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Welcome to the Accounting for Innovation podcast, where we explore cutting-edge strategies and insights into the worlds of accounting and finance. Presented by Decimal and the Radical CPA, each episode dives deep into industry trends. Whether you're a seasoned professional or a budding entrepreneur, join us as we unpack key concepts and share practical tips to drive success. Okay, so today we are gonna be talking about outsourcing in an accounting and like why you should do it. What's the strategic overview and why it's becoming so popular these days? So what do you think, Matt?

Well, I think it's interesting. I mean, you're hearing a ton of it. And I think one of the benefits post pandemic is the idea of managing remote people has gotten easier. And so it's opened up in addition to the cost structure, the ability to do it. But Jody, I'm interested before we go in, when you talk about outsourcing and accounting, I'm interested in what exactly you mean by that in the context of accounting and how has it evolved over the years?

Okay, so I think if we start back, like kind of way back when, when outsourcing first came out, it was probably maybe 15, 18, 20 years ago. and it was just starting and people were very, very scared of it, right? It was like, oh my gosh, I can't send my data overseas, right? And, but it has slowly evolved to be like common and everybody doing it, right? Also, it was very much like tax returns only, right? So like XCM was the first, if everyone says like, what, like the beginning of outsourcing was XCM. And I remember that being around like 2008, 2010 when that got popular. And then they were acquired by CCH a few years ago and they got even, you know, bigger as part of like the CCH portfolio, right? But it was really tax. And then I think regular companies have gotten used to outsourcing like accounts payable, like the whole BPM market, right? More people are just used to things going overseas for whether they be call centers accounting data. And it happened at the very big firms first. And now what's happening is just coming downstream. So even like the smallest firm can be a global company. And I think what's interesting about that too is it's not just accounting firms. When you talk about like Joe Small Business, like Joe Small Business, a lot of times do we have other outsourced professionals overseas as well? Not like maybe some of your clients. have offices overseas or they're hiring remote employees overseas too. So, I mean, it's across the board, but it's not just like the accounting profession as a whole. I think in general, we're just becoming a more global workforce. And then when we think about outsourcing too, like there's simple things like Fiverr, right? Like people use Fiverr all the time and can outsource, you know, simple Excel spreadsheets or something simple and it's never $5. It's always ends up being like $200 just for anyone who tries fiber. But it cracks me up because like, but anyways, people are getting used to that, right? And then now, like kind of fast forward into today's landscape, you have companies that will like specifically set up an outsourcing company for you in another country. Like they kind of act as your guide and then they go through the motions and they, and if you're 10 million plus, you can, you can do that, right? Like you, You have to be of a certain size to go kind of set up your own shop.

You definitely need scale.

But there's also companies where basically you're hiring a remote team member who's sitting in someone else's office, but they're working with you, right? They're like, they're really an extension of your team, but they're sitting in a remote office in India or the Philippines or something. And then if you, if they're in South America, they, they call that near shore because you're in the same time zone versus a different time zone, right? And then there is outsourcing where you're essentially outsourcing a job and it's not a team member who's like working on your team and sitting in just a random office, but they really control how the work gets done and you're really outsourcing the complete job as opposed to just having like a remote employee sitting somewhere globally, right?

Yes.

And I'll say that's the global outsourcing. But prior to that, how many firms used to like just kind of have outsourced bookkeepers or whatever who kind of were on their team? So like the idea of outsourcing isn't really new. I think it's just becoming more trendy. And I think the difference today is we can't find remote staff. We can't find any staff, right? So like there's definitely a need for it. And I think the world has gotten smaller and everyone is okay now with kind of sending data to India or the Philippines, whereas I would say even, you know, eight years ago, 10 years ago, people were a lot like more freaked out about it and they didn't think it was secure enough.

Well, and I think you made a really good point there where other industries and even your clients are now much more comfortable with outsourcing. And a lot of people have a virtual assistant that could be anywhere in the world. Digital marketing is another one where you can have a lot of people all over the world doing projects, hired full time. I even think Acumatica is a big ERP in the space. Their initial dev team was in Russia, I believe, and Eastern Europe. That's not abnormal. In my past companies as a tech entrepreneur, I've had development teams in Argentina, India, Ukraine. You just get used to the method of I'm going to find the best people at the best cost wherever that can exist. And if you don't find that in the states, it means that you can hire people to do higher level work and spread over that in a much better way. And I think you're just seeing the normalization of that in the accounting industry.

Well, right. And I think it's a convergence of lack of talent. Right. The problem is, is you can't find people to do the work. So what are you going to do? You have to think differently. And so I think that's you know, one of the trends that's really kind of pushing this movement of Outsourcing, whereas before, you know, it was a little bit. It was just, it wasn't that it was unheard of. It's just not everybody was doing it. Now it's like, it's very Trendy.

You know, I think about how we built decimal, our company. My third full-time hire was somebody in the Philippines, and we used a BPO outsourced. company where we hired somebody, they're full time ours and theirs. And one of the things that I liked about that is they're in charge of recruiting and hiring and it support. So I think those were really helpful for us. We manage the person on a daily basis and we train them on our way to do it and all of that. And it worked out really well. And now we have a team of 40 people. It allows us to get gross margins that are astronomically higher than most companies in the space. It's also just a, it helps with kind of the 24/7 globalization. You can have people that are working on your time. You can also have work completed while you're sleeping. It's a really nice kind of balance and flow to work that I also see with a lot of bigger companies and bigger firms in the space. In fact, I'm interested, Jody, can you think of some examples that you've seen over the years of firms where outsourcing has been extremely impactful?

Well, I mean, I would think of it, too, when I was at bot keeper. Right. We had an eye on every transaction because we were training data. Right. And people didn't realize that, you know, you need people to. To train that data. Right. So we had our old bot Ops team that was training data. But I also think what's interesting to me is, like, the culture piece of it. Right. So. So, Matt, you say you have, like, this team of 40 people. Would you consider them part of your decimal culture? Are they like another entity of yours or even though they may not be in an entity, whatever, how do you consider them as part of your team?

So that's one of the things that we did specifically from the get go was we wanted to integrate them and make them feel like one decimal. So we talk about one decimal all the time where we want their culture to match ours. We want their values to match ours. and even as we've gone to a 24 hour cycle, we've really tried to maintain that. We try to do connection points and co-working with our US team. You want to try to share values, share work systems, share work. And that's been a really important cultural part for us is to make them feel as one. Because I think one of the hard things about outsourcing that you have to be very intentional about is cultures are different and how people interact in a hierarchical society, like with a boss and with an employee relationship, can be different in different countries. And you have to be very intentional about how you deal with that, think about that, learn about it, and then optimize for it. And so that's where we've done that.

Yeah. And I think the other thing there is too, is like how you phrase things in the Slack channel or whatever Teams channel, right? like it's funny because like Americans maybe, you know, are a little bit more direct or whatever they do, it might be different than the culture of the people you're working with. And you have to remember in written communication how that comes across too. So it's not always understood.

What I had, Ivan, our first hire over there would tell you that we spent three months intentionally teaching him sarcasm. because I have a tendency to be slightly sarcastic, and that is definitely not culturally normal for a lot of people in the Philippines. And so we would talk a lot about it and we'd learn a lot about sarcasm so that he would understand the differences in sarcasm. And it became a running joke four years later of, Hey, now Ivan's really good at sarcasm. And I'm not sure that's healthy for him overall, but you do have to really think through those differences.

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So another interesting thing is how do you see outsourcing helping smaller firms compete with the bigger firms?

Number one, it helps you scale people and it helps you scale margin and cost. Like to me, if you are a smaller firm, one of the ways you can compete against larger firms is you either have to compete in cost, or you have to compete in ability. And if you're competing on cost, you have to keep your costs low so that you have the margins to grow. And the only way that you can do that is with technology and with outsourcing. And if you are constantly hiring only US staffers, your cost structure is just going to be too high to compete on price. So then you have to look at, okay, I need to also be able to grow and scale. There's one misconception that I think, I hope people are over at this point, but I do think you and I need to hit head on. The people in other countries can do just as good of work as US employees, period. And I think if you believe that, that is, that gives you an ability to grow. If you look at them as less than or their ability as less than, it will fail in by the way, you're wrong. So I think that's a big, big thing we need to talk about.

Well, I think it comes back to teaching and training too, right? So like if you're working in this remote environment and you're working on a different time zone, you have to get really good at project management and really explaining things up front and really and all of these things are good for your U.S. employees as well, but you have to get a lot better at kind of being a manager versus, I'll say what happens in traditional firms is work gets thrown at a person and it's kind of like figure it out, see it out, right? Whereas when you're working with someone overseas, you really have to kind of be a lot more proactive up front and really kind of explain things and really kind of set expectations. And again, all of those are good managerial things for anyone. There absolutely critical if you're going to manage a remote person, whether they're sitting in New York or they're sitting in the Philippines. But I think that's where you have to get very intentional about it. And I think too many firms, like, do it after the fact, or they don't really think about it. And then they say, oh, it doesn't work. Oh, my outsourcing didn't work. But it's because you weren't intentional about working with a global team, which really is critical.

Well, and I think if you think about it like this, I'm going to hire five kids out of college to start working in my firm. You know, with 100% certainty that you're going to have to teach them and train them because they've never done anything before. If you take that same concept and apply it to all new hires, no matter what situation they come from, you will be more successful. and if you apply that to outsourcing and team members in other countries, it also puts you in a position to be more successful. It's like you said, you need to be more systemic and thoughtful in your onboarding and training. And then also think of it as co-working too. One of the nice things about an office is you can walk behind the cube or an office of a younger new employee and you can kind of work through some problems with them. technology has given us the ability now with Zoom, with slack, with other tools that are out there. People use Microsoft, I'm sure you can start co-working with your outsourced team. And that is also exceptionally helpful in thinking about more of an apprenticeship type scenario with new employees.

Well, right. And I think when it gets to being intentional, too, it's like you can use Loom videos to do things. You can do so many things that you used to not be able to do because it was cost prohibitive and it was like only the big company had those tools. But for like 20 bucks a month or 30 bucks a month, and again, you could have like app bloat too with all the different, you know, communication tools. I think I buy them all, but- the future. But there's so many different tools out there to like document processes like Scribe and all these things to help you work remotely. A lot easier or work with an outsourced team a lot easier than even just like four years ago or like five years ago, right? Like there's so many new tools to really help you get there to be able to communicate with this team in an efficient and effective manner.

So Jody, I'm interested. Let's take this a little tactical to end this episode. What are some of the most used tasks or tasks that are most sent over to outsourced teams? What do you see people using outsourced teams to do the most?

Well, I think the most common is tax. It's like 1040s all get sent there. And it cracks me up about 1040s because I remember CCH used to charge by the page. and like, so I don't know if they still do or not, but like, what pages you would send over besides they charge by the page. But I think tax is the biggest one. And the reason being is because it dumps on you in the season, right? So like, when you think about bookkeeping and not to say, like, there are a lot of cast practices that don't even do tax. So like, okay, maybe they have outsourced people as well. But what I think about it is, is like you have tax season, how are you going to even out your tax season? Because it's such a, an extra amount of work that happens between a couple of months of the year. Right. And so it makes it kind of the easy thing to outsource versus the stuff that you're normally doing monthly or whatever. So, so that's what I think of when I think of outsourcing is traditionally it was It was tax and, and you can't talk about outsourcing without talking about the form you have to sign. I think it's the 7269 that you have to sign that everyone gets all up in arms that the client is not going to sign it. And you know what? Nobody cares. It's like the HIPAA evaluate, like people just sign it and move on. But like, clients, they don't care. Like that used to be the biggest like stopper. And now I think most people are beyond it. But if, if, if you thought that was going to stop you, nobody cares. like they really don't care that the work is going somewhere else.

Well, and I think, look, it's not just tax now to bookkeeping, bill pay processing, invoice creation, payroll processing, financial monthly close. Yeah, all of those things are also being sent overseas, outsourced, nearshore, all over the place. And and I think we've expanded beyond just tax to now what I tell everybody and what we tell our clients is, hey, the accounting work is being done by technology and by a team in the Philippines, period. The U.S. staff is final QC and relationship management, and you're seeing a lot more of that, too.

And I think clients don't care. I really don't. I believe they don't care.

Well, you've heard me tell the story. When we first launched as decimal, people said, whatever you do, do not tell your clients that you're using teams in the Philippines. No one will ever buy from you, blah, blah, blah. So the first thing we did is in our sales process, we said, Hey, and by the way, we have a team in the Philippines. They do the work. They're amazing at what they do. They're exceptionally well trained. It's all secure. And by the way, it helps keep our costs down. In over a thousand clients, we've had one that had a problem with it.

And we just fired them. Yeah, yeah. So I think the cool thing is, is it's really an opportunity for small businesses, smaller firms to compete. Again, there's so many opportunities to find team now overseas with all these different companies that are, you know.

Oh, 100%.

Yeah, thin companies. Whereas again, I think before it was harder to kind of find that, that liaison to get you someone from overseas. But now it's like every other day, you can see an ad or something from it. And I think the other cool thing about it is there's enough practitioners who have done it that you can get peace of mind if you talk to them about kind of best practices. What did they do? What did work for them? What didn't work for them? And to kind of go into it with your eyes wide open. so that you can have the best outcome if this is new. Because anytime you start anything new, you know, you freak yourself out, right? But I think there's that opportunity to kind of talk to other firms who have done it and get comfortable with it and learn from their mistakes and kind of, so you don't make the same mistakes they did. You'll make different mistakes, but you won't make the same mistakes they did. Right.

Well, and look, I think as a final thought on this, the biggest firms, the smallest firms, and literally everybody in between, is everybody is all trying this and plenty of them have offices or people or tasks that are being outsourced. It is now normal.