- September 22, 2017
While doing business in Russia, you might have already learned the easy or the hard way that local accounting principles significantly differ from Western practices due to requirements of Russian law. As a way to save yourself from drowning in dozens of regulations and requirements, which can be confusing and time-consuming for ambitious business operations, you may consider a professional partner to support you with financial administration. If you were ever involved with accounting outsourcing companies, many of them will appear to be very similar to each other: any given firm claims to be the industry leader and promises the highest standard of customer service. For those struggling with the difficult choice of selecting an accounting outsourcing provider, we have prepared a simple step-by-step guide that will explain what you need to pay attention to before signing a service agreement and how to make sure that your monthly service costs that were agreed before will in fact be what you will pay.
Before you start benchmarking…
Be informed about one thing: requesting a proposal from an accounting firm will normally require you to fill out their specific questionnaires, in which basic information about your company must be provided. These include the legal form of your business, financial data, number of employees, etc. However, in some cases it may go beyond such general information. Do not be alarmed if you receive a document with hundreds of questions, some of which can be very specific. Be prepared to spend some time and resources on this.
Let us begin with the essentials — your company’s needs. The complete list of accounting operations you may need to outsource in most cases will look somewhat like this:
- monthly bookkeeping, including functions of Chief Accountant, preparation of sales invoices for clients, settlements with suppliers and customers, issuing bank payment orders
- accounting (financial) statements preparation
- tax reports preparation and submission
- management reporting
- HR administration
- payroll accounting
- accounting software support, update, and maintenance
If you would like to keep some parts of it in-house, you do not have to outsource your entire financial department. Some accounting functions can be kept as the responsibility of your in-house employees, whereas the service provider will handle the rest of them. In some cases this separation benefits companies even more by optimizing business processes and reducing the total service fees.
For example, when your company’s sales department is responsible for both attracting new clients and orders checkout, the best solution here is to provide the sales team with partial access to the accounting system (e.g., 1C Trade Management) used by your outsourcing provider. Thus, employees will be able to process orders and invoices, as well as print those invoices out and send them to customers, resulting in a faster document flow. At the same time, your accounting provider makes sure the documents input is correct and helps sales managers by answering their questions about the accounting system.
Most outsourcing providers will offer very flexible options that will suit your company requirements, structure, and preferences. However, some firms (in most cases these are Russian subsidiaries of international companies, or firms who offer fixed pricing) are unlikely to be so adjustable to clients’ needs and will not provide partial outsourcing of certain accounting functions.
To get started, you will need to check if each of the accounting functions you wish to outsource is included in the service package of your potential accounting provider. If the offer or service agreement doesn’t specify what services are NOT included in your monthly package, you are likely to find out only after getting your invoice.
After you have determined which functions need to be outsourced, you will receive a service quote. Usually accounting firms ask several questions regarding your company’s volumes as we mentioned above (or expected volumes, if the company is newly established). At this stage, it is already important to give actual figures, otherwise your accounting provider will call you to revise the terms of your contract in the event your volumes increase dramatically after the initial assessment.
To make the comparison more convenient for you, ask them to indicate the monthly costs for each type of the accounting functions we listed above. Itemizing your needs will make it easier to compare prices with other providers or with salaries of in-house accountants. Note that costs can be fixed or variable, for example quarterly and annual reporting can be invoiced separately, and any of client’s inquiries can be charged on hour rate basis, be it a trivial inquiry to check if a payment was completed and confirmed, or a request to send some scans of accounting documents. So double check if all the required operations are included in your accounting package price.
Keep in mind that some companies charge a so-called “Start-up Fee”. This fee represents a one-time fee for switching from an internal accountant or other accounting firm to their service.
Foreign companies might be more comfortable communicating in their native language instead of Russian. English is the most commonly used foreign language in Russia and it is likely that your future service provider will have specialists who speak at least English. Selected providers will also have employees speaking German, French, Finnish, and other foreign languages.
Another point to consider here is the method of communication. Some providers have a dedicated person — a key account manager — who becomes a single point of contact and acts like a project manager for your outsourcing needs. Other companies may suggest that you be in touch with each of their specialists (accountant, IT manager, HR administrator, etc.) directly. You may decide what model fits you best, but from our experience, it is more convenient (especially for company management) to communicate only with a single person, who will be responsible for all your outsourced projects.
Pay attention to the way the work is organized on the provider’s side. Sometimes only a single employee is responsible for the whole accounting outsourcing project (they are usually known as Chief Accountant, not to be mistaken with in-house CA). This person is responsible for accounting, processing of payments, payroll, and tax reporting. Outsourcing your accounting on such conditions puts your business at risk: one employee may have not enough time to monitor all the latest changes in legislation, which may result in accounting errors; or if this employee leaves the provider company or takes a vacation, finding a suitable replacement can be rather difficult.
As for accounting software, most companies choose “1C” — the most popular ERP solution in Russia. If your corporate policy requires working with a specific program used by your head office (e.g., SAP, Microsoft NAV, or AX) you should check this in advance, since not every accounting company in Russia has specialists experienced in working with these systems. Also be aware of the fact that some accounting firms will restrict your employees’ access to the accounting database (for example, your warehouse or sales managers won’t be able to access it). No matter how odd it may sound, some companies do restrict the clients’ access to their own financial data.
You should also find out where your company’s financial and HR data will be stored – in Russia or on foreign servers. Firstly, it is important because of the strict requirements of Russian legislation. The law requires the personal data of Russian citizens to be stored within the country – violation can result in serious penalties for business owners. Secondly, using foreign servers with weak cyber security for databases storage may cause the loss or misuse of your data.
For example, clients of one international consulting company recently encountered some disruptions in their operations, since the accounting databases the provider used for clients’ financial and operational accounting were stored on servers located in Ukraine, which became one of the first countries to suffer from ransomware virus known as Petya. Due to the damage, customers of that accounting firm could not conduct their operations properly for several weeks.
In addition, your accounting service provider may offer you access to their own web-portal or mobile app for such additional features as messaging, primary documents exchange, checking your bank account data, payroll slips, task management, etc., combined in one solution. Sometimes such perks are available at additional cost, sometimes they are free of charge or already included in the standard monthly fee. In this case, you have to decide whether you really need such extras and if you are ready to pay for them.
The transfer process from one accounting provider to another is in fact rather fast. See for yourself: in most cases the takeover of accounting functions takes about 1-2 weeks, during which the company and its client clarify the needs for day-to-day cooperation, and arrange access to accounting software and a bank-client application.
Note that if you are switching from an accounting firm (or internal accountant) to a new accounting provider, it will be easier for both sides if you make this transfer during a period when all the quarterly or yearly reports of your company are already submitted to the tax authorities.
Before making the final decision you can consider a lot of factors in addition to a service fee. Such crucial points can be clients references, experience in the market, ability to work with your team, and your professional impression of how the provider’s employees handled the negotiations so far.
No matter how accounting companies position themselves (or what merits of their services are given on their websites) the quality-price ratio should be the key criterion in your choice. Pay more attention to everything that can’t be bought, for example testimonial letters. You can ask for several references with contact details, and in some cases, you may speak with other clients of the given provider directly. This is the best way to get a real idea of the service quality. Membership in various kinds of associations, ISO quality certificates and rankings – all of these things can be purchased by marketers and will indicate the marketing budget rather than real quality.
To summarize the above, we suggest following this checklist while searching for an accounting provider:
- Check if the company’s service package includes all the required operations.
- Ask for a detailed quote displaying costs for each accounting operation type. This usually comes in the form of a pricing table with monthly and/or yearly fees relevant for your company’s volumes.
- Pay attention to “hidden fees”. Ask the provider directly what is not included in the accounting proposal, and how much it will cost you.
- Be sure that you have a clear understanding of how the variable fees are applied.
- Check for any “start-up fees”.
- Clarify the method and language of communication
- Determine the required software, and in what jurisdictions your financial data will be stored.
- If your timeline is tight, do not forget to mention this in your inquiry.
Follow these simple steps and you will definitely be able to choose a reliable service provider, improve your company’s operations, and receive the best price-quality proposal.