Outsourcing. It's a big economic boom for some and a big nightmare for others. Outsourcing has been a hot topic of debate among politicians for a long time. Turn on your TV and you'll see many a show, especially "The West Wing" tackle the issue of outsourcing.

So what exactly IS outsourcing?

Simply put, outsourcing is the practice of subcontracting various jobs to outside of the country that you live in.

The first question most people would ask is, "What are the advantages of sending jobs overseas?"

Well, the answer to that question isn't a simple one because it depends on who you're talking about. See, outsourcing is good for some people and bad for others. So just who gains and who loses out?

Let's start with the people who make out. The companies themselves are at the top of the list. Okay, why? Well, the best way to explain this is with an explanation of how business works in the United States as opposed to a country like India.

In the United States companies pay relatively high taxes and wages. The minimum wage in the United States is one of the highest if not THE highest in the whole world. The taxes companies have to pay are also very high. So to manufacture a product, say computers in the United States, would cost a considerable amount of money.

Now, take that same company, set up an office overseas in India where taxes are lower and the wages are lower and have them make the same product and what happens is the product can be manufactured for less and ultimately sold for less. This allows the company to be more competitive in the market place, pay lower wages while doing it and making more money in the long run. The end result is the companies that manufacture items overseas to sell in the United States make more profit.

From the above example it is clear to see that the companies stand to make out very well with outsourcing. Other people who make out well are the consumers. They get to purchase these products for less money. Certainly that has to be a good thing as well, which it is. Plus, you're giving jobs to people outside of the United States who probably wouldn't be working otherwise. So obviously that is good too.

So who ends up getting the short end of this deal?

That would be the American workers who lose their jobs because they have been outsourced overseas. Most people can't just pick themselves up and move to India. And even if they could the wage they would have to live on would be nothing compared to what they were used to. So ultimately what happens is these people lose their jobs and with outsourcing we're sometimes talking about a hundred thousand people suddenly out of work.

The question becomes, what do these people do? For most, there aren't enough jobs available in their field to get a new job. Some do. But what about the rest? Many are too old to be retrained. It's hard to be a 55 year old steel worker and try to get trained in computers and actually get a good job. It isn't that easy.

So the people who suffer are the ones who lose their jobs, and this number is substantial with the amount of outsourcing that goes on.

But it doesn't end there.

See, when these people lose their jobs that means they don't have as much money to spend, usually having to accept a job for less money. So by spending less that affects the companies around them because THEY are now not making as many sales, especially small business owners like restaurant owners who now serve fewer people. So now they make less money, have to lay off people, and so now there are even fewer people spending money. And the cycle goes on and on until eventually we run into a recession.

Some people would say that outsourcing is great. Some people would point to the downside and say that it's bad.

I guess it depends on what side you're on.

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Michael Russell
Your Independent guide to Outsourcing
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The best choice is often dependent upon the size of the business and the employment of full time accountants, accounting staff, bookkeepers or management of the accounting records by the proprietor. Every business needs to choose the most appropriate accounts package according to both the requirements of the business and the capabilities of the person or people who will operate the accounting solution.

Many small businesses do not benefit from sophisticated accounting software if the technical requirements of that software exceed the abilities of the users to produce efficient financial records and use the full capabilities of the accounting software to maintain a high level of financial control.

Alternatively a simple bookkeeping package may not offer the degree of financial control over such financial matters as debtors and credit control, creditors and cash flow liquidity that may be required. Financial control and cash flow is of supreme significance and importance when credit is tight.

Every business needs to maintain a set of books and accounts to satisfy the legal obligations to calculate the net taxable profit which has to be both declared to the taxation authority and provide sufficient financial records to support that calculation.

Up until the mid twentieth century it was common practise to produce accounts handwritten on paper, Typing being reserved for the final set of accounts for publication as required. Handwritten accounting records are largely obsolete for medium and larger businesses although still used by many small business organisations.

With the advent of computers accounting software has become the norm and there are many simple bookkeeping packages that can be easy to understand and offer sufficient levels of financial control for even the smallest business.

In essence each small business has a choice between preparing a handwritten set of accounts, using a simple bookkeeping package which could be based upon spreadsheets or a more sophisticated accounting software package that almost invariably use a data entry system into a database which can then be queried to produce the required financial control.

Choosing handwritten accounts would only be applicable to the smallest business where the proprietor had no employees, limited numbers of transactions and had full financial control without the need for written information. Such handwritten accounts would not be suitable for any business that required control over debtors and creditors or that needed to produce a balance sheet.

For those businesses that could suffice with handwritten accounts there are better options available such as using computer spreadsheets. Minimal knowledge would be required and the benefits substantial compared with being handwritten.

An accounting package based upon computer spreadsheets is suitable for most small business as it can be no more difficult than maintaining handwritten accounts but in an organised format. The sophistication of the format would be according to the ability of the designer of the accounting solution or the bookkeeping knowledge of the person preparing the accounts.

Accounting software written on computer spreadsheets have advantages in that they can save time in data entry, improve accuracy, can be changed to correct errors, highly visible and provide all the basic bookkeeping needs of a small business. Accounting solutions written on spreadsheets are normally limited in relation to financial control and medium sized businesses that require additional control over debtors and creditors may be more suited to a database accounting software system.

Generally if a business is large enough to employ a full time bookkeeper or accountant then that business potentially has the accounting knowledge and skills within the accounting function to use a database accounting system and achieve the additional financial control elements which become available.

Accounting software that uses a database has the facility to produce regular financial and tax reports, debtors reports and statements, creditors reports and statements, cash flow statements and a set of monthly and final accounting reports such as profit and loss accounts and balance sheets.

The disadvantage of such accounting solutions is that to get the most and best out of the system you also need to understand how the package works and how technically to obtain from it the benefits of increased financial control that are available.

The main priority in choosing any accounting package is to first determine the final requirements you need from that administrative system. If detailed financial control, particularly over individual supplier or client accounts is essential and the business is large enough to employ office based staff including an accountant or full time bookkeeper then a database system may be the appropriate choice.

If the business is smaller and requires detailed accounting records to support the year end financial statements while financial control is already sufficient to be in the hands of the business owner then accounting software based upon spreadsheets would probably be adequate. The degree of adequacy being dependent upon the level of expertise contained and automated within the accounts program.

Handwritten books would be the lowest choice. Adequate for some small businesses but only suitable if a computer based option was impossible.

Terry Cartwright, CEO DIY Accounting, a qualified accountant in the UK, designs Accounting Software on excel spreadsheets and Payroll Software for small to medium sized business providing a complete accounting solution and also supplies Company Formation packages for new limited liability companies