Typically a finance function in a startup consists of the founder and an outsourced bookkeeper utilizing software like QuickBooks or sometimes just plain excel. This setup is perfect for a small business, however, as a start-up starts to scale, seek investors and deal with larger clients, this becomes insufficient.
Building an agile finance function fit for scale that keeps financial records according to international reporting standards requires specialist finance skills that growing start-ups cannot always afford or prioritize. One avenue to bridge this gap is outsourcing your finance function to finance and accounting specialists like an Innovative CFO.
So when should you consider outsourcing your finance function?
- You are scaling business seeking investors:
Valuations for startups are often based on discounted cash flow techniques that rely on forecasting revenue and outflows accurately. For example for technology startups, what constitutes revenue can become quite contentious. For some context, Deloitte’s guide to IFRS 15(the revenue international reporting standard) is more than 250 pages long! The type of accurate financial record keeping that investors will expect to see is quite complex.
Outsourcing your finance function will help you keep quality financial data without having to scarify time and efforts away from the startup’s core activities.
- You want to derive more insights from your financial data and reporting:
Keeping accurate financial records is one thing, deriving insights from financial data to inform decision-making is another thing altogether. For example, being able to analyze Gross profit at a product category level will help you know which product lines are performing well and assist you in acting on those that are not.
If you wish you had an easy way to access actionable insights into real-time trends in your business instead of only looking back at past performance, or if you want to benchmark your performance against that of similar organizations, it may be time to consider outsourcing.
- You are now dealing with large volumes of transactions:
Tracking invoices, payments, and inventory become a lot more complex when dealing with large volumes of transactions. At Innovative CFO we look finance as systems and processes. When mapped out well, it becomes easier to formulate automated solutions that remove ease of error. A well-organized invoicing and payment tracking systems help to instill confidence in customers and potential customers, who often come into contact with these functions during the sales process.