Before you decide whether or not outsourcing makes sense for your business, you need to know which services are available to you.
What finance and accounting roles can be outsourced?
According to Chris Morgan, CEO at LBMC, fractional accounting services can range from high-level financial consulting to entry-level bookkeeping. For instance, you could bring on a fractional CFO to consult on specific events that have a long-lasting, company-wide impact (choosing an ERP or preparing for an upcoming valuation). Similarly, you could hire an accounting firm to perform entry-level, transactional accounting activities, such as general accounting, month-end close, and financial accounting.
When should companies look into outsourcing their finance department?
In a conversation with Ian Wright, Managing Director at businessfinancing.co.uk, Wright explained that “fractional services are valuable at any company stage or size because the scope and cost can change alongside the needs of the business.”
However, when asked about specific growth stages, Wright pointed out that “at the point of series A funding, you should definitely be looking to outsource your finance department. At this point, not only will you want to get a better, more detailed outline of your financials in terms of ongoing operations, but naturally, you’re going to need to look into financial models and projections as part of any initial funding rounds.”
Wright’s advice makes perfect sense for Series A companies and beyond, but what if you’re an early-stage company without the funds available to hire a full-time CFO? In this case, hiring a fractional CFO or financial advisor for a short-term strategic engagement is another viable alternative.
Chris Morgan of LBMC (W Squared) also points out that ‘when’ you decide to engage with an outsourced firm it largely depends on your needs. For instance, if you’re preparing to raise a round of capital, you should start an engagement with an outsourced firm at least six to twelve months in advance, so that they have ample time to get the financial house in order and lead due diligence.
“If you’re serious about raising a funding round, for example, you need someone who can provide a sound financial perspective, compile financial reporting, and provide insight on key metrics. If you can’t get through financial due diligence, you’re going to struggle to raise funding, or you’re company will get hammered on the valuation and you may end up giving up more ownership than you had intended” added Chris.
How do you balance full-time employees and outsourced services to manage your finance and accounting?
In Wright’s opinion, a combination of both full-time and outsourced accounting and finance roles is crucial at the initial seed funding stages. This hybrid team setup ensures you’re not hiring where you don’t need to. Instead, you can keep up with your bookkeeping, reporting, and other accounting tasks before bringing financial operations in-house.