Leaving The Accounting To Them | Article

CalculatorReSourcePhoenix.com loves high growth companies on the cusp of going public. They need sophisticated financial services but don’t have the capital to invest in the requisite accounting infrastructure. That makes them perfect clients for ReSourcePhoenix.com, a financial application service provider.

Using an ASP can benefit the prospectus of any high growth company. Bryant Tong, president, says investors like a pre-IPO company whose internal controls are strong. (That’s always a strong suit for a financial ASP.) In addition, the quality of its financial information is far greater and its depth of financial expertise is much deeper than if its financial data were generated in-house.

ReSourcePhoenix.com (RPC) receives leads from venture capital firms who are financing these high growth companies. Currently, ReSourcePhoenix.com is a preferred vendor for Silicon Valley Bank and Imperial Bank, two active venture capital financial institutions in California.

These banks want to insure the accounting staffs of their new companies keep up with their geometric growth. Tong tells of one client, Tom Weisel Partners, that had 19 employees when it signed on. Fourteen months later there were over 500 on the payroll. “When a company is growing rapidly, it needs to concentrate all its resources in its core competency. We provide the infrastructure to support this growth,” says Tong.

ASPs Generate Big Savings

Using an ASP makes good use of VC dollars. Tong said a high growth firm compared the cost of these two solutions to its accounting dilemma. If it built an in-house department, the software would cost $860,000, the hardware $200,000 and the salaries $840,000. The first year’s initial investment would have been $1.9 million. The estimated on going cost yearly totaled $980,000.

Using RPC, there were no software, hardware or personnel costs. Instead, there was the annual fee of $640,000. On-going costs were $200,000 less or $780,000 a year.

Of course, RPC’s business model worked long before there were Internet IPOs. In 1993 the founding partners at RPC believed many companies were not interested in doing their own accounts payable and receivable, general ledger, daily P&L expense reports, financial reporting, tax reporting, and budgeting and analysis. So the financial outsourcing company opened its doors to provide all the services that fall under the chief financial officer, recalls Tong. “We are the CFO’s arms and legs,” he says.

Snail mail and fax connected the outsourcer with its clients. Then the Internet changed everything. “The Net provided an inexpensive means to deliver information,” says Tong. “It gave us wind for our sails.”

Today, RPC processes all of its work offsite at its two operations centers. The firm has a 45,000 square feet facility in San Rafael, California and a 67,000 square feet operation in Alameda, California. It’s currently in the site selection process for a 30,000 square foot facility outside of Boston.

The outsourcer uses Oracle and Sun Microsystems technology. It worked with Cisco to develop a virtual private network so it can use the Internet to deliver data to its clients. In addition to solving the security issues, the virtual private network allows RPC customers to print off its applications.

Providing the Accountants, Too

RPC maximizes this technology by also providing the personnel expertise needed to get the job done. Tong likens the financial outsourcing process to giving someone a Formula 1 racecar. They are responsible for everything to make it race ready. RPC, however, provides not only the car, but the driver and the pit crew, too.

Letting an ASP handle the financial tasks allows Tong’s managers to assign accomplished accounting talent to each client’s account, talent that most of its customers couldn’t afford if they had to put them on their payrolls. RPC is responsible for recruiting, hiring and training these employees. “We provide far, far greater expertise than if they had their own accounting departments,” says Tong. He calls the task of building a high quality internal accounting department in today’s changing world “daunting.”

Three years ago the financial ASP faced a hard sell. Tong says prospects told him they would never outsource their accounting group because they were worried about internal controls. They liked the comfort of walking down the hall to take a peek at the books. The Internet, however, changed the way businesses process information. Today companies are much more accepting of financial outsourcing.

The outsourcer had 23 external clients at the end of last year. But it signed on five new clients in January alone. “For these clients, the changing technology is overwhelming. Now they ask us, ‘Can you outsource the entire function?'” says Tong.

Lessons from the Outsourcing Primer:

  • High growth companies need to invest their capital in their core business. ASPs provide the costly infrastructure they don’t want to purchase.
  • ASPS can save a significant amount of money per year.
  • ASPs assign top-notch personnel to their client accounts. They also handle recruiting, hiring and continual training.
  • ASPs can produce better reports and internal data thanks to their tier one software.
  • As accounting software continually changes, more and more companies are outsourcing their financial functions.

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