Are outsourced CFO services a great choice for start-ups? Let’s find out.
Finances are some of the trickiest parts of a start-up as far as management is concerned. Entrepreneurs and the core team must take up most of the initial responsibilities when trying to get the start-up going are relatively easy to learn and manage without much experience or training.
Finances, however, require entrepreneurs to dedicate a significant amount of time and energy to managing money and learning how best to leverage their restrictive starting capital, which makes the CFO role in the core team a very difficult position to fill for a good chunk of start-up projects.
A CFO is absolutely required to be on the team for a start-up. It is simply impossible to do without one. This is a tough problem because, as of January 2023, the cost of hiring an in-house CFO is a staggering $422,786, according to Salary.com. This exorbitant cost is unfeasible for established businesses in the US, let alone start-ups working on a tight budget. Outsourced CFO services remain the only viable and proven alternative to the CFO problem for startups. (Learn more about outsourced CFO services in our guide.)
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What are Outsourced CFO Services?
In a prior publication titled “Outsourcing your CFO”, outsourced accounting experts at EA defined an outsourced CEO as “an external, third-party resource hired contractually to undertake the financial leadership role of an organization, which otherwise would have been the responsibility and scope of an in-house CFO.”
In essence, an outsourced, or fractional CFO is no different from a traditional in-house CFO when it comes to skills, expertise, and responsibilities; the difference lies in how they interact with the business i.e., an outsourced, offshore CFO must communicate through digital channels and follow the Work-From-Home model. This is the only substantial difference between an in-house and outsourced CFO, and in the wake of the Covid-19 pandemic, where many in-house CFOs had to work remotely anyways, it is a negligible factor in today’s technologically advanced world.
There is an argument to be made that outsourced CFO services are the better option for most businesses today, given that the pros far outweigh the cons. The Deloitte 2021 Global Shared Services and Outsourcing Survey Report concluded that 44% of US businesses outsource their financial business functions, which continues to rise as the years go by.
The idea that an outsourced offshore professional is somehow inferior to an in-house professional has been proven to be a widespread myth, and smart entrepreneurs who wish to be ahead of the curve will find investing in outsourced CFO services to be a tremendously lucrative investment long-term. To that end, let’s discuss why outsourced CFO services are a good investment for start-ups.
Why Should Start-Ups Invest in Outsourced CFO Services?
The most prominent selling point for CFO outsourcing services is the plain and simple fact that they are affordable. The previously mentioned median salary for a CFO is the tip of the iceberg.
If inflation continues to rise, even established corporations will soon be unable to comfortably retain an in-house CFO. In such an economically volatile business climate, cost savings are paramount to keep a business afloat. An outsourced CFO becomes the only viable option if a start-up wants to have a financially solid foundation to build on, and this is precisely why the popularity of outsourced financial services has skyrocketed in recent years. CFO outsourcing services like Expertise Accelerated offer US businesses up to 60% cost savings, with next to no downsides to sour the deal. With such a beneficial route available, one would be foolish not to go for it.
Financial Planning & Analysis
Outsourced CFO services for start-ups are a goldmine of opportunity. Financial Planning & Analysis is the process of forecasting a business’ financial performance by analyzing historical financial data and current market trends and developing strategies to meet the business’ financial goals. It is one of the core responsibilities of a CFO and can prove to be a fast track for growth for a start-up.
Think about it: the reason most start-ups fail is because of insufficient attention given to the financial aspects of the business. An outsourced CFO mitigates this risk for the most part and can be invaluable in spurring growth via strategic FP&A.
Outsourced CFO services go one step beyond simply providing FP&A services, which are worth the cost on their own. What outsourced CFO services can potentially offer is invaluable industry experience. For example, while any CFO would be immensely beneficial to a CPG start-up, hiring Expertise Accelerated, a firm specializing in the US CPG industry, can provide a whole new level of insight into financial matters and help spur strong and steady growth.
Audit and Tax Support
Nobody likes doing taxes and preparing for an audit is one of the most harrowing experiences for an entrepreneur. Outsourced CFO services for start-ups are especially useful because these are make-or-break moments. A successful audit means the start-up has financial credibility to show to potential investors, which drastically increases the chances of securing more funding.
Meanwhile, incorrectly handled taxes can lead to legal repercussions and penalties on the start-up, and these can cripple the business before it even has a chance to grow. In both key moments in the start-up’s life, having an outsourced CFO present is a surefire way to minimize risk and maximize the start-up’s potential to bloom into a full-fledged competitive business.
Investor Relationship Management
One of the most critical goals of a start-up is to secure the investments necessary to continue growth and evolve into a full-fledged company. A CFO is vital if a start-up wants to maximize its chances of securing investments. This is because, while a CEO can offer intricate knowledge of the start-up concept and idea, a CFO can demonstrate to investors why the start-up is worth their time and money.
In the current oversaturated start-up landscape, standing out and showing why you are the one to invest in out of all the hundreds of other start-ups is the objective, and CFOs are the best people to handle this relationship. Investors are primarily concerned about a start-up from the financial angle, so having an outsourced CFO present who can answer all their questions and prepare presentations and reports to demonstrate why the business is worth the investment is a real difference maker.
This is one of the key reasons why CFO outsourcing services are popular among start-ups today. A CFO really makes a difference when we talk about lifting a start-up off the ground.
Outsourced CFO services are one of the greatest opportunities for growth for start-ups. They provide invaluable services such as FP&A, tax and audit management, and other financial support expected of a CFO, all at a far more reasonable cost than in-house equivalents. By leveraging outsourced CFO services such as Expertise Accelerated, start-ups can secure a great competitive advantage and greatly increase their chances of growing into a successful business.