Secrets of Outsourcing -- Accounting Technology Magazine Article

The following article is a self-promotional handout created for Michael Block CPA, based on a much shorter article in Accounting Technology Magazine, plus a substantial amount of additional information supplied by Block. The article was revised, expanded, and updated by freelance writer David Citron. Accounting Technology Magazine retains its rights. See more examples of Citron's writing, including newspaper and magazine articles and software documentation, at Tech Writer info. Need a writer? Contact David Citron, If e-mailing, please make sure your subject line doesn't look like spam!

Secrets of Outsourcing (Based on an article by by Alexandra DeFelice in the September 2007 edition of Accounting Technology magazine, with additional information.) When one of Mike Block's largest clients sent in tax information on April 8, expecting his personal and corporate returns completed by the 15th, the CPA didn't have to stay up all night to complete it. He did stay at his storefront office until 2 AM, scanning in documents en masse -- some duplicated and some in the wrong direction! Then he instant messaged his Chartered Accountant in India with a new request: do what you can to put the documents together in a new OCR-searchable PDF file, in tax return order. This would then come back with the completed Intuit ProSeries file for the tax return. By 9:30 that morning the Chartered Accountant had done his job so well that Block finished the returns by 10:30. "That's when I realized there was just no substitute for work done overnight, when I was already dead and could barely scan, let alone calculate," Block says. "A Chartered Accountant in India prepared my most complex tax return 70 percent faster than expected, with 80 percent fewer errors, while I slept. Having up to ten assistants always ready to help us, any day or night, on short notice, is priceless." That was six years ago. Today, Fort Lauderdale, Florida-based BlockTax employs seven people in house and ten overseas, in exotic locales such as India, Pakistan, China, and the Philippines. The QuickBooks ProAdvisor owns one of a growing number of small firms taking advantage of international outsourcing to help lower costs and improve efficiency. This is especially good for QuickBooks users, as Block maintains that QuickBooks has become a universal language. "The dirty little secret is that the big auditing firms and corporations have been doing this on a gigantic level. It's the little guy who has not yet stepped into it," Block says. "Outsourcing lets accountants make friends precisely where our country needs them. And this is helping to end world hunger and promote world peace." "More of this type of outsourcing could make U.S. foreign aid programs absolutely unnecessary." "There's a very unjustified stigma to outsourcing, which relates to paying such low wages that it's horrible," Block explains. However, he reasons that many people around the world study U.S. accounting because they prefer the work environment, the pay, and the intellectual challenge of accounting, compared to what they get when working in factories, fields, or in other unskilled occupations. "There is little difference between how people decide to do accounting and other jobs in the United States and elsewhere. We all decide what to do, from among the choices we have." "I wished one overseas helper a happy birthday, after she had already been working for me for two years. She said, 'The best birthday present you could give me is more work.' They're doing this because it's the best job they can get. More of this type of outsourcing could make U.S. foreign aid programs absolutely unnecessary," Block says. "In terms of civility, eagerness, and overall respect, you can't begin to compare what you get out of the people I meet overseas, compared to what you get locally. I consider all my local employees my friends, too, but I sure do not have to ask them to stop calling me "Sir.'" Cheaper Labor The phrase cheaper labor conjures up the image of America's workforce losing jobs to their cheaper counterparts in other countries ($3 to $10 per hour, He automatically passes on most of his savings to his clients, by billing them based on much lower costs. compared to $12 to $40 in Block's case), a topic of heated political debates in recent years. But Block says every dollar he saves through offshoring allows him to hire more help in Florida. Plus, he automatically passes on most of his savings to his clients, by billing them based on much lower costs. They all know what he's doing and he hasn't lost a single client because of it, especially when he's cutting their fees by as much as half, while cutting the time jobs are in process and still saving money himself. Outsourcing also lets Block support clients in new ways. One example is a client Block converted from Sage Software's Timberline to QuickBooks Enterprise Solutions. This package can scale to 20 users but requires companies to be in single-user mode for certain functions. This client entered 3,000 inventory items, with 2,500 entered improperly. Every correction corrected a single-user error. "Changes would have had the system down for days," Block estimates. Instead, workers in India, 9.5 hours ahead of the East Coast, made the changes each night while Block's workers in Fort Lauderdale were home. Therefore, it didn't have to stop productivity by requiring them to exit the system. Block paid $10 per hour for 10 hours per day, for three to four days, and charged the client at his cost. Block's remote assistants often make single-user changes and other changes at night, for this client and for many other QuickBooks clients. "Clients really appreciate being able to work directly with our outsourced partners, instead of having us delay them" says Block. "Of course, we have programs and policies that simplify, document, and control all outsourcing work, for us and for our clients." These include the Skype instant messaging service, where Block is generally online as MikeBlock1040, This all relates to why Block says, "No one seems to talk about the biggest outsourcing benefit. This relates to time zone differences, which makes it see like most of my remote assistants work all night. They also tend to get in an extra full day after I leave on Friday and a second full day before I come in on Monday." It can help to be a night owl like Block, but he has also uses a firm of remote assistants that specialize in working days, during the same hours as their clients. The resulting interactive collaboration recently led Block to IM a remote assistant, "It is nice to have us working together. My second brain and second set of hands is not near as good as your first ones." The response was a most appropriate, animated handshake graphic. When he first experimented with outsourcing, Block sent tax returns to three outsourcing firms, to see how well they would do on the same return. It turned out one of them sent the work to another on his list, which helped him make the decision. Over time, Block and his staff learned to outsource a wide variety of tasks besides taxes and accounting. These include filing, letter writing, and time tracking. Time-logging software helped increase his billable time 50 percent. "I have a program that automatically tracks how I spend my time" says Block. "My assistants review it so see where I did not charge the right amount of time to each client." He also outsources search engine marketing for as little as $1 per hour. Some U.S. consultants, who help companies use the best key words or phrases to work their way to the top of Google searches, make $60,000 to $200,000 per year. Search marketing directors at large companies earn $100,000 to $350,000, according to an online salary list. However, Block says, "It looks like I can grab most of the top ten listings for any keyword for one buck an hour." He notes that his company appears in most of the entries of the first page on a Google search for Solve QuickBooks Problems. Block reduced his efforts after getting all of the top 25 links. Almost all firms Block deals with work on "dumb" terminals without disk drives, so they cannot save information or download anything from his computers. The same Chartered Accountant who helped Block with his large client six years ago also helped maintain Block's nationwide reputation within the QuickBooks community. Block had created this reputation with more than 7,000 newsgroup answers to mainly QuickBooks questions. At first, Block reviewed the messages he asked the accountant to write for him before posting them, but he soon let the accountant post the answers without review. "His $3 posts each save me 30 minutes, but no one ever questions if they are mine," Block says. Now, in addition to the newsgroup, Block authors the BlockTax QuickBooks Blog on Intuit's QuickBooks website. Ensuring Security Of course, none of these advantages matter if the company doing the work is stealing or compromising confidential information from its customers -- a weighty argument against outsourcing overseas. Almost all firms Block deals with work on "dumb" terminals without disk drives, so they cannot save information or download anything from his computers. Most associates work on US-based Windows Terminal Server or Citrix systems. Block, his local staff, and his remote assistants also work on office systems with GoToMyPC. Occasionally remote assistants set up Webcams to confirm their procedures. However, Block stresses the need for researching licenses, reputation, policies, and local laws before committing to anything. You also should know local law says Mike Block. For example, he says, "India does not have very effective privacy laws, but its Chartered Accountants come from the same British source as CPAs. They have similar privacy rules, with far stricter enforcement practices and penalties." One company that Block does not use outlines its security measures as a competitive differentiator. According to its Web site, clients' financial and tax files never leave the United States, where data center access requires biometric verification and the facilities are monitored by security guards around the clock. The company also restricts printing capabilities and Internet and email access at its India facility, requires every employee to sign non-disclosure agreements and enforces strict controls over what India-stationed employees can bring into and out of the processing center. "India-based providers do a better job because all of their brand equity relates to security," argues Paul Roehrig, senior analyst of IT sourcing and vendor management at Forrester research. But even if a company is not shipping work to "Outsource-istan," it should never feel comfortable when it comes to security, Roehrig says. Most security breaches are not technology-related, they're people-related, and Roehrig says firms must ensure the processes exist to keep the environment as secure as possible, from background checks during the hiring process to continuous monitoring and restricted access, even internally. Another thing to remember is that outsourcing is not synonymous with offshoring. Companies can dole out tasks that are not part of their key business to other firms in the states. Insourcing Opportunities Some CPAs, like Block, turn things around by serving as "insourcers," to whom others are outsourcing work. George Gray of Randolph, Vermont-based Compucount, a full-service accounting firm that provides bookkeeping, payroll and tax preparation, started insourcing tax return work to a bookkeeper in Albuquerque, New Mexico two years ago when she approached him at a Public Association of Small Business Accountants meeting. Because they both use Universal Business Computing Co.'s payroll and accounting software, they can share information more easily. He downloads files from a portal on her Web site, makes year-end adjustments and then imports the data into UltraTax by clicking on a "UBCC Import" button in less than 30 seconds. This relationship generates additional revenue for Compucount and takes less time than when dealing with annual clients, whose information Gray hasn't monitored monthly as he does with his write-up clients. "If she has questions, she asks us and we tell her things to ask about, like fixed asset purchases," he says. "We're as comfortable with her year-end package as we are with our own monthly write-up clients." Ria Botzler found Gray because her bookkeeping clients at Checks and Doublechecks needed the tax work and she didn't want to learn taxes, but wanted to take care of her clients' needs without sending them off to start a relationship with someone who potentially could steal those clients from her. "You say 'outsource' and everyone gasps. And we say, 'No, it's like insourcing.' Really what it is is resourcing," Botzler explains. "Outsourcing is a phenomenal way to support your company and not have the tremendous liability and overhead as you would if you took it into your core business. We need a new way to get into people's minds that this is a resource. We're helping other companies with the connections and specialties that we have." Some companies outsource their entire staffs. Paul Farrell, president of Wizard Productivity Systems, is the sole employee of the company, a Microsoft Certified Gold Partner that develops tools to help businesses implement Dynamics GP and SL (formerly Great Plains and Solomon). But he's far from taking on all the work himself as he has 30 contract employees, including a director of marketing, vice president of development, consultants, and quality assurance staff. Eighteen are onshore, 12 offshore. Most work 20 to 25 hours per week and they all have Wizard email addresses so customers aren't confused about whom they are communicating with, but Farrell is always forthcoming about his business model. "You have to be upfront that you're the only employee, but we can pass savings on to you because it's more economical. It allows us to leverage experienced people with specialized skills on an as-needed basis without the financial burden of employees," Farrell says. "Some of our programmers have 30-plus years' experience. This model allows us to keep our costs low and charge less for my software." GP and SL Dynamics consultants spend part of their time working for Wizard and the rest on the street keeping up to date on modules and features, which ultimately benefits Farrell's customers, which is why he often pays for their training and attendance at events like Microsoft's Worldwide Partner Conference. He holds conference calls with the entire development team every Wednesday, pays all of them every two weeks instead of waiting for invoices and lets them work whatever hours they want. He does require them to work in four- to eight-hour blocks of time to increase productivity so they don't get distracted. One member of his management team, Wendy King, serves as Wizard's vice president of marketing. But she also serves in the same role for another Dynamics partner and as a marketing director for a handful of others as president and owner of Evergreen, Colo.-based bForward. She had been working for two Microsoft resellers when she realized that what she was doing for one could apply to many. She used to charge hourly, but now charges monthly because she is able to apply what she learned to several clients. "I don't share information, but they have my mindshare," King explains. "Everybody likes to think their business is unique. In some senses they are all the same. And in some ways they are very unique because of the personalities that make up the business. "I work with each of them in the style they like to work and get things done. I pull in all the resources I need to get those tasks accomplished," King says, adding that she serves as an outsourced marketing director who comes with an entire marketing department that changes based on the client's needs. Working Well Together Understanding those needs and feeling comfortable working with the other company is what makes outsourcing relationships successful. "Any provider with any credibility can do the work. The successful deal comes down to the people in the room, being able to work though the problems that are bound to happen," Forrester's Roehrig says. "It comes down to how you manage the deal and can you work well together. The best outsourcing deals have the best people running the deals. They know what to ask for and how to manage it." Asking the right questions also can help weed out individuals who might not have the same ethical standards or ways of handling sensitive situations. Botzler admits she did a fair amount of initial groundwork before selecting Gray to do tax work for some of her clients. While having the same software was important to her, she also cared about having the same philosophies. While some topics in the accounting world are concrete, others are subject to opinion and can be "all over the board," such as what the right amount should be for considering something an asset instead of an expense. "These are the kinds of things you have to talk through to make sure you're on the same page with the advice you give out to your clients. Different advice builds distrust because clients think, 'These guys don't know what they're talking about,'" Botzler says. "I default to George because they trust him." Gray likes the fact that Botzler asked him how he would respond in particular cases before agreeing to work with him because he knows she has to rely on him to lead her clients down what they both agree to be the proper path. "Ethics is very important. I'm a middle-of-the-road aggressive type of person. My clients know that and appreciate that. I'm willing to go as far as I can, but I won't step over the line," Gray says. "If you were ever audited, I'd have to be able to defend everything I do. If I can't, I won't take on that client and Ria feels the same way and is comfortable with how far I'll go with her clients. You can't do it with everybody." Smarter Outsourcing: An Executive Guide to Understanding, Planning, and Exploiting Successful Outsourcing Relationships No Synopsis Available

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Page hatched on: February 27, 2008 Originally published in: September 2007

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