GSJ: Volume 9, Issue 7, July 2021

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THE IMPACT OF OUTSOURCING ACCOUNTING SERVICES TO

SMALL AND MEDIUM ENTERPRISES’ GROWTH AND
PERFORMANCE
Jema C. Daproza
Student, University of Rizal System Antipolo City
Antipolo City, Rizal, Philippines
[email protected]

ABSTRACT

Outsourcing of accounting services is one of the biggest trends in the present-day competitive
corporate world. This research work aimed to review various articles and studies that explain
how outsourcing of accounting services help companies. Specifically, it focuses on the impact of
outsourcing accounting services to Small and Medium Enterprises’ growth and performance.
Some SMEs tend to encounter problems in handling their accounting functions that can greatly
affect their performance. The paper revealed the benefits associated with outsourcing accounting
services. Furthermore, the literature reviewed showed the reasons why SMEs utilize outsourcing.
It is being used as a strategy to enhance SMEs performance that leads to potential growth.

Keywords: Outsourcing, Accounting Services, Small and Medium Enterprises, Growth,

Performance

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GSJ: Volume 9, Issue 7, July 2021
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INTRODUCTION

Business environment is so dynamic and it is very competitive nowadays. Sustainable

competitive advantage is a key for a business to survive and succeed in the rapidly changing
market environment. However, the diversity of businesses have created disadvantages to the
Small and Medium Enterprises capabilities so as to sustain their competitive advantage since for
SMEs the resource constraints are usually more significant than for large companies. (Jayabalan
et al., 2009). Small and Medium Enterprises lack the necessary resources such as knowledge,
skills, competencies and expertise which make sustaining competitive advantage more
challenging. Resource-Based View (RBV) states that the restricted resource of smaller
companies makes it essential for them to get resources from external sources (Kamyabi & Devi,
2011). Thus, obtaining capabilities from external service providers is attractive and helpful to
SMEs.

Accounting functions are cornerstones to businesses’ growth and success. These functions are
essential in business to sustain competitive advantage. The provision of high-quality accounting
services is one of the important components of business growth and development. In the
competitive environment nowadays, outsourcing of accounting services is very popular because
this enables businesses to be profitable and efficient by cutting down costs, reducing risk and
fraud and gaining access to the expertise of professional accountants.

DISCUSSIONS

The Need for Small Medium Enterprises to Outsource Accounting Services

Today, businesses are adopting best practices and strategies in order to adapt to the abruptly
changing world ( Egiyi, Modesta & Florence, Alio, 2020). Many challenges need to be dealt by
business as they create advantages for business competitiveness in the market. Small and
Medium Enterprises, in particular, find it more difficult to deal with the challenges in the
competitive business environment. Technological advances, increase in customer demands and
strong competition that result in an unstable and unpredictable business environment is one of
the challenges should be dealt with by Small and Medium Enterprises (Kamyabi & Devi, 2011b).
Being a small firm compared to larger companies, Small and Medium Enterprises are more
susceptible because they lack the necessary resources and capability to grow and survive
(Kamyabi, Yahya & Devi, Susela, 2011).

In order to address the gap in resources, Small and Medium Enterprises need to reduce cost and
create more opportunities by utilizing external resources. Obviously, outsourcing practices would
be a great way to cost-reduction and create opportunities for profitability and growth.

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Outsourcing improves the company’s focus on important business related matters because the
management has enough time by utilizing external resources ( Egiyi, Modesta & Florence, Alio,
2020). Furthermore, outsourcing enables a company to free-up resources and redirect them to
core activities that have a greater impact on business performance. And of course, a lower cost
structure by having access to external providers is a compelling factor for outsourcing ( Egiyi,
Modesta & Florence, Alio, 2020).

Outsourcing of accounting services is one of the practices being utilized by Small and Medium
Enterprises. Accounting functions play a big role in the development of any business. Majority
of SMEs tend to outsource these accounting functions due to lack of the necessary skills,
knowledge, expertise and resources. They find it difficult to carry out the accounting related
activities taking place in their business and in performing an accounting cycle to prepare sound
Financial Statements. The difficulty in preparing Financial Statements results from many factors
such as lack of necessary financial and non-financial resources (Hidayati, 2013). These
circumstances motivate most of the SMEs to outsource accounting services. This is an option for
SMEs to create and maintain competitive advantage in a competitive business environment
(Kipsang, B. S., & Mwangi, M. (2017). The provision of high quality accounting services is an
important component of business development. Palesheva, Nadezhda & Zonova, Nadezhda &
Grin, Svetla (2019).

The Benefits of Outsourcing Accounting Services to Small and Medium Enterprises

Cahyaningtyas & Ningtyas, (2020) mentioned in their study that company performance, usually
measured as financial and non-financial, has been one of the most-studied topics. Moreover,
Almajali, A. Y., Alamro, S. A., & Al-Soub, Y. Z. (2012) revealed the importance of company
performance to management. Performance is one of the measurements that show what the
company achieved for a certain period of time. The ability of the company to gain and manage
the resources in different ways in order to develop competitive advantage is being reflected on its
performance. Unfortunately, most of the SMEs are struggling to successfully achieve exceptional
performance and sustainable growth in the competitive business environment.

Outsourced accounting service is one option for SMEs to improve their performance and sustain
competitive advantage in the competitive business environment (Kipsang & Mwangi, 2017).
Husin & Ibrahim (2014) revealed the need for SMEs to consult the expert on accounting
practices to improve their performance. Moreover, Agburu et al. (2017) found out the benefit of
outsourced service to SMEs competence, thus enabling effective and efficient cost-reduction,
improving their responsiveness to rampant changes in the business environment, and reducing
risks from technological advances.

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Most if not all, Small and Medium Enterprises may not have sufficient resources and expertise
in-house to stay compliant and effectively monitor financial performance, thus the need for
support from external accounting and finance experts has undeniably grown over the years.
Outsourcing high-quality accounting services is being embarked as a cost-effective strategy to
save cost and time doing accounting functions and allows the companies to have more focus on
the core competencies. This is supported by Raluca (2015) who pointed out that by delegating
the accounting functions to external service providers, the employees and managers may be able
to have the extra time to focus on other responsibilities and pay attention in addressing problems,
thus achieving more for the company’s growth and improve performance. Furthermore, major
investments in human resources, equipment, software, infrastructure of an internal accounting
department are being eliminated by outsourcing accounting services. This is a practical option
for SMEs who lack the resources and capabilities. Moreover, the reduced investment needs can
give SMEs the opportunities to allot the saved capital to other value-added revenue-generating
activities wherein resources can be used more efficiently Mikko & Juntunen (2018). This
strategic option can give a positive impact on the SMEs financial performance by achieving a
higher profit level with smaller capital. Hence, this enhances the financial performance metrics
of the SMEs.

In today’s world where technology continues to change and advances from time to time, the
market environment is also changing continuously. Through availing systematic outsourcing
accounting services the SMEs can reap benefits with up-to-date technology (Kumaran, 2013).
This gives companies the access to high-quality performing accounting software programs. The
responsiveness of the company to rapid change and advancements of technology is also essential
to perform exceptionally and to have sustainable growth where business industry competition is
stronger than ever before.

CONCLUSION AND RECOMMENDATION

The articles reviewed showed the reasons why Small and Medium Enterprises do outsource
accounting services and how this practice or strategy impacts the business growth and
performance. The literature reviewed concluded that outsourcing accounting services have a
positive impact on improving performance and attaining sustainable growth of SMEs. However,
the literature reviewed shows insufficiency of studies on the control of risks associated with
outsourcing accounting services. Thus, it is recommended to conduct further studies in
mitigating risks of outsourcing accounting services and how SMEs do to control risks while
taking the advantages of outsourcing and improving their performance.

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ACKNOWLEDGEMENT

The author would like to extend her gratitude to the authors of all the references used in writing
this paper.

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