Posted by Neha De
July 23, 2021 | 8-minute read (1547 words)
Up-to-date financial records are critical to the success of any business. But as a startup owner, your time is valuable and should be better spent developing your business and focusing on other core tasks, instead of inputting numbers into a spreadsheet. And usually, startups don’t have a large enough financial services team on staff to deploy all of the growth strategies that will help them expand.
As a solution, outsourcing accounting, bookkeeping and chief financial officer (CFO) services are becoming a popular choice among firms that are looking to reduce their overhead expenses and increase efficiency at the same time.
What is outsourcing, and why do it?
In simple words, outsourcing is the practice of getting certain job functions done outside an organization. When a business decides to outsource, it essentially delegates a part of its company’s work to a third-party contractor or agency. Outsourcing is typically undertaken by enterprises as a cost-cutting measure.
Let’s take a look at six top reasons outsourcing critical functions like accounting, bookkeeping and CFO services can be a strategic decision for your startup.
1. You’ll save money: One of the driving forces behind outsourcing is the need to keep your company afloat by watching your costs. Outsourcing allows you to cut overhead costs because you don’t have to spend on salary and benefits like retirement, vacation time and health insurance — outsourced workers usually cost less than regular full-time workers. In addition, you won’t need to spend money on software and the equipment essential for handling the accounting and finance processes.
2. You get access to experts: Accounting mistakes can have disastrous repercussions on a company, such as penalties, cash flow issues and even an investigation by the Internal Revenue Service (IRS). Outsourcing functions such as accounting, bookkeeping and CFO services gives you access to a team of trained and highly qualified professionals who use the latest technology and processes to ensure that your data is accurate and secure.
3. You’ll have time to scale your business: From employee onboarding and payroll tax calculations to managing your accounts receivables and paying invoices, you could most likely fill a whole day just tackling the minutiae of your work.
As a business owner, your most important task is growing your business, and your key functions are taking care of the processes that drive revenue. Outsourcing critical tasks allows you the time to focus on the core parts of your business. With outsourcing, you can focus on what you are good at and let experienced, third-party contractors take care of support functions.
4. By nature, outsourcing is flexible: By selecting an outsourcing company that specializes in finance and accounting, you can benefit from a solution that is tailor-made for your company. You can also add or remove financial and accounting processes depending on your needs. For instance, if you need seasonal help, you can choose to outsource for a few months only. As demand wanes, you can scale back and pick up again when you need it.
5. You have improved internal control: According to the Association of Certified Fraud Examiner’s study from 2012, the most common victims of fraud are small businesses that employ fewer than 100 employees, and the median fraud amounts to an astounding $147,000. This is because most small businesses don’t have access to an accountant or CFO who could spot abnormal activity in the transactional and billing data. Outsourcing accounting helps you reduce the possibility of fraud, as you’ll have a dedicated team of accounting experts who will accurately check your books and transaction reports. It also lowers the risk of having your books manipulated.
6. You get enhanced data security: If your company is like most, you’ve got access to enormous amounts of personal information stored on your computers, from employees’ Social Security Numbers and salaries to your tax data. Several businesses also have customers’ private information on hand, from credit card data to invoicing details and beyond. Startups often find themselves working overtime to deploy high-level security programs to keep this information well protected, and even then, they may miss a security update that exposes this data to the public.
If you work with an outsourcing company, you won’t face this issue, because the outsourced firm will put cybersecurity programs in place to ensure that your data is encrypted, protected and secure. If you ever need access to your documents, you’ll be able to find them on shared servers or the cloud, but it will take place over a secure connection so it can’t be breached.
The added benefits of outsourcing CFO services
An outsourced CFO does a lot more than an outsourced accountant and/or a bookkeeper. By profession, an outsourced CFO is a finance expert who offers high-level, strategic services on a project basis or on a part-time basis; for example, working on systems design and analysis as well as operational optimization.
Here are eight additional benefits of outsourcing CFO services that can help you enhance the financial health of your business.
1. Cash flow management: A CFO will run an analysis of the expenses and profits statements, and plan strategies to deal with any financial roadblocks. They can also identify areas and implement strategies to free up cash and improve your company’s overall performance.
2. Strategy and planning: An effective CFO can help your company create strategy and business forecasts and plans. They focus on current performance needs, long-term strategic planning and guidance, and provide customized solutions specifically designed to take your business to the next level.
3. Growth and exit strategies: An outsourced CFO can help prepare all required documents, including business plans and forecasts, in order to raise capital for growth, or prepare your organization for sale. This expertise can help your business achieve a substantial premium on a sale, or better investment/lending terms.
4. Financial planning: If you decide to go public or merge with another firm, the outsourced CFO can develop and execute strategies to deal with rough financial periods and/or sudden growth to ensure a smooth transition. An outsourced CFO can help perform such financial planning functions as setting company goals, conducting market research and analysis, drafting a sales and marketing plan, setting up an accounting and financial management system, finding ways to obtain startup funding and so on.
5. Accurate and timely financial information: The outsourced CFO ensures that the business they are looking after is receiving error-free and timely financial information. The financial statements and other important financial documents are reviewed by an expert, so you can be confident that the information provided is accurate.
6. Review customer contracts: An outsourced CFO can advise business owners on how to negotiate highly profitable contracts. They can also identify potential risks that could end up costing them money and assess whether the contract terms are in their best interests.
7. Process improvement: CFOs can improve several business processes, including month-end reporting timelines, credit and collections processes, client onboarding, reducing lead time to revenue and increasing lead generation. Outsourcing your CFO services can help you analyze and update your marketing strategies to maximize the ROI of your marketing expenses. With an outsourced CFO, you also have time on hand that can be better utilized to drive innovation and product development, leaving financial matters to the experts.
8. Specialized restructuring advice: If your business is going through a major change, such as redirecting its trajectory or restructuring for growth, the required CFO functions may have to be highly specialized, instead of generic. In such situations, your firm can benefit from bringing in an outsourced CFO who can focus on the specialized tasks.
The future belongs to outsourcing
COVID-19 has caused many business owners to review their business’ core operational processes, from spending to remote working arrangements. Entrepreneurs have realized that they need to maintain a laser sharp focus on lean operations, which means that for many of them, it’s the right time to outsource.
The pandemic has also made outsourcing several functions more important than ever, as firms try to scale down their full-time workforces and find ways to save money while still stimulating growth.
There are times when it can be tough to see a future without COVID-19 happening around us, but the reality is that the pandemic will eventually subside, and your company will get back on track to fulfilling its goals again. When that happens, your needs in the areas of accounting, tax compliance, accounts payable and finance will likely grow as well. The outsourcing firm will be able to provide additional hours or even more people to meet your growing business’ needs, with no lag time. If you require four hours’ worth of accounting help on Monday but you realize you’ll need nine hours’ worth by Wednesday, that can happen in just one phone call, rather than negotiating with staff members and putting out recruiting ads.
This also means that when your business expands, you won’t need to spend time hiring accounting and finance staff members. You’ll instead just let the outsourcing firm know that your needs have changed, and they will scale up your operations accordingly to ensure that they accommodate all of your requirements.