Finance outsourcing: the next wave of transformation

With CFOs increasingly expected to act as change leaders within their organisations, outsourcing finance functions could be critical to business growth
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The business landscape is one defined by change. To remain competitive, organisations need to be willing to adapt and evolve and never has there been a more apt time for chief financial officers to demonstrate their mettle.

An undesirable combination of recession, high inflation and a talent shortage has put finance teams in unchartered waters. Against this backdrop, the CFO - once the cornerstone of bookkeeping and compliance - has emerged as a key strategic partner, expected to drive business decisions and deliver growth.

Ian Halliwell, marketing director at financial software solution firm Xledger UK, says: “Traditionally, the role of CFO was a retrospective one, responsible for reporting historical financial performance and maintaining the status quo … to survive and thrive in this challenging environment, CFOs now need to develop a forward-looking view to identify potential risks and capitalise on opportunities. Real-time data will be essential in enabling CFOs to achieve this.”

CFOs must demonstrate an ability to respond quickly to change, whether it is new regulations, entering a new market or adopting new business models. Fortunately, advances in technology and data can provide the tools to empower CFOs and their wider teams to make informed decisions at a pace that would have previously been unthinkable.

However, it is not simply a matter of gathering data but understanding how to leverage that data to assess risks and opportunities, spot areas that need attention and provide context to decisions.

“Mid-market businesses often face challenges in gathering data and the insight required to scale their business at pace and remain competitive. Outsourcing the finance function enables businesses to run leaner, more efficient finance departments and frees CFOs to focus on more strategic roles,” explains Halliwell.

CFOs now need to develop a forward-looking view to identify potential risks and capitalise on opportunities

Over the past decade, international markets have widely adopted accountancy services. Xledger UK, which began its operations in Norway over 20 years ago, says forward-looking businesses in the UK are now following suit.

“The arrival of cloud-based technology has made a huge difference. It unlocked the market by bringing a whole new dimension of flexibility to finance management,” says Xledger Group CFO Knut Rønning, commenting on the Norwegian market’s evolution. “Remote and secure access to data, coupled with sufficient complex functionality to support mid-market organisations’ specific needs, meant that new opportunities opened up to CFOs needing to support the transformation of their business and design new processes,” he continues.

On top of resources and competencies, Rønning explains that this also provided accountancy partners with easier access to insights, allowing them to add “a new kind of value to their customers … through real-time reporting and analysis.”

Many businesses are navigating a talent shortage in finance leadership positions. Data published by the Institute of Chartered Accountants revealed a 36% decline in accountancy applicants year-on-year between June 2021 and June 2022.

It is a challenge that Simon Rowe, partner at accountancy firm Milsted Langdon, says has become all too common. But a widespread shift to remote working has precipitated the trend towards outsourcing and presented firms with a new opportunity to transform their financial capabilities.

“Prior to the pandemic, there was a tendency for firms to keep their finance function in-house, but the events of the past few years have demonstrated how effectively and successfully finance functions can operate remotely,” says Rowe. “Firms which previously felt that outsourcing to accountancy firms was the reserve of larger businesses are increasingly recognising that the same technology is accessible to them,” he adds.

When waters are calm, businesses may be able to “fumble their way through”, but through uncertainty, economic difficulty or when the prospect of a new project or merger and acquisition arises, CFOs will be called upon to provide meaningful context around financial performance to senior leaders and stakeholders.

Outsourcing is revolutionising finance departments with the added benefit of third-party knowledge, an undeniable boon in today’s complex landscape.

Rowe concludes: “If a business only has in-house capabilities, the only business they know about is their own. Using an outsourced system enables CFOs to tap into much broader industry knowledge and experience.”

Q&A: The CFO evolution

Simon Rowe, partner at Milsted Langdon, discusses how accountancy services are reshaping the finance function

What is at stake for CFOs today?

We are living through incredibly challenging economic times. CFOs face a host of different pressures, including finding the right people. A lack of training over the past 5 to 10 years means the finance sector is now contending with a shortage of skilled talent and data know-how.

Following the pandemic, we saw a huge differentiation in the financial health of businesses. Some have acquired significant cash reserves, while others are struggling. For the former, there will be a huge opportunity over the next 18 to 24 months to expand their operations, enabling CFOs to use their unique position to build new capabilities and create value. Increasingly, finance teams will need to be skilled in harnessing technology and data at speed, adapting forecasts and providing scenario modelling.

How important is it to be ahead of the curve?

In a competitive market, businesses will undoubtedly benefit from first-mover advantage. CFOs need to be able to unlock value and drive innovation at scale. Outsourcing accountancy will be at the heart of this.

We help clients to spot opportunities that may not be visible through legacy systems and make proactive decisions. If companies fail to use the right data and, more importantly, fail to connect the dots and understand how to use that data to grow the business, it poses a very real risk to the future success of the business.

Why has Milsted Langdon partnered with Xledger UK?

We wanted to be closer to our clients and understand their businesses better. Often accountancy can be fixated on past events and performance, but we want to be in the current. There was a real synergy with Xledger UK. It’s important that our clients have all the data at their fingertips and that this data is easily accessible. When we built our outsourcing division, DG Finco, we wanted to partner with a software provider that could enable us to achieve this. That’s why we chose Xledger.

Firms hear the word ‘outsource’ and think it means it will disappear offshore and that they will lose control of their finance … but the opposite is true. We aim to make that knowledge more accessible, not less. We are there as a partner and a guide and have the industry knowledge and experience to help businesses grow.

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