Recently, Duke University conducted a survey of senior finance executives and discovered that 80% of them believe they will have bigger than normal cost increases for many months to come. Cost management has always been a priority for CFOs, but this outlook for the year indicates there must be an even sharper focus on managing spend. Let’s look at two of the main reasons for the rise in costs and explore what CFOs and the Finance Office can do to avoid or offset them.
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The “Great Resignation” is making an impact
The effects of the Great Resignation are taking their toll on companies. In November, a record 4.5 million workers left their jobs, according to the US Labor Department’s latest job openings and labor turnover report. This trend is expected to continue well into 2022, according to a ResumeBuilder poll of 1,250 workers. Based on the responses, it’s predicted that 23% of employees will look for new jobs in 2022, and 9% have already found one.
If you have lost finance employees as part of these trends, you are well aware of how difficult cost management is if you have to increase wages to find replacements for them. Not only that, but there is the cost of having a position vacant for a period and then the onboarding of the employee. A new hire costs a company in the US, on average, $4,129. That might not seem so much if it’s just one person, but what if you had to hire four or five new people? Even if they leave throughout the year, that is a price you would not have to pay if your employees stayed.
The work environment has changed–for good
In the past two years, we’ve all learned that remote work is a viable and cost-effective alternative to being in the office. Over the course of 2020, many companies invested in initiatives that made it possible for employees to access what they needed to do their jobs by connecting to the cloud, private networks, and video teleconferencing. As a result, basic processes can be carried out from anywhere, given the right technology and skill sets.
The downside to remote work is that many more opportunities are available to jobseekers or employees looking for a change because there are no longer physical office boundaries. People are moving quickly from company to company, often in different regions or locations, lured by the promise of higher pay or better benefits, all while staying put. Meanwhile the pool is shrinking. “We have close to three million more unemployed workers than we did pre-COVID, but have roughly ten million job openings,” says Sonya Maddell, Vice President and Economist at the Federal Reserve Bank of Richmond.
But this downside of remote work can be turned into an upside for finance executives and hiring managers. It can open the door to a wider pool of talent, even in a tight labor market, with a little creative thinking. And that talent can deliver the same kind of work product at a much lower cost.
The benefits of outsourcing finance functions
How are companies addressing higher wages? Some are using automation, but it can only go so far before human intervention is required. Others are keeping costs way down by outsourcing basic business processes offshore for a fraction of the investment in full-time employees.
Finance executives can really benefit from this approach. For starters, outsourcing accounts payable, accounts receivable, bookkeeping, and other back-office support functions to an offshore provider can help the Finance Office rein in costs. Consider the annual salary of entry-level accountants in the Philippines. They earn $4,407 per year, compared to $46,377 in the US.
Outsourcing finance functions also saves companies the high costs of hiring. The outsourcing company is in charge of recruiting talent. It can have people in place faster than the 42 days it takes to bring a new full-time hire up to speed. In addition, costs related to sick leave and employee retention drop dramatically.
Of course, outsourcing doesn’t work for everyone. So, how do you know when it makes sense for your company?
The signs that outsourcing is right for you
When it comes to outsourcing, the needs of every business are unique. However, based on our
experience, here are some of the signs that it might be time for you to outsource finance functions:
- You need to free up employee time for higher value added work.
- You need agility and scalability to keep up with changing demands in a competitive market.
- You need to reduce risk with more flexible billing and shorter-term contracts.
- You need a significant reduction in overhead.
- You need greater reliability.
- You need to simplify finance staff management.
Want to learn more about when to outsource finance functions? Check out our CFO guide to big wins through outsourcing.