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The Realities Of A Virtual Accountant

Since the Internet has made the business climate more competitive, the digital age is forcing companies to look at new ways of business. Companies that plan to succeed tomorrow have to shed all non-revenue-generating processes today.

Accounting is one area where corporate funds can be better utilized in more strategic areas. But until recently, companies have been leery of handing over their purse strings. Today companies are becoming more comfortable with financial outsourcing because they have experienced great success in outsourcing less sensitive areas like IT, human resources and facilities management, notes Brian T. Regan, principal of LOR Management Services LLC in Los Angeles, California. LOR, an accounting and financial services outsource provider, calls itself "a virtual accountant."

Until competitive pressures changed minds more easily, Regan says outsourcers had to overcome the fear of sending mission critical information outside the office. "We constantly encounter worries grounded in traditional accounting practices," the executive says.

Common questions include: "How can I be sure an earthquake won't corrupt my data?" (backup servers), "How do you prevent one of your employees from writing a $1 million check from my account and heading to the Caribbean?" (supervision plus liability insurance), or "How can I know you won't underpay a vendor by mistake and put my credit at risk (accountability).

Fast Growing Companies Chose ASPs

Mature companies look to financial outsourcing to reengineer their creaky older processes, bringing them more in line with today's brave new world. Regan says they are much more challenging because they need a great amount of reengineering of both people and technology.

Start-ups are also turning to outsourcing. These firms outsource their accounting function from day one. They understand their survival depends on focusing on their core competencies, so they understand the benefits of outsourcing.

They are also being influenced by their investors who want to see fixed costs for non-core competencies on their balance sheets. Regan says LOR has established relationships with venture capital firms, law firms who advise emerging technology companies and institutional investors who can refer new clients.

Outsourcing the financial area also makes sense for fast growing companies because they don't have time to manage the utilization rates of their employees. They don't have to hire part timers or contract labor. Instead, LOR professionals work for them when needed. They also work for other LOR clients, creating economies of scale.

Regan says companies hiring a virtual accountant for the first time should:

• Talk to the supplier's other clients - alone.
• Visit the supplier's office.
• Make sure the supplier understands your business. Of course, that means you have to understand it first.

Partnering With Great Plains

LOR is the outgrowth of an existing LA CPA and business management practice. Four years ago Nely Galan, a high profile Hispanic television producer, became a client of the firm. LOR helped place a chief financial officer in the company and then undertook processing the firm's cash management, bank reconciliation, general ledger and financial statement preparation under the CFO. LOR provided access to all the information the CFO needed online. "We made it simple for Galan to manage the books," says Regan.

This relationship was so successful that a few of the firm's other business management clients wanted to outsource. LOR decided to form a separate company to become an outsourcing provider in November 1998.

Once the executives made the decision to become a provider, they had to select a software package. After exhaustive research, LOR became one of the first small to mid-size firms to partner with Great Plains software. Regan says Great Plains "was very solicitous" of LOR's input because at that time the software manufacturer was looking at the emerging viability of Web-enabled applications. He says Great Plains was trying to figure out how they were going to maintain its revenue streams in an increasingly Web based world. LOR's association with Great Plains has been like a rainmaker for the outsourcer. "Our relationship has driven a tremendous amount of new business our way," says Regan.

LOR decided to merge its outsourcing and Application Service Provider offerings to provide a hybrid environment. Typically, clients will outsource their back office functions, including accounts payable, accounts receivable, general ledger and management reporting. But they may want their own staffs to handle the order processing. For this function, LOR becomes an ASP, making the Great Plains software available on the Internet on a subscription basis.

The E-commerce Solution

This hybrid system works well for clients like GOTMERCH.com, a Los Angeles-based storefront and back-end fulfillment company for media Web sites. Consumers who visit the Web site of their favorite radio station and order a ball cap actually deal with GOTMERCH. It is the fulfillment agency for a host of these sites.

Before the popularization of the Internet, GOTMERCH would have staffed a back office to perform all the traditional accounting functions. It would also have hired a full processing staff to manage all the incoming orders.

Today, the order flows from the radio station's Web site to LOR's computer real time. Then it goes to a warehouse in Los Angeles where the order is packed and shipping by LOR staffers. If the order is in inventory, it is shipped and recorded as a sale. If it's on back order, the order is tracked until it's shipped. "Our ecommerce package marries the sales order process to the general ledger accounting server, making it efficient and accountable," says Regan.

Plan on having a long term relationship with your supplier. "If we do our job properly, it will be very difficult to leave us," says Regan.

Lessons from the Outsourcing Primer:

• Financial outsourcing allows you to focus on your core competencies.
• Check out the supplier to make sure safeguards are in place. That includes talking to its other clients and visiting the site.
• E-commerce is simple when the orders go directly to the outsourcer's system real time.
• Hybrid financial outsourcers will also do ASP functions.

Publish Date: June 2000

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Copyright © 2000 - Everest Partners, L.P.

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