Many entrepreneurs start their companies with a meager amount of capital. It is a big challenge to run the company for the initial couple of years since not much of business happens during that period. The company will have to manage its working capital with the few business orders that it receives.
In this kind of a situation, many companies will not be able to afford to appoint experienced accountants and HR managers. Hence, the entrepreneurs themselves will do these (of course, not in a systematic way, but to their level best). But since they need to spend time on developing their core competencies, it becomes difficult for them to take care of the back-end processes.
Need for Outsourcing:
Therefore, most of them outsource their back-end processes to save costs and time. At the same time they also would require their accounting and payroll to be managed by a professional so that the company’s financials are accurate at any point in time.
Below is a comparative study with respect to outsourcing of back-end processes which talks about the main reasons as to why small and medium enterprises choose to outsource their accounting, payroll and statutory compliances.
The case with large corporations is slightly different. These companies will require a dedicated accounts department for various reasons such as co-ordination between various departments, weekly budgets, periodical MIS reviews, etc.
The management might require various reports to be generated from time to time which will be difficult in the absence of a dedicated accountant.
Moreover, large companies can afford to have their own accounts department and HR department.
In such cases, the management needs to think of whether the in-house departments are functioning in a proper way. Hence, it becomes essential to appoint an external expert to do an internal audit to ensure that systems are in place, functionalities are good, compliances are proper etc. This effort will enable the organization to avoid heavy damages, penalty, interest etc occurring due to the inefficient delivery of the in-house departments