Business Development

How COVID has strengthened further the business case for outsourcing Bookkeeping

The COVID pandemic has had a dramatic affect on many aspects of our daily lives. For businesses though some aspects of these changes are likely to have a lasting impact and may even become a new type of business as usual. In this blog we look at the arguments for why COVID has made the arguments in favour of outsourcing bookkeeping even stronger than pre-COVID.

The challenges of shifting from an office based role to Hybrid working or working from home.

The ease at which businesses have been able to adapt to hybrid or home working has varied greatly from business to business. Some firms didn’t have the technology in place to facilitate this, the quality of supervision and quality control / oversight varied greatly. These difficulties would be a problem for any role, but when it is in a crucial area such as finance and an area like bookkeeping then it can threaten the very existence of the business itself. Inaccurate information, failing to meet HMRC deadlines, losing a grip on cashflow and debtors, are all possible consequences. Outsourcing alleviates these concerns as it is the outsourcing organisation’s responsibility to ensure that none of these problems occur.

Over reliance on one person or a small team

Many businesses don’t have the luxury of a large finance team, relying instead on one person or a small team. When this person or a key part of a team is ill or the productivity, quality or accuracy of their work suffers, then it can quickly impact on the business. With an outsourced solution they have the responsibility of maintaining business as usual when somebody is off ill on holiday and their management structure will ensure service levels are maintained at the required level.

Difficulties in retaining staff or recruiting replacements

COVID has made it even more important that businesses retain key staff and where this is not possible recruiting has become more difficult than ever. Businesses that outsouce their bookkeeping don’t have this headache as it becomes the responsibility of the outsourced provider.

Wage inflation pressures

Labour shortages in many areas is leading to upward pressure on wages. For some businesses wages have had to be increased to improve the chance of retaining staff. For other firms they have found they have had to increase wages to attract recruits for vacant roles. With an outsourced solution these pressures have to be handled by the outsourced service provider.

COVID has sharpened the focus on the need for understanding a businesses performance and quality management information

Understanding how a business is performing, particularly around areas like debtor days and the relative profitability of different products or services has always been vitally important. A crisis such as a pandemic makes this even more important and can quite literally be the difference between a businesses failure or survival.

BookCheck are experts and specialists at providing outsourced booking with management information and payroll services. BookCheck can provide an extensive list of references that are testament to the quality and the reliability of their services. If you would like to find out more about BookCheck’s services or you would like to contact our team to find out how we can help then you can visit our website

What Good MI looks like

What Good MI looks like

In short it's quality information that allows you to make informed management decisions to improve the profitability and value of your business. Good implies that it meets your individual requirements, it’s sufficiently detailed but not too much and that you fully understand it – you own it. But it needs to be prompt – another ingredient of Good. It needs to tick all these boxes to be successful. 

Good does not mean it needs to be voluminous. Every user is different. Some will really benefit from some 40 pages, others will do much better with 4. Some love bar charts, some hate them - of course both can be provided. It's really up to you as an individual to work it out and then make your requirements known to whoever is producing the MI. They are your accounts – not those of the accounts producer. There’s nothing wrong in taking advice on what is Good – not every user is finically skilled. There is nothing to stop you being guided by someone who has the expertise so that you're in a position to understand and use the Good MI. 

Good implies that the information is sound. It's not good if it’s beautifully produced and prompt but not reconciled or wrong. So it’s crucial to take whatever steps are necessary to ensure that it is sound. This may include a quality health check. This is not difficult to organise - it’s just a matter of asking. 

An average user would list the following as possibly known information: 

•    sales
•    sales orders
•    what’s in the bank or not 

What most users would not know, which Good MI would provide, is:

•    a cash flow forecast for some months – to avoid problems
•    the gross margin percentage – so it’s measured then improved
•    the overheads costs – so it’s measured and then reduced
•    a quality P&L with comparison to budget / previous year – so profitability is boosted

Notice a pattern here? Measure the things that matter then you can determine what action you want to take and track progress. Do this and you are in control of your business performance and you are not just letting it happen.

A Good system includes management accounts that are of the quality of the year-end but produced soon after each month end. Some businesses have it, most don’t. Of course these reports need to include the gross margin % - much better when split between different sectors of the business. For instance, in BookCheck there are in effect two businesses. The first is bookkeeping with management accounts and the second is payroll with the auto enrolment. They are really separate businesses which is why we produce their own P&L reports each month. Not surprisingly they produce different margin percentages. Then when the margin changes we know which side has caused it. Otherwise it would be pure guesswork, which is worse than useless.

What it can do for your Business

The most important objective in your business is to ensure that you don't go bust or run into serious cash flow difficulties. So Good MI in the form of a cash flow forecast is a vital part of preventing such a disaster. This is particularly necessary in current times when businesses are regrouping after the pandemic. Many are growing rapidly, compared with say a year ago. Counter-intuitively this is a potentially dangerous situation because it's likely that such growth will cause a cash flow issue or crisis. Will there be sufficient receipts at the required time to pay the bills and your staff? It's absolutely critical that this is considered.

The second most important objective is to make as much profit as possible. That is somewhat different to increasing sales which is the automatic urge. Increasing sales is all very well as long as the focus is on profit. This of course assumes you know what the profit margin is of each project/contract or product or service – do you have this information? This is where Good MI really scores. Fixing this gap will probably be the most profitable step you could take.

There is a massive almost hidden benefit of Good MI which is not to be undervalued. It takes an enormous amount of pressure off management if the facts are known. Informed decisions can then be taken to improve. Otherwise it’s stressful trying to work out what to do which tends to result in an undue focus on increasing sales. 

It's really important to understand the effect on profits of changes to the selling prices, both up and down. In chasing sales it's very easy to assume that a reduction of say 10% in the selling price is going to be a good idea, because it will increase sales by more than 10%. This is horribly wrong as this example will show. Suppose your gross margin is 40%

sale units sale £ change sale each cost each profit each profit total
100    £10 £6 £4 £400
133 -10% £9 £6 £3 £400
80 10% £11 £6 £5 £400

 With a 10% reduction in selling price you would need no less than 33% more units of sale, just to stand still. Not attractive. On the other hand increase your price by 10% and volume can drop by 20% - far more attractive. Find your margin and play with the numbers. It surprises just about everybody.

An associated challenge with a lot of MI that it involves serious time from a director level or even an expensive FD in its production. This is a questionable use of such valuable time. With poor quality MI it's a double whammy. Good MI scores a double bonus here.

All in all an impressive list of the real benefits of Good MI – achievable by every business. If you would like to talk to us to see how we can help put Good MI in place for your business and put you on the road to better performance, please get in touch.