Why beauty salons need accounting outsourcing

Despite the fact that outsourcing of bookkeeping and tax accounting has long been widely used by companies in Europe and the United States, Russian business has only a vague idea of this practice. This is due to the closed nature of the topic and the lack of “insider” information about the practical side of outsourcing. To fill this gap, we decided to tell in all the details about the successful experience of outsourcing accounting for a Moscow network of beauty salons. The financial director of MONE Elena Trishkina tells about the stages of project implementation, the intricacies and difficulties of transferring processes to the provider, as well as the results achieved.

Elena, accounting of MONE salons was transferred to UCMS Group at the end of 2010. Has the experience of anti-crisis management influenced on the adoption of this decision?

We started thinking about accounting outsourcing back in 2009. MONE has a specific organizational structure: 18 salons in Moscow, which are separate divisions with their own managers and their own economic activities. We have accepted piecework-bonus wages: payroll is calculated based on the number of shifts worked, and remuneration is calculated as a percentage of revenue. At that time, our accountants first calculated everything in Excel, then they downloaded data from the internal management reporting system, rechecked the data, loaded it into 1C, and so on. In a word, a very large volume of routine operations was performed.

Business processes related to document management and accounting were not built very well, and the existing standards were not fully complied with.

In the crisis year of 2009, it was necessary to think even more seriously about cost efficiency, reducing business costs, but at the same time it was impossible to lose the quality of services. The company had fewer people, and the workload of each had increased. If the chief accountant has constant stress, he/she can leave at any moment, and it is problematic to find a good specialist to replace him/her, who can quickly join the team and professionally perform tasks in the shortest possible time.

We have long paid attention to various risks caused by the human factor and dependence on personnel: for example, due to the illness of an accountant, it is impossible to submit financial statements on time, and because of his/her dismissal, life in the company freezes for a while.

At that time, we had 11 full-time specialists in the financial department for 450 employees. We thought about the effectiveness of using these people and realized that their salary and the costs and risks that the business carries do not give the expected return.

Under the influence of all these factors, at a certain point, we decided that the business needed to improve the quality of accounting. However, the decision to outsource the accounting function was not easy. Still, accounting is something intimate for any company, even if it is absolutely “white” like we are. However, MONE has Western shareholders, top management with Western education, so the understanding that outsourcing would minimize all existing risks and increase efficiency ultimately overcame fears and doubts.

The problem of outsourcing the accounting function is associated not only with its “secrecy”, but also with the absence of an established market for relevant services. How did you choose your provider?

The decision was made on the basis of an analysis of the offers on the market. Since MONE has a western business model, we wanted the provider to also have western business processes, a positive history on the market, good recommendations and be as client-oriented as possible.

As a result, we examined three companies, compared the list and cost of services, risks and guarantees, and opted for UCMS Group.

What did you plan to outsource and what requirements did you impose on the provider in this regard?

We wanted to completely transfer accounting, payroll and HR administration. However, we came to the conclusion that HR management at MONE is a key function, and we ourselves want to communicate with employees on all personnel issues. Therefore, even the routine HR work was left inside.

We transferred the entire accounting function, with the exception of the treasury in terms of drawing up a payment plan and management reports, to the provider. We have also completely delegated the function of communication with tax authorities and various funds to the UCMS Group. Thus, the company retained cash flow planning, which allowed maintaining the sensitivity of management, as well as preparation of management reports.

Since all of our management accounting is based on the individual operating revenue and costs of each salon, one of the fundamental requirements for the provider was separate accounting for each business unit.

In addition, our management reporting system is based on the 1C platform, so the provider also had to keep accounting in 1C to make it easier to integrate data.

How was the transfer process organized?

An agreement with the provider was reached in October 2010, and in November all processes were transferred to the UCMS Group. We were in a hurry, because the deadline for closing the period was approaching, therefore, to be honest, there was no structured plan for the handover, as well as there were no detailed principles of interaction. We hastily prescribed in the contract what is transferred to the provider and in what form. All other, no less important details and issues were agreed upon during the interaction.

UCMS Group experts, of course, did not have time to conduct a complete high-quality audit. They got up to speed as much as possible in such a short time: they looked at the state of reporting, primary documentation, accounting base.

For our part, we believed that we had passed the perfect accounting and hoped to very quickly receive a closed period and the reports, but this did not happen. In addition, immediately after the transfer of accounting, it was required to go through two field inspections of the Social Insurance Fund and one field inspection of the Pension Fund.

We dealt with difficulties together, very closely interacting and communicating on all problematic issues. I cannot fail to note the customer focus of UCMS Group, which has shown tremendous loyalty to MONE as a client. From the provider’s side, Svetlana Makashina and her team worked with us, demonstrating fantastic dedication and commitment to a positive result. Our employees, seeing this attitude, were also ready to work hard on the project. Together, we have successfully passed the checks and closed the period.

Of course, in the first months after the tranisiton, we encountered many pitfalls, it was very difficult.

Obviously, a strict regulation of interaction between you and the UCMS Group was required?

Right. We felt an urgent need to create an interaction schedule two months after the transfer of processes. Creating this rprocedure, we tried to prescribe the entire chain of interactions, including responsibility for the transfer of documents, the procedure and terms for submitting the reports, both from our side and from side of the provider, the timing of closing periods.

Of course, outsourcing accounting required changes in our business processes and redistribution of areas of responsibility within the company, which we also fixed in the regulations.

For example, we changed the profile of the managers of the salons, assigning them the function of interacting with the accounting department. Now the operating director is personally responsible for ensuring that the salon manager weekly delivers to the office properly executed primary documentation, acts of reconciliation with counterparties, and reporting. We also stated that, having accepted the primary documentation, the office manager is obliged to transfer it to the provider on the same day.

Throughout 2011, the regulations were finalized and revised, we improved our interaction with the UCMS Group, brought it in line with changing conditions and business needs.

Last year, for example, the shareholders set a goal to form management reports on a monthly basis for deeper analysis and prompt decision-making, respectively, the deadlines for closing periods were significantly reduced, the requirements for the provider in terms of the quality and speed of obtaining information increased. We also improved the procurement and inventory processes in the showrooms, introduced electronic document flow with suppliers. All of this, of course, was reflected in accounting.

Was the provider able to provide the necessary responsiveness to the changes taking place in the company?

MONE is a very dynamic company and last year we made a really serious leap forward. And if we ran, then the provider ran in step with us. I can say that the availability of outsourced accounting did not impede the development of the company at all.

All new requirements from our side were discussed with UCMS Group, and we always came to a constructive solution.

So, by the beginning of 2012, when you reached your comfort zone in interaction with the provider, the project actually received the status of implemented. What are its results, did the expectations coincide with what you received at the output?

Today, there is no thick line between MONE as a client and UCMS Group as a service provider that separates us. Between us, rather, there is a thin dotted line. MONE receives full, high-quality, reliable accounting function from the provider, and we are confident that under any circumstances we will receive closed reporting, we will be able to quickly and efficiently prepare analytics and report to shareholders.

It is noteworthy that the provider’s specialists communicate directly with our line staff, so that stylists can get detailed information at any time, for example, on the calculation of their salaries. UCMS Group is always with us. Now we live in peace, and it is valuable for business. So there is every reason to believe that outsourcing has fully met our expectations.

Outsourcing was also expected to reduce costs. Tell us about the price.

We have cut our finance staff almost fourfold, from 11 to 3. If we calculate the total costs of sick leave, vacations, replacement of employees during rotation, office rent, organization of workplaces and storage of accounting records, it turns out that we have reduced costs. However, these direct savings were not large, since the provider’s services also cost money.

We aimed not to reduce costs, but to increase the efficiency. From this point of view, the gain is very significant. For example, we freed employees of the finance department from routine operations, and now they devote more time to the analysis and development of professional functions.

We also understand that in order to comply with the current and future changes in tax legislation, the company would require serious investments in personnel training and improvement of the accounting system. Now all this is provided by the provider, and thus we have reduced future costs.

I can say that this project has already paid for itself, and by the end of 2011, the board of directors decided to continue using the services of UCMS Group.

What tasks does MONE plan to solve together with UCMS Group this year?

For example, we recently discussed with the provider the introduction of electronic document flow and accounting in accordance with Russian and IFRS standards.

This year we also intend to improve business intelligence and workflow-related processes. It is planned to optimize payroll systems, automate all areas of accounting to improve the efficiency of business processes.

Accounting is the backbone of the business, and we will continue to hone interaction with the provider to achieve excellence. We strive for perfect accounting.

Elena, thanks for the conversation. Let me ask you the last question: how would you comment on the main argument against outsourcing of accounting – the fear of the risk of criminal liability for the CEO in case of poor-quality reporting?

You just need to choose a service provider wisely, understand and evaluate the level of his professionalism and, of course, retain the control function.

For example, we cooperate with an audit company that annually audits the provider’s activities. Based on the results of an interim audit conducted last autumn, we realized that our accounting meets not only the requirements of Russian legislation, but also the high requirements of our shareholders. We have already got accustomed to foreign experience in Russia, when serious accounting outsourcing companies insure risks and represent the client in resolving tax disputes.

Therefore, we are absolutely calm about our accounting and can focus on business.

Provider’s perspective

Svetlana Makashina, head of the accounting group, UCMS Group

For UCMS Group, the project of bookkeeping and tax accounting of the MONE beauty salon chain was extremely interesting from a professional point of view. It is a large company with separate divisions, complex processes and specific payroll. The short transfer period also became a challenge for us, but it simply could not be accepted.

As for the check that is carried out by the provider before the acceptance of the customer’s accounting, in this case it was really carried out in a very short time. We got acquainted with the acts of field tax audits and audit reports, analyzed the 1C database and selectively looked at the documentation for one of the salons. To understand how the business process takes place in the salons, we took part in the inventory of one of them.

Usually, when time permits, a detailed technical task is drawn up for the preparation of an outsourcing transfer, a kind of work plan for the handover. This includes the analysis of software and submitted reports, random check of primary documentation, as well as analysis of financial and economic activities, organizational structure and management structure of the company. An analysis of the 1C base allows us to understand the level of its customization, to find out what changes and integrations have taken place in all client bases. Particular attention should be paid to the client’s internal software, i.e. production bases, different from 1C, but which allow for auto exchanges between them. We do not welcome changes in typical system configurations, therefore we recommend using external processing in order to avoid any problems in the future, incl. updates. The technical task also prescribes project coordinators and responsible persons from the side of the customer and provider. This phased handover plan makes the transition painless.

In addition, the outsourcing agreement fixes which accounting segments will be transferred and which will remain in-house, the technical side of the provision of services is discussed. For example, the accounting system can be located both at the client’s and at the provider’s, we can either provide the customer with our employees to work in the system, or do the work only on our side. The choice of the process of providing outsourcing services is multivariate.

Immediately after or during the handover, the rules of interaction are always being agreed. Often they describe interactions only between legal entities, while on the MONE project we went further and regulated interactions between employees within companies. We discussed everything down to the smallest detail: what is the sequence of actions in a particular case, what documents must be used, at what time, up to hours and minutes, information must be provided.

In 2011, the MONE network was going through a big change, as a result of which more and more stringent requirements were imposed on us as a provider. For example, deadlines for closing periods and payroll have been significantly reduced. Then, together with MONE, we programmed special treatments for 1C, which made it possible to get away from manual labor.

In general, we at UCMS Group are committed to automation. It allows you to reduce time and costs, minimize the number of errors caused by the human factor, and, despite the expensive development and implementation, quickly pays for itself.

Wide use of IT technologies, among other things, allows us to provide accounting services to legal entities located anywhere in the world. UCMS Group has offices in Moscow, St. Petersburg and Yaroslavl, interconnected by a single software that allows you to exchange data with all regional offices and clients, to spread efforts.

I can say that on the MONE project we have gained tremendous experience in interacting with the client and meeting its growing needs, working with large and separate divisions, as well as experience in automating our own software.