Strategic application of Offshoring in a CPA Practice

Offshoring and outsourcing are headline news today. Both popular news sources as well as business news carry daily articles on the virtues and vices of offshoring. How does offshoring affect the local CPA firm? Let us state some axiomatic truths: Any business today needs to focus on its key competencies; The internet has made it possible for any job that can be done across town to be done anywhere in the world; US wages and overhead are substantially higher than costs in other English-speaking countries. Finance and accounting offshoring is growing 30% annually. So sooner or later the CPA has to deal with competitors who are offshoring and can undercut fees. Embracing offshoring creates profit in the short run as well as the long run.  Replacing one US staff accountant with offshore service saves nearly $50,000/year. Many people think of offshoring as just a way to reduce cost. However, this cost saving gives the CPA some strategic options: Invest in marketing to grow the practice; Invest in training to raise the skill level in the firm; Launch an outsourced accounting service based on the lower cost from the offshore vendor; Invest in new lines of businesses; Use the cost-saving to price the professional services strategically; Increase compensation to attract and retain a better staff. While the strategic uses take some time to become effective, CPAs gain immediate benefits from offshoring. Offshoring solves the vexing problem of recruiting and retaining staff accountants; Offshoring can and does deliver significant cost savings. There are two parts to this cost saving; There is the labor arbitrage factor which can deliver 50-70% cost saving. We estimate that the true cost of a US Staff Accountant is $34/hr worked.. When you consider that offshore vendors provide the same service for $10 ±/hr. the cost savings are obvious. We estimate that replacing one US staff accountant saves $47,000/year. The offshore accounting provider has significantly larger scale than a single local CPA firm. It allows them to invest in process improvements, systematic staff recruiting and training. It is not uncommon to see automation reduce the time required by as much as 90%. The CPA firm using an outsourced accounting provider can improve its quality and lower cost at the same time. The offshore accounting cost/quality becomes a benchmark for internal operations. All CPA firms face the 80/20 rule. 20% of their clients account for 80% of their income.  Lower cost offshore accounting services make the bottom 80% of the accounts far more profitable. Is an offshore accounting service right for your firm? Only you can answer the question. Dev Purkayastha (CEO, Indevia Accounting, Inc.) holds an M.B.A. from Harvard Business School and is a qualified Chartered Accountant.