When Should Startups Consider an Outsourced Finance and Accounting Department?

If you want to scale your business, you may need help from outside resources to go beyond bookkeeping basics.

Financial recordkeeping and reporting are critical in creating a solid foundation for your company’s future success. For many startups and early-stage companies, the “accounting and finance department” may initially consist of the founder – perhaps with the assistance of a bookkeeper and QuickBooks Online.

With limited resources, there’s a good chance you’re just doing the basics: tracking financial data – such as expenses, invoices, revenue and payments – to make sure bills and taxes are paid. This may work fine when you’re very small, but as you grow your company, seek funding or investors, deal with larger clients, and hire more employees, the basics might not be enough.

While you still may not need or have the resources for a full-fledged finance and accounting department in-house, you can go beyond the basics. One way to do this is to outsource your finance and accounting functions, tapping into a variety of resources and expertise in addition to bookkeeping, accounting and tax planning.

When should you consider outsourcing your finance and accounting? Here are a few scenarios where it might make sense.

Scenario 1: Your business is scaling up and you feel like you’re not getting the insights you need from your current financial data.

More timely, accurate and in-depth financial information can help you make better business decisions. For instance, having a deeper understanding of your revenue-generating activities, costs and margins could help you better allocate operational and intellectual resources. Having a better handle on which product or service lines are more profitable could help you make decisions about which parts of the business to invest in and grow – or which to purposefully abandon.

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.

Scenario 2: You are seeking investors or applying for a loan.

If you have applied for a Payroll Protection Program (PPP) loan or another loan program, you may already have a taste of how much time it can take to gather all your company’s financial data, and how challenging it can be to locate and report on transactional data.

Any potential lender or investor will want to see a significant amount of financial information before making a commitment, and they may want regular updates if they do provide funding. They will expect your financial reporting to be clear, up to date and in line with industry norms.

Leveraging an outsourced finance and accounting team can help you get your financial data into good shape: complete, organized, ready to share and in the format a lender or investor is looking for. It may also allow you to have better control of the company’s finances without having to spend more time directly working on them.

Finally, if you decide to consider a merger or acquisition in the future, having accurate, complete and up-to-date financial data quickly accessible can put you in a better position to approach that process.

Scenario 3: Your customer base is growing.

As your customer base grows, tracking invoices, payments and inventory becomes more complex. Inaccurate invoices, improper applications of payments or an inability to provide accurate, up-to-date statements to clients could drive them to your competitors.

On the flip side, well-organized and easy-to-navigate 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. Accurate tracking of inventory, orders, sales and payments can enable you to better forecast demand, expenses and budgets and provide the insights you need to optimize operational efficiency.

Scenario 4: You are hiring more employees.

As your employee base grows, payroll, expense reimbursements and even onboarding-related tasks require more attention and can take up more of your time.

Outsourcing your finance and accounting functions can allow for smoother employee onboarding, expense reimbursements and payroll, which can in turn lead to higher employee satisfaction, and allow you to spend less time fielding requests and fixing complaints.

In addition, with better financial information, you’ll also be able to make compensation and incentive decisions that align incentives for your employees with positive outcomes for the company.

What outsourcing your finance and accounting might look like

One of the main objectives of outsourcing your finance and accounting is for you to spend less time compiling, tracking and reporting on financial information, and more time gaining actionable insights from your data. Equally – if not more – important is the ability for you to apply those insights to improve your business and achieve your financial goals.

For a startup or early-stage company, outsourcing finance and accounting will likely involve a combination of technology solutions and human expertise. Technology solutions may connect to your existing business operating systems and automate compiling of financial data, while humans can help you make sense of it. You will likely have access to a real-time view into your company’s finances, live dashboards that integrate operational and financial information, and financial reports that are more meaningful.

The bottom line: Doing basic bookkeeping in-house and engaging a CPA once a year for tax filing and reporting may not be giving you the financial insights and resources you need to properly plan and execute your long-term growth goals. To successfully scale up, you’ll need to spend less time working in your business, and more time working on your business. Leveraging an outsourced finance and accounting team can help you do so, and having outside expertise can be an important resource to help you achieve your business goals.

Contact me to learn more about how you can spend less time gathering financial data and more time using it to help you reach your short-term business goals, while establishing a strong reporting and recordkeeping foundation from which to scale your business in the long-term.