Frontline Accounting: The Frontline and the Back Office

Three years ago, two accountants looked at the future of accounting, and then decided to become it. Frontline Accounting’s two Australian partners have outsourced the entire workings of their firm to the Philippines from the beginning – and would never do it differently. They’re on the front line, run entirely by a back office. Let’s see how they make it work.

How it began: the story until now

As a young firm in their third year of operating, Frontline employs a total of 59 staff (excluding its two Melbourne-based partners), all based in their Manila office: 13 who work specifically for them (partly in the accounting firm and partly supporting their offshoring business) and 46 who work across 16 other firms – and they’re constantly adding more.

From an initial idea to hire accounting staff in Manila running entirely through Xero, the two partners, Mark and John, launched the firm without any staff or clients, hired a single Filipino accountant (who is still with the firm) and grew exponentially from there. As they explain it, they “identified an opportunity and just went for it”, realising that this completely new kind of business model was the future of the accounting industry. Indeed, this additional revenue stream is all enabled through improvements in technology, like Xero.

As the firm grew and built a reputation for itself, inquiries began coming in from other firms and led the partners to realise that they could offer this kind of outsourcing as a service for other accountants – and, as Mark explains, “it’s exploded from there”.

Originally, Mark was spending a week per month in Manila, but has increased this to three weeks per month after realising how much he enjoyed the city, and expects to spend even more time there as time passes. After the growth off the offshoring business, Mark spends most of his time running that, while John runs the accounting firm day to day.

Deconstructing the sweatshop myth (and the fear)

Perhaps the biggest issue the firm (and other firms using their outsourcing service) has had with outsourcing was not the work itself but its reputation in the Australian marketplace. Those who don’t understand the finer details of business models such as Frontline’s often perceive these offshore offices as a kind of sweatshop – a mindset Frontline and their associates are working hard to reverse.

Their offshore staff work in offices of Australian standards, and are smart, switched on workers with full accounting degrees who have been through their CPAs. From Frontline’s experience, these employees are hungry to learn and speed through the training – perhaps a little more than their Australian rivals.

Handling cultural differences is an inevitable hurdle for firms taking the outsourcing route, but as John notes, it’s often no different to the frequently multicultural Australian workplaces.

With all this sweatshop gossip, do Frontline and their associates keep the specifics of their business model on the down low? Surprisingly, it’s quite the opposite. Most of the firms aren’t keeping their outsourcing a “secret”, aside from a handful of regional firms based in communities with very negative perceptions of outsourcing.

For the most part, firms are fairly comfortable in it and are actually considering offering it as a service to their client base. As the two explain, an accountant’s purpose is to help your clients, and if their clients have a struggling business (bearing in mind that payroll is often a company’s biggest cost), helping them to outsource staff could absolutely become a part of this.

Frontline includes a clause in all their engagement letters that allow them to outsource whichever parts of a job they choose to. Every time they meet with a client, they’re completely open about how they’re structured and where the work will be done. They’ve found that because they’re not trying to hide it, clients don’t tend to question them about it. Indeed, their offshore staff deal directly with clients, so there’s no way they could hide it! Frontline speculates that the clients probably appreciate the firm’s outsourcing efforts because they’re receiving better service and the full package (compliance and advisory) at a lower price than they would with purely Australian staff. Not a single client has objected to having their work completed in the Philippines.

It comes down to how confident you are with your client base and how you position yourself. It could be an ethical issue if you established an offshore team, sent all your work there, didn’t inform your clients and yet still charged them the same prices, but this is not the approach these savvy firms are taking. Clients understand that they will either be charged a lower fee (for compliance), or get more value for the same price (compliance and advisory).

Though many partners (particularly those of larger firms) worry that choosing to outsource would cause their Australian employees to fear for their jobs, not one of the firms Frontline works with has taken a redundancy approach to their outsourcing – for each one of them, it has been in the name of growth (mainly with the intention to outsource compliance to free up time for advisory over here). Even so, many firms are sending their staff to their Manila offices for a week or two for reassurance. According to Frontline, once the staff have been there for a week or two, they have a much more positive perception of it; despite arriving as sceptics, they’ve returned as advocates!

Training: an investment

Their only initial difficulties have been around staff training – particularly with employees not knowing certain areas like GST and superannuation. Being a start-up firm, they lacked the systems to speed up these training processes, so the training was done on a rather time-consuming, trial and error/job to job basis. The partners explain that the initial training of their staff (“from the ground up”) was a huge personal time investment.

Now, three years in, they’ve systemised their training and even begun outsourcing much of it so that a new staff member can be trained in a fraction of the time. However, the biggest difficulty with their business model is undoubtedly still in the training. The partners claim never to have had an applicant with Australian tax experience. They’ve had a single applicant with Xero experience and five applicants with SMSF experience – and that’s it. The rest, despite having accounting experience, have had no exposure to Australian accounting.

Getting staff to present the work the way the firm wants it to be presented and to the quality the firm wants it is just another part of the training process. Even English language skills can be a problem, but Frontline has found providers who have been able to improve this, such as training them in email communications, and have noticed a significant difference.

Aside from the training, Frontline’s experience has been an entirely positive one.

Advice for firms considering outsourcing

Frontline’s advice for firms considering outsourcing centres around one key idea: outsourcing will not solve your internal problems. The right systems must be in place in your firm before you consider outsourcing; it’s not a solution to free your firm from a backlog of work. Firms must carefully consider how they will structure their workflow and systems to make jobs easier at both ends; if it’s a mess at one end, it’ll be a mess at the other end.

Clearly, not every accounting firm will adopt outsourcing as a business model. It takes a change of mindset and the firms that do make the switch will need a different skillset, one incorporating communication, sales, and problem solving for clients (all of which are desired traits of any accountant). The firms that don’t turn to outsourcing, according to Frontline, will struggle. However, the firm warns that this is a very difficult model to implement for a sole practitioner with no Australian staff, as the partner will need to manage all the workflow as well as client interaction. A multi-partner firm with multiple staff and senior accountants is the ideal size for this model.

The most important outsourcing advice Frontline offers to firms is that it’s not as hard as people think. Many of us are afraid that it won’t work, but it’s “really not that hard”. Frontline advises beginning with two offshore staff (not one, as they won’t work as well alone), perfecting your systems and learning from cultural differences, before growing your team (there are no limits here!).

Another important aspect to consider is that though outsourcing is a cost-effective option, your offshore employees are no less interested in developing their careers and receiving interesting work; you can’t merely push over all the menial work and expect them to remain contented with such work as a career for the rest of their lives. Frontline’s team cover all aspects, from cash flow forecasting and budgeting to even dealing with clients directly – exactly what an Australian team would be doing, if they had one.

Their business model

Though full outsourcing is a job by job process controlled by the outsource provider, Frontline run an outsourcing model called staff leasing. With this structure, Frontline hires the employee and then that employee is leased to an accounting firm and treated as an (Australian) employee of the firm, despite the fact that Frontline is their official employer. Frontline creates an environment and gives the employees an infrastructure to do their work, although it’s up to the individual accounting firm to do the training and workflow management.

That being said, Frontline is currently offering training packages that involve themselves incubating the new firm’s staff with their own team, as the first two or three months have always been the hardest for new firms. Frontline takes these new employees through their Xero certification, bookkeeping, BAS, tax, compliance training, and even cultural training and email English. With this wide range of training, the biggest outsourcing challenge is removed the firm new to outsourcing. This model is undoubtedly more of a long-term investment in individual staff members, but it allows each firm control over the process and the workflow.

Indeed, many of the accounting firms working with Frontline have attempted outsourcing before but have run into problems like slow turnarounds that they are powerless to stop. Some firms have had staff trained up and then that staff member has been moved by the outsourcing provider – not exactly ideal. With a leased outsourcing model, they have full control over staff and turnaround times, can train staff to their own way of thinking, and use a staff member’s particular background or skills to tailor what they’re offering to their clients.

This is why Frontline prefers a leased staffing model, because it’s as though it’s their own employee simply working from a different location. Indeed, many firms are applying outsourcing as merely an extension of their existing Australian firm, communicating through video calls and involving the staff at the other end in what’s happening to create a sense of team. With daily huddles, online birthday celebrations (with real cake!) and staff travelling to Australia for training, it really is just like having another office, albeit with some cultural differences.

Clearly, firms aren’t approaching this as a temporary cost fix (a doomed strategy anyway); it’s truly a long-term investment that they’re planning. And judging from the fantastic results firms are reporting (as well as their referrals to other firms), “so far it’s been a ripper”.

For Frontline, outsourcing is a full end-to-end process, incorporating year-end compliance for SMEs, SMSF administration, audits, some corporate secretarial/admin and dealing with the ATO, bookkeeping, and essentially anything that would be done in a traditional accounting firm. 100% of their fees come out of their Manila office, and even daily mail is scanned upon arrival and emailed out to their clients by the staff. Having their compliance work taken care of by their offshore team has definitely made adding more interesting, value-added services much easier to do, as has back-end work off Xero for their advisory components.

Frontline have had all kinds of firms, from small outsource-focused start-ups to large, multi-partner firms with multiple staff already in Australia join the outsourcing revolution. And just to compare the figures, a full-time accountant in Manila will cost between AUD 15-20k per year (all costs covered), as opposed to the average 67k for an Australian accountant. That’s four accountants for the price of one.

Technology

Though some of the firms Frontline works with are fully cloud-based (like Frontline themselves), not all firms are using Xero, so many of them are running MYOB or Quickbooks through a remote desktop connection, logging in to an Australian server.

Frontline describes this use of a server as “not ideal”, explaining that it’s a bit slower than working in the cloud, though it still works.

If anyone can prove that globalisation is only a threat if you treat it as such, it’s Frontline. This firm is indisputably at the front of the line, thanks to a futuristic outlook and their ability to embrace change and use it to their advantage.