What Are The Challenges of Outsourcing With Finance as a Service?

What Are The Challenges of Outsourcing With Finance as a Service

Regardless of their size or industry, businesses need to have their financial transactions processed without the incidence of fraud or error. They also need to create financial statements, close their books on time, and, if required, create accurate financial reports for their investors.  However, ensuring that all daily operations are running smoothly is not always as straightforward, particularly if the finance team or CFO is constantly distracted by other issues within the organization.

Typically, outsourcing financial and accounting services revolves primarily around transactional processes. That’s because these processes are mainly routine, rule-based, and do not require any in-depth business knowledge. Therefore, these financial services are simple to transfer to an external service provider. And while outsourcing these types of core accounting processes to experts will usually be cost-effective, getting more value-added services from these professionals will often be even more beneficial.

This is where Finance as a Service (FaaS) comes into play. Put simply, FaaS goes one step further, and beyond covering the core competency in the form of transactional bookkeeping and controller services, it will also provide more comprehensive services in the form of financial planning and analysis, as well as strategic CFO support if it is needed.

Today’s middle-market and high-growth businesses require quality insights, timeliness, and financial performance reliability. That said, there are some potential challenges of outsourcing with Finance as a Service.

Determining the Target Scope of Services

Whenever outsourcing services, business owners always need to clearly define which processes and associated activities need to be considered for outsourcing. They also need to undergo an in-depth analysis. This will determine the process flows to accomplish the activities considered for outsourcing. The analysis will also identify the control processes that need to be retained, outsourced, or shared. In addition, this process also needs to include the interfaces with work being done in other parts of the organization.

While this may be true for most outsourcing initiatives, finance and accounting operations (FAO) are typically somewhat decentralized to the different business units and outside of the direct control and supervision of the CFO. As such, due diligence needs to extend into these individual business units. To put the basis for an effective and optimal outsourcing solution, the FAO analysis must identify financial and accounting operating similarities and differences across all business units in the current work structure and identify which processes should be standardized.

Regulatory Compliance

Another perceived challenge that can often prevent companies from outsourcing their F&A processes is the risk related to regulatory compliance such as Sarbanes-Oxley (SOX), HIPPA, or ERISA, among others. While, in the long term, regulatory compliance may accelerate the need for finance and accounting process outsourcing. In time, finance service providers will leverage their expertise to ensure ongoing compliance and change management for their clients’ benefit. If done internally, these activities will likely cost more. However, building trust and confidence is the major challenge going forward.

Indeed, some FaaS providers did not take a proactive approach in supporting their customer organizations in risk avoidance and mitigation activities. Instead of recognizing that helping their customers manage regulatory risk is a basic part of FAO and have those associated costs already built into their solutions from the beginning, they, instead, charge extra for this level of service.

However, there’s no room for any lack of clarity regarding outsourcing governance and the provider’s obligations to assist their customers in meeting regulatory requirements. There’s also very little room for error when it comes to other finance and accounting services as it is. Three significant aspects need to be addressed when it comes to covering regulatory risks. These include:

  1. The explicit articulation of both the service provider’s and customer’s roles and responsibilities regarding meeting regulatory compliance.
  2. Negotiating a shared-risk arrangement where the vendor is obligated to share in the costs of not meeting the needed regulatory requirements.
  3. A collaborative approach towards dealing with risk management.

Outsourcing Costs Higher than Expected

One of the most common challenges in finance and accounting outsourcing is possible “hidden costs.” Suppose a senior financial analyst from the outsourced accounting firm and another one from the customer organization come together to analyze the return on investment for the proposed FAO. In that case, they may come to different conclusions. Most often, the disagreement will arise around the cost of transition and the fees not included in the baseline pricing.

Some F&A managers may have difficulty understanding all the benefits of outsourcing, especially if the initial outsourcing operating costs may be higher than the current run rate. It’s, however, essential to keep in mind that many F&A processes are pretty ingrained into the daily organizational operations. Frequently, there are institutionalized inefficiencies in these traditional processes, such as relying on spreadsheets for system interfaces, having an over-reliance on paper, and more. These need to be addressed when outsourcing services to ensure cost control.

As expected, transforming these inefficient processes to industry best practices will require some up-front investment in time, money, and resources. The pricing will need to reflect this and could be higher than initially expected by the customer. This is especially true if they’ve never actually investigated the cost of these improvements before outsourcing.

In addition, there are the so-called “soft” cost savings that can be difficult to quantify. For example, it’s difficult to put a number on the added value of internal resource redeployment to facilitate timely and accurate business analysis. This type of ROI needs to be recognized, even though it’s often underestimated.

Low Organizational Readiness

Last but not least in this list is the relatively low levels of outsourcing maturity and cultural readiness to accept outside finance organizations as an alternative to internal control of finance and accounting processes. By having limited prior experience with outsourcing, companies may have a challenging time accepting an outsourced provider as part of the team, and their commitment to providing high levels of service to fulfilling business objectives.

Skeptics often wonder if the service provider’s team will be invested enough to respond to emergencies outside working hours. Checking references and testimonials from other customers can corroborate their commitment and level of customer service provided. Suffice to say, without prior experience in outsourcing core business functions to a third party; organizations may be hesitant in making the first step.

In such situations of low organizational readiness towards outsourcing, starting small is often the best approach. No matter how much due diligence and contractual assurance are done beforehand, the fear of the unknown is still difficult to overcome. Unless there are strong cultural leaders ready to back up outsourcing to other stakeholders and see it through to the end, a larger outsourcing initiative is likely doomed.

The fear of regulatory risks, questions around pricing, and uncertainty about scope can be quite challenging to overcome with a large project. Creating a small but successful outsourcing pilot project together with a professional and competent service provider will significantly influence expectations. It will work towards the cultural readiness of a larger FaaS project.


Finance as a Service is a growing trend with more and today’s finance leaders are paying more attention. Similarly, FaaS providers are going through their maturity cycle regarding their service delivery, regulatory compliance, and value-added services.

Nevertheless, the benefits will far outweigh the initial challenges that may arise from first outsourcing the finance and accounting function. In today’s highly competitive and uncertain business environment, outsourced solutions are the perfect way to adapt and even thrive.

With Consero’s Finance as a Service, you will be able to strategically outsource your accounting and finance function while still maintaining your core finance team. This approach will allow our financial experts to support your finance department with a high degree of discretion and accuracy.

Consero FaaS: Disrupting the Outdated Traditional F&A Model

  • Cash to GAAP conversion
  • Clean-up work
  • Interim oversight & support
  • Accounting software Implementation

Build it Yourself Solution

  • CFO / Interim CFO
  • Consultants / VARs

Consero FaaS Solution

  • CFO / Interim CFO
  • or Consero Interim CFO
  • Consero Setup/Transformation
Ongoing F&A
  • Monthly financials
  • Daily accounting support
  • Management reporting
  • Integrate add-on acquisitions

Build it Yourself Solution

  • CFO
  • Controllers & Accounting Team
  • Enterprise Accounting Applications

Consero FaaS Solution

  • CFO
  • or Consero Fractional CFO
  • Consero FaaS Enterprise F&A Software and Services

New PE Platform Investment F&A Challenges

Founder Owned Company Accounting:
  • Existing accounting done on a cash/hybrid basis
  • Run on SMB accounting software and other disparate applications
  • Inability to produce auditable financials
  • Lack of know-how to develop projections & KPIs
  • No consistency/structure to customer contracts
  • Underqualified staff
  • Non-scalable manual processes
Carve-Out Accounting:
  • Required to move off parent company accounting applications in a timely fashion
  • Have to build an entire F&A team
  • No documented operational policies and procedures
To Optimized Finance & Accounting:
  • Monthly financials available in 5-10 business days
  • Audit and diligence ready support details
  • Integrated enterprise grade accounting software
  • Budget and forecast reporting
  • Business KPIs
  • Efficient & scalable processes for rolling in add-ons