Ultimate Guide to Outsourcing: Transform Your Business With Outside Expertise

What Is Outsourcing

Outsourcing involves contracting with third-party providers to manage specific services or job functions on a temporary or ongoing basis. When your teams are stretched beyond their capacity, processes drain resources, financial reporting hide insights rather than reveal them, and technology becomes a burden rather than a tool, you may ask, “Is there a better way?”

The answer to this question often lies in exploring outsourcing as a way to tackle staffing shortages, access specialized skills or overcome growth barriers. A reliable finance and accounting outsourcing provider can help you move forward and achieve your goals with expert staff, advanced technology and scalable support.

In this guide, we’ll give you a high-level overview of what you can outsource, levels of support, best practices and trends to determine if outsourcing is a tangible solution for your organization.

• Commonly Outsourced Business Functions
• Types of Outsourcing
• How Outsourcing Varies by Location
• Who’s Involved in Outsourcing Decisions & Transitions?
• Why Outsource Versus Building a Team In-House?
• Vendor and Cybersecurity Concerns Related to Outsourcing
• Common Outsourcing Price Structures
• Best Practices to Prepare Your Team for Outsourcing
• Outsourcing Considerations for Nonprofits
• Current Trends in Outsourcing

Commonly Outsourced Business Functions

Outsourcing non-core functions equips you to enhance agility, optimize resources and prioritize growth. Below are key areas commonly outsourced, each designed to free up time for innovation, customer engagement and strategic objectives

• Accounting: Accounting outsourcing can simplify daily financial tasks like bookkeeping, GAAP-compliant financial reporting, transaction processing, compliance and key performance indicator (KPI) tracking. It ensures accuracy while freeing your team to focus on strategic goals. For example, an outsourced team can handle 1099 filings, allowing your staff to focus on strategic planning.
• Finance: Outsourced finance professionals provide expert guidance in forecasting, cash management and mergers and acquisitions (M&A). They help you make sound decisions without adding the cost of a full-time CFO or FP&A staff. For instance, a fractional CFO can help a startup navigate fundraising at a fraction of the cost of a full-time executive.
• Fund administration: When you outsource fund administration for real estate investment funds, private equity funds, mutual funds or hedge funds, you get support with complex reporting and compliance tasks across jurisdictions. This allows fund managers time to focus on higher priority objectives like closing deals and raising capital rather than administrative tasks and investor reporting.
• Human resources: HR outsourcing professionals can help you better manager employee compensation, payroll management, benefits administration, recruitment, background checks, learning and development, risk and compliance training, exit interviews, onboarding and offboarding.
• Nonprofit fundraising: Also known as strategic development outsourcing (SDO), this type of outsourcing helps you elevate your fundraising efforts with data-driven strategies that enhance donor engagement and establish sustainable growth plans. SDO addresses challenges like staffing shortages, limited donor visibility and disconnected technologies, allowing your organization to focus on its mission and fundraising outcomes.
• Tax: Outsourcing tax helps you minimize errors and maximize deductions with experts who stay current on complex regulations. This type of outsourcing is ideal if you face tight filing deadlines, ensuring compliance while reducing internal workload.
• IT and cybersecurity: Many companies rely on an outsourced provider to handle cybersecurity and IT operations like network management, data backup, cloud services, help desk support, system monitoring, software management and hardware maintenance. Managed IT services can help you minimize the need for in-house IT staff, reduce operational costs, add efficiency and accelerate growth.

Types of Outsourcing

Outsourcing is much more than sending business functions to an external team. These providers can support you in many ways, depending on the scope of work, the level of control you want to retain and the degree to which your outsourcing provider integrates with your staff. Here are some primary types of outsourcing and the benefits and challenges of each:

Which Outsourcing Type Is Right for Your Organization?

Selecting the right outsourcing approach depends both on your current needs and your vision for the future. To make the decision easier, the chart below highlights common scenarios and business goals, matching them with the most suitable outsourcing types.

Please note, we’ve used terms like “good,” “great” and “ideal” to provide a quick snapshot of how different types of outsourcing align with business sizes. This guide is designed to give you a clear starting point, not an exhaustive analysis, so you can explore options best for your organization.

How Outsourcing Varies by Location

Outsourcing and offshoring are distinct concepts, but offshoring (operating overseas), nearshoring (operating in a nearby country), and reshoring/onshoring (operating in the U.S.) are all outsourcing strategies.

These approaches fit within a broader “global resourcing” framework, which optimizes business operations by leveraging talent, services or goods from global markets. Offshoring and nearshoring can provide cost and time-saving benefits because it allows the work to continue around the clock. Providers often use a combination of offshoring, nearshoring and U.S.-based management to maximize resources and give clients the best service and cost structure.

Who’s Involved in Outsourcing Decisions & Transitions?

Wondering who makes the call when it comes to outsourcing? Decisions about outsourcing and transitions go beyond one person’s desk, often involving multiple stakeholders with a unique role in shaping the outcome. From executives setting strategic goals to managers overseeing daily operations, understanding who’s involved drives a smooth outsourcing process. Let’s break down the key players and how their input drives success:

Key contributors to a seamless outsourcing transition

Outsourcing transitions require collaboration across various roles within your organization. Each team member brings valuable expertise to ensure the process runs smoothly and effectively. Here’s a closer look at the primary contributors and their responsibilities in this shift:

• Process owners: These internal stakeholders know where data is stored, who has access to it and how processes run. They will collaborate with the outsourcing provider.
• Project manager: This individual typically leads a cross-functional team to assess needs, define the project scope and draft the request for proposal (RFP) for the outsourcer They’ll oversee vendor selection, maintain project alignment, collaborate with finance/procurement on budgets and manage approvals with legal, finance, IT, HR and other stakeholders.
• Executive leadership: Senior leaders will review the proposal, make the final decision and approve the budget.

Why Outsource Versus Build a Team In-House?

Building an in-house team gives you greater control, confidentiality, cultural alignment and institutional knowledge. Outsourcing offers unique advantages when dealing with back-office complexity, heavy compliance burdens, rapid growth, staffing gaps or cost pressures. Here’s why you might go the outsourcing route:

• Stay ahead of risk and compliance. Instead of spending heavily to try to keep in-house staff current on the latest regulations, many companies and nonprofits outsource complex, highly regulated functions like tax, accounting and HR.
• Access affordable expertise. Outsourcing connects you with skilled professionals who bring specialized knowledge, advanced tools and experience that would take significant time and resources to build internally. For example, if your startup is growing fast and needs finance guidance, but a full-time CFO isn’t in the budget, you can bring in a part-time fractional CFO. Sometimes, companies bring in additional support or “staff augmentation” to take over tasks for a limited time.
• Mitigate in-house turnover. By outsourcing certain functions, you can skip the constant training of new employees and instead rely on the consistent availability and expertise of external service providers. It also bridges staffing gaps when key employees retire or leave.
• Improve morale and retention. When you delegate tedious, labor-intensive work to a third party, employees can shift their focus to areas they find more valuable and rewarding.
• Reduce costs by outsourcing predictable workflows. Accounts payable, monthly forecast updates and payroll can easily be sent to outside providers if your process is straightforward and consistent. This can reduce your operating costs and even open up funds to hire more strategic team members.
• Adjust resources as business needs ebb and flow. Whether you’re facing growth or a downturn, outsourcing lets you adjust your resources without long-term commitments. Many companies already use interim support for busy seasons (e.g., tax season, holiday orders, open enrollment). An outsourcing provider can make this a more cost-effective and efficient process by reducing the time needed to fill roles, handling HR compliance and even providing payroll services.
• Benefit from cutting-edge technology. An outsourcing provider can deploy sophisticated software, like AI-enabled cash flow forecasting, without the time and expense of in-house development. Outsourcing teams also often support data migration efforts when companies implement new technology infrastructure or systems.

Vendor and Cybersecurity Concerns Related to Outsourcing

When outsourcing, vendor and cybersecurity concerns are always possible, including data breaches, inadequate security measures and unauthorized access to confidential information. Bank fraud is one of the biggest threats to finance departments, often occurring when vendor emails get hacked, or someone is pretending to be a vendor. Issues with SLAs, project scope creep or other operational challenges also can arise.

To mitigate these risks, make sure your outsourcing provider:

• Uses sophisticated tools for network monitoring
• Uses sophisticated tools for network monitoring
• Conducts regular risk assessments
• Allows for early threat detection and rapid response to possible data breaches
• Implements comprehensive data encryption practices
• Provides security awareness training
• Clearly defines SLAs to ensure accountability and performance standards, including data protection measures and response times for incidents
• Manages project scope to prevent scope creep and maintain project focus

Here’s what you can do to protect your organization:

• Upload and share documents through a secure content-sharing system. Use a tool like SharePoint. This way, everyone can access the same information and collaborate more easily, manage documents more efficiently and securely and streamline approval processes.
• Let other vendors know you’ve hired an outsourcing provider. Introduce the other vendors to your outsourcing contacts and describe how the outsourcer will interact with the vendor’s team.
• Always share privileged information through secure links. This is especially important, so no personal information is shared by email. Data breaches and cyberattacks can occur if information is sent through unsecured channels. Many industries also have regulations requiring the secure handling of sensitive information.

Whose technology does the outsourcing provider use?

You and your outsourcing provider should agree on the technology that’s used. Some outsourcing providers will avoid unfamiliar tools unless they align with your needs, while others are open to adopting or working with new software. If a specific technology is critical to reach your goals, it should drive your provider selection decision.

Special considerations for ERPs

From an enterprise resource planning (ERP) perspective, make sure your systems are protected. The outsourcing provider should update their software regularly, implement strong access controls, provide data masking and encryption, conduct regular security assessments and provide security training.

Common Outsourcing Price Structures

Outsourcing costs differ widely depending on your organization’s size, need and the approach you take. While startups often operate with smaller budgets, fewer projects or departments to outsource, this doesn’t necessarily mean that larger organizations will always spend more on outsourcing. Factors such as project scope, outsourcing goals and pricing models can all influence costs.

One of outsourcing’s best advantages is its flexibility. You can choose pricing models that align with specific needs and goals and ensure you receive value without overspending. Here’s a quick overview of how outsourcers price their services:

• Fixed price: This model is one of the most straightforward, meaning that the provider sets a price for the entire project or service, regardless of time or resources needed. The scope, timeline, requirements and budget are clearly defined up front.
• Dedicated team: You pay for a team of professionals who support a function or project. This is usually a long-term solution. For example, a startup hires an outsourced accounting team to handle bookkeeping, financial reporting and compliance.
• Pay-per-use (PPU): This is when an outsourcer charges an hourly rate for the actual service or resource used. It’s common with cloud storage or IT outsourcing. In accounting, you might use PPU for data entry, individual invoices or specialized tax calculations for a specific project, rather than paying a monthly fee for broader accounting services you might not fully use.
• Monthly fee: Some outsourcers provide a structured payment model where a fixed monthly fee is determined based on the scope of service, work hours and required support required. Typically, the details of the services, as well as expectations and deliverables, are outlined in an SLA, ensuring that both parties are aligned. The SLA creates a clear framework for accountability and performance. This type of fee structure often applies to managed services or a fractional executive.

Best Practices to Prepare Your Team for Outsourcing

Building a successful outsourcing relationship begins well before you hand tasks over. Set a sound foundation for a smooth integration and minimize disruptions with these critical steps:

• Define a clear onboarding process. Onboarding typically begins with assigning a project manager and team on both sides. Make introductions, set clear goals, define responsibilities and provide any necessary training to get everyone on the same page. This is also the time to transfer knowledge and establish regular check-ins.
• Keep communication open. Your project manager or designated point of contact should meet regularly (weekly or biweekly) with the provider’s project lead to review project progress, timelines, deliverables and any challenges. This helps ensure that everyone is aligned and any obstacles are addressed quickly.
• Engage leadership early and often. While mid-level managers may handle day-to-day interactions, it’s essential for your CEO, president or board of directors to establish a relationship with the provider’s leadership team. These high-level conversations, typically held quarterly, help cement the partnership, resolve escalated issues and uncover growth opportunities.
• Be transparent about challenges. Transparency is critical in the early stages of outsourcing. If your organization has struggled with broken processes or data issues in the past, don’t shy away from sharing those details. Your outsourcing provider is there to help resolve these challenges, not judge. Honesty builds trust and creates a path to improvement.
• Communicate the change internally. Outsourcing can lead to employee concerns about job security or team dynamics. Address these worries upfront by explaining the value outsourcing will bring and promoting collaboration between your internal teams and the provider.

Tip: Encourage a “holiday party” mentality where the relationship is so smooth and seamless that you would invite the outsourced staff to your holiday gathering.

Onboarding a new provider can take a few months, depending on whether they’re starting fresh or taking over from another firm. The process should be very hands-on to ensure a smooth transition.

1. Preparation
   
   • Define goals and expectations for the outsourcing relationship.
   • Choose the right provider based on needs and expertise.
   • Finalize terms, conditions and SLAs.
2. Initiation
   
   • Introduce teams and discuss the project scope.
   • Assign tools and resources to support the outsourced activities.
   • Establish communication channels (like a shared email/document-sharing portal) and frequency of updates.
3. Integration
   
   • Align processes and workflows between the company and provider.
   • Provide training to ensure the provider understands company culture and systems.
   • Grant access to necessary systems and data for the provider.
4. Execution
   
   • Track progress against agreed upon KPIs and SLAs to ensure quality and efficiency.
   • Set up regular feedback sessions to address issues and improve collaboration.
5. Review and adjustment
   
   • Conduct periodic reviews to assess the relationship and outcomes.
   • Identify areas for improvement and implement change as needed.

Outsourcing Considerations for Nonprofits

Outsourcing can free up time and resources, letting you focus on your core mission by reducing administrative distractions. However, you must carefully consider factors that directly impact your mission and stakeholders:

Data security

Your nonprofit must prioritize data security, given the sensitive donor information you manage. A data breach could result in financial losses and a loss of trust that takes years to rebuild. Selecting providers with experience in the nonprofit sector and strong security measures is critical.

Regulatory compliance

Outsourcing functions like payroll, grant management or financial auditing to specialized providers can enhance compliance. However, your organization remains accountable for any noncompliance by outsourcers, which could lead to fines or reputational harm. Clear contracts and regular performance audits are crucial.

Grant and funding restrictions

Outsourcing can streamline grant compliance through experts who manage tracking and reporting. However, you must ensure outsourced activities adhere to funder restrictions. Clear documentation, reporting and transparent communications are key to maintaining trust and meeting obligations.

Current Trends in Outsourcing

Outsourcing continues to be a vital business strategy. Trends like AI, talent shortages and the push for operational efficiency are defining how companies use it to thrive in a competitive market. Here are some outsourcing trends to pay attention to:

Outsourcing is helping with the accountant shortage

As long-term accounting staff are retiring, companies are finding it harder to replace individuals and their institutional knowledge. According to an American Institute of Certified Public Accountants (AICPA) report, about 47,000 students earned a bachelor's degree in accounting in the 2021–2022 school year, down 7.8% from the previous year. This is leading to a business model change where finance departments are pursuing options like outsourcing and automation to increase team capacity.

AI and RPA are speeding up routine tasks and minimizing errors

Outsourcing providers are using AI and RPA to transform how companies handle routine and repetitive tasks. RPA can enhance the speed and accuracy of tasks such as banking reconciliations, invoice processing and financial reporting. For example, you may have hundreds of bank accounts that need to be reconciled daily or weekly. On average, this takes a person about 30 minutes per account. Robotic process automation (RPA) can do the same task in seconds.

Outsourcing helps you improve margins

Amid trade challenges and tariffs, outsourcing offers flexibility and cost efficiency, helping you protect your margins and make smarter decisions while managing overhead more effectively.

Reimagine Your Operations With Outsourcing

If you need to fill a staffing or skills gap, offload back-office burdens or create more time for strategic work, outsourcing may be an ideal solution. Explore how our outsourcing experts can help you make your organization more efficient and free you to focus on your core business.