In February 2024, the inflation rate spiked by 3.2% from the previous year. Since 2023, there has been speculation about inflation being an integral part of business plans and strategies. Hence, 2024 has continued to be a year where finance and accounting leaders have taken measured steps. The impact of inflation on accounting and the leaders’ decisions and planning cannot be underestimated.
The pandemic and the year 2022 remind us of the severe blow that inflation had on almost all businesses—accounting and finance firms were the first to take the hit. As inflation continued to rise in 2022, there were months when employees had to take pay cuts. Many employees didn’t even get a paycheck, while others lost their jobs. It was a difficult time, mainly because the world wasn’t ready to handle the chaos.
As inflation speculation continues this year, the accounting industry doesn’t have to be in a similar state. Before we delve deeper into tackling inflation, let us understand a few things.
Inflation and accounting are co-related; inflation deeply impacts your accounting business. During inflation, there is a severe fluctuation in demand for your products and services. This is mainly because your customers are most likely low on spendable cash. They try to save it for darker times. This leads to a decreased demand during inflation and recession.
A rise in costs is the major challenge on the supply side. The labor shortage is one critical problem, and inflation adds to it.
The accounting industry has faced a tremendous talent shortage over the past four years. Firms can no longer meet deadlines and, hence, don’t get paid by the clients. Employees often do not receive raises during inflation, which leads to a lack of motivation and productivity.
Inflation poses several problems for small accounting firms─rising costs, staff retention, etc. Some firms have even considered changing their location to address these problems.
Outsourcing is a better alternative because it is a strategic business model that can help you not only combat inflation but also help your firm in the long term. When you partner with a reliable outsourcing provider, you can tackle the impact of inflation on accounting and focus on growth.
Outsourcing partners often provide a wide range of services like bookkeeping, accounting, taxation, audit, and advisory services. They also come with several benefits when it comes to tackling inflation, including:
As inflationary pressures continue to soar, outsourcing different accounting functions can help significantly reduce and optimize costs. With access to global talent across geographies, accounting firms can avoid the headache and cost of hiring talented resources. If you are looking for full-time, in-house resources, there could be a lot of barriers─you might not be able to match their expected salary, or they might be unwilling to relocate.
Outsourcing allows for a flexible cost structure, which makes it easy for accounting firms to accommodate changing economic conditions. In addition to avoiding these costs, outsourcing also saves a lot on hiring and training talent, as well as infrastructure and overhead costs.
Outsourcing has become a popular business model with accounting firms. Inflation or not, this model allows you to save on increasing the team size unnecessarily.
For example, your firm might receive only a few audit tasks. You might think you need to hire a professional. But is it worth getting audit projects once every three months? Such situations create added pressure on the firms during inflation. When you outsource, you get access to talent on an as-needed basis. This prevents the need to maintain an unnecessarily large in-house team during economic uncertainty.
As a small accounting firm owner, you are often compelled to wear too many hats, especially if you typically supervise all organizational functions. Outsourcing some of the repetitive key functions frees a lot of your valuable time and resources.
This strategic focus becomes even more critical during inflation as accounting firms must dedicate their time, energy, and resources towards activities that drive growth, and innovation. It also gives firms an edge in client retention because it allows them to adapt to the dynamics of the market so they can maintain profitability.
Through outsourcing, accounting firms can continue to scale up their operations without the fear or risk of losing loads of money, even as business demands continue to fluctuate due to ongoing economic problems like elevated inflation. This is because they get access to the resources of their outsourcing partners. The flexibility that comes with these resources allows firms to manage increased workloads during economic expansions or downturns while mitigating constraints on internal capacity.
By outsourcing accounting functions, firms can customize services per their unique needs and preferences. While clients continue to assess which services they should keep and which they should get rid of during inflation, a customized service helps accounting firms get an edge. Outsourcing firms can customize solutions that align with accounting firms' unique needs and objectives, which helps these firms tailor solutions that ensure maximum efficiency and effectiveness.
During times of elevated inflation, it is the customer’s experience that makes the biggest impact.
By leveraging the expertise of outsourcing partners, accounting firms can ensure the timely and accurate delivery of accounting services, which helps improve client satisfaction and loyalty. Clients might need additional support and guidance to navigate economic uncertainty, and the experience of outsourcing partners during this time can go a long way, especially during periods of high inflation.
Accounting firms are responsible for protecting their businesses financially. In 2024, businesses will continue to be tested. They should constantly monitor their strategies and performance to stay ahead of inflation. As accounting leaders continue to adhere to such strategies, they must be proactive about safeguarding their organization’s financial future.
While outsourcing is strategically a great way to take on the challenges of inflation, it helps accounting firms grow regardless of economic conditions. For small firms especially, outsourcing is a great way to overcome the impact of inflation on accounting.
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