When you add up the benefits, outsourcing accounting duties saves dollars and makes sense

Nation's Restaurant News, March 18, 2002 by Jim Laube, Mike Roberts

The Enron scandal notwithstanding, accounting isn't generally thought of as a "hot button" topic in the foodservice industry even though "the numbers" play a very important role in the functioning of every restaurant organization, large or small.

Few restaurants could operate profitably very long without owners and managers having access to accurate and timely financial information. However, restaurants can't differentiate themselves in the marketplace or enhance their guests' experiences based on their accounting proficiency.

Clearly, accounting is an example of an important but noncore function. Thanks in part to advances in technology and bottom-line pressures, restaurant companies of all sizes are turning their accounting processes over to outsourcers with superior software, computer technology and manpower -- who often can do a better job at a lower cost.

Even established companies like Metromedia Restaurant Group are embracing outsourcing. The company's chief executive, Michael Kaufman, recently explained in the Nov. 12, 2001, issue of Nation's Restaurant News how his company is changing its corporate structure to "navigate better through uncertain economic times and position itself for the future." Part of the restructuring plan has been to negotiate with a company to "outsource administration functions, such as accounting, finance and information technology."

How outsourcing works

Outsourcing means the transfer of a business process to a vendor that specializes in that service or activity. You already may be outsourcing your payroll, legal and tax work. In outsourcing the client -- in this case a restaurant operator -- does not instruct the outsourcer how to perform the tasks but instead focuses on communicating the results it wants. The way those results are accomplished typically is left to the outsourcer, since doing the work is the outsourcer's core competency.

The details of accounting outsourcing arrangements may differ. However, usually they entail the transfer of some or all of the following functions from the client company to the outsourcer: financial reporting, financial statement preparing, accounts payable processing, sales report processing, payroll processing and returns, bank reconciling and cash balance reporting.

The outsourcer also owns and maintains the accounting software and information systems used in the above processes. While the outsourcer performs those functions and activities, the client company remains in complete control of the cash accounts and makes all financial decisions, such as payments and transfers.

Benefits

Cost reduction is a major reason why companies consider outsourcing. The savings come from the need for fewer corporate employees -- especially expensive accounting and IT specialists -- less office space and no accounting software, servers, phones and more. The restaurant owner is no longer dependent on key accounting personnel or bothered with turnover, absenteeism or other employee problems. Those responsibilities are turned over to the outsourcer.

On the other end, outsourcers can leverage economies of scale to realize savings. Restaurant accounting, which is a "back office" function to an operator, is a "front office" function to the outsourcer. To be successful, the outsourcer must become extremely efficient and proficient at receiving, handling and processing accounting transactions and meeting client expectations.

Outsourcing clients often gain access to better technology than they could afford to develop or purchase on their own. For example, small independent operators today are using outsourcers to gain immediate access to their sales, purchases, payroll, P&Ls and other key operating information over the Internet. Their daily transactions are integrated directly into the outsourcer's accounting system without having to be manually keyed.

Restaurant managers often report they prefer dealing with an outsourcer whose staff is much more customer-service oriented than most corporate accounting staffs.

Outsourcing: Does it make sense for your company?

Some operators may view outsourcing as "giving up control" of a vital part of the business. In fact, it is really a way to gain control by managing the day-to-day operations of the restaurant and paying someone else to report the numbers. More and more companies are recognizing the need to stay focused on what they do best -- their core competency or process. To restaurant operators that means keeping up with what is going on in the restaurants with the menu, customers and staff. Outsourcing accounting means one less internal function that takes time and resources away from what really determines a company's success.

Operating a small business requires the entrepreneur to wear many hats on a daily basis. Coping never has been more difficult. Resourceful entrepreneurs today are considering alternatives such as outsourcing.

This article does not necessarily reflect the opinions of the editors and management at Nation's Restaurant News.