up to 35% to 60% approximately if one were to engage a professional accounting firm.

2. More expertise for less cost

   
   

Outsourcing provides SMEs with access to a pool of experienced accountants and financial professionals. This expertise can be particularly beneficial for navigating complex and ever-changing regulations in Singapore, such as GST compliance or the preparation of financial statements. Not even seasoned accountant can claim to know all aspect of accounting, taxation and other compliances. For example, a lesser-known fact, do you know if you claimed GST from IRAS on vendor invoice, and did not make payment to the vendor within 12 months, you have to refund IRAS the GST!

That’s why professional firm has a pool of specialized team to manage the different aspects of service segment, offering much more value at a lesser cost.

In addition to providing professional services, accounting services firm usually have multi-dimensional services which allows you to tap on their expertise in different area. For example, an outsource accounting service provider may also have knowledge in corporate income tax or cross-border tax solutions which he/she is likely to share with you. Some service providers also offer other services such as compliance, HR consulting and even general business consultancy. Depending on each accounting firm, most of them would be more than happy to provide you some form of goodwill consultation or advice to value-add to its existing service package. At OakTree Accounting and Corporate Solutions, we offer complimentary consultation to our existing client should they require additional information on other field such as grant application or general HR queries.

3. Focus on Core Business Activities

Overwhelmed by non-business driving functions such as reconciliation of your accounts, receivable management and performing administrative finance task? It is time to delegate your duties to a trustworthy team instead! As business owner or key-appointment holder, it is integral for you to focus on activities that are business drivers such as business development, product improvement or networking. Be it more free time or cost savings from outsource your finance and accounting function, these previous resources can be redirected to areas that requires attention or simply develop new business opportunities. 

4. Accuracy and compliance

Working with a professional accounting firms are likely to raise the bar of your firm’s compliance standard and also accuracy. As mentioned in point (2), it is highly likely you will have at least a team of 2-3 to oversee your portfolio. This translates to a more reliable financial report and also ensure business comply with statutory requirements. It is surprising that a significant portion of companies are still late in their business filings, tax submissions or other compliance matters which often results in unnecessary fines or penalties. A professional service firm is expected to be well-versed with the changes in the industry and thus, advice you accordingly to comply with these changes to prevent any hiccups or outdated knowledge.

5. Scalability and Flexibility

   
   

As a business grows, its accounting needs may change. Outsourcing allows SMEs to scale their accounting services up or down based on current requirements. For instance, a seasonal business can adjust its accounting services during peak periods without the commitment of permanent hires. In other cases, some businesses may be project based and will see the rise of transactions and complexity solely during this phase. Depending on industry, some may last a few weeks to a few months while other maybe be slightly longer such as over a year. Working with an accounting firm will allow you the flexibility to scale due to such seasonal fluctuations.

Business may engage such outsource company for seasonal financial work such as yearly tax filing, quarterly GST filing or even monthly payroll services as the scope are usually seasonal or is not cost efficient to hire a specific employee just for that purpose. SMEs can also take advantage of engaging professional firms for very specific projects such as Tax planning, Operations Restructuring and HR Consulting.

6. Enhanced Technology and Tools

Many accounting firms utilize advanced accounting software and tools that may be too costly for SMEs to implement independently. A business could benefit from sophisticated financial reporting tools, which can provide insights into profitability and cash flow management without the upfront investment.

Most accounting firms not only adopt accounting software but also are trained and certified in the usage. By engaging in their service, an SME is indirectly raising the quality of the deliverables. The use of software will also enable SMEs to keep track of metrics or figures that they deem important. By communicating with the professional firms, reporting requirements can be arranged to ensure timely internal reporting that facilitate management monitoring and decision making.

With cloud accounting gaining popularity in the recent decades, more professional accounting companies do provide cloud accounting services. That being said, business owners or stakeholders can easily grasp key information directly from the software. This also aid greatly in decision makings and increase the nimbleness of SMEs when coping with business changes or opportunities.

Cons of Outsourcing Accounting

1. Communication Challenges

   
   

   Effective communication is crucial for successful outsourcing. If the accounting firm is located overseas, time zone differences and language barriers could hinder collaboration. A Singaporean SME working with a firm in a different time zone may experience delays in responses and vital updates, potentially affecting business operations. There might also be an increase need for an SME to communicate effectively and select an accounting firm which is seeks to understand each client’s business needs.

   
   

2. Data Security Risks

   
   

   Sharing sensitive financial data with an external provider can pose security risks. A SME must ensure that the outsource accounting firm has robust security measures in place to protect against data breaches or unauthorized access. Failure to do so could lead to financial loss and damage to the company’s reputation. Always check the credentials and accreditations of the accounting firm that you select. For Singapore, the accounting and professional industry is well regulated hence Data Security risk despite being present is still considerably remote.

   
   

3. Costs for additional services

   
   

   While outsourcing may initially seem cost-effective, do be clear of what is included in the service agreement. It is highly recommended to document the service scope clearly to prevent any misunderstanding with regards to what is required from the service provider. Do select a trustworthy firm to work with to prevent unnecessary miscommunication when it comes to job scope.

   
   

4. Service Quality

   
   

   This is a hard truth. Not all professional firms are built equal. Within the industry itself, there may professional firms who are niche in certain areas but may lack experiences in other. Do understand and speak to firms who value and seek to understand their clients, are honest about their capabilities and have the necessary credentials to execute the required services be it service accounting, taxation or consulting projects.

   
   

Conclusion

For SMEs in Singapore, outsourcing accounting functions can offer significant advantages, including cost savings, access to expertise, and the ability to focus on core business activities.

Depending on the size of each SMEs, the cost savings could be significant especially with increasing manpower costs. Based on current market rates, building an in-house team will require significant costs. Although there are significant cost savings from outsourcing, many companies that we worked with expressed that an increased quality of work and expertise are equally important factors that justify their decision. 

Ultimately, the decision to outsource accounting should align with the SME’s overall business strategy and goals. Conducting thorough due diligence when selecting an accounting partner and establishing clear communication channels can help mitigate risks and maximize the benefits of outsourcing. Engaging with a reputable accounting firm can provide the necessary support and expertise, enabling SMEs to thrive in a competitive market.

After hearing so much, perhaps it is time to make a decision!

You can either:

Leave this page and think about it, or:

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DISCLAIMER: The views and opinions expressed in this article are those of the author and do not necessarily represent the views and opinions of any individuals or organizations with which the author may be affiliated, either in a professional or personal capacity, unless explicitly stated.

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[1] https://blog.seedly.sg/graduate-starting-salary-nus-ntu-smu-sutd-sit/