According to the startup India website, India holds the position for being the 3rd largest startup economy in the world with 2-3 startups being born every day. Though these numbers seem comforting, it is also true that 80 pct of the startups usually fail at their onset due to poor financial management.
A CFO can provide startups with valuable advice and assist them in important decision making giving them the much-needed competitive edge. But unlike big corporates, startups have limited capital at their disposal and are inclined to use their money to promote or develop their product/ business ideas leaving them with very little resources to hire a CFO. However, with the booming of outsourced CFO services, startups can easily use the professional expertise of a CFO without having to hire one in-house. Apart from reduced cost and having the advantage of professional advice, outsourced CFO services provide a range of services that benefit startups multifold.
Some key outsourced CFO services that startups can avail of for their business development are:
1. Financial Process Improvement:
An outsourced CFO can help startups to create a financial system that facilitates the maintenance of clear financial records, bookkeeping, easy transaction processing, payrolls, and cost analysis. This allows the startup entrepreneurs to focus completely on product improvement and sales figures. Investing in an outsourced CFO can help startups to put the best financial systems in place along with all the necessary checks and controls ensuring that error-free financial statements and reports are available especially when the company is trying to secure funds for business growth.
2. Cash Flow Management:
The CFO best understands cash inflows and outflows and guides entrepreneurs by analyzing the cash flow and helping them especially during the initial phase when all the funds are directed towards a product launch and there may be a high chance of the startup running out of all its funds. With years of experience in cash flow management, the outsourced CFO can provide insights that meet the changing demands of the business. The CFO also keeps a close watch on the cash flow and focuses on problem areas to ensure that the company never faces a cash deficit at any point in time.
3. Financial Reporting and Projections:
The outsourced CFO takes on the responsibility to review financial statements like Profit & Loss, Balance sheets, Cash-Flow statements and ensure that they show an accurate picture of the company’s financial position. Pristine financial statements that are available on hand are a great help when entrepreneurs meet investors. The outsourced CFO may or may not be physically present for important meetings but helps startups by preparing reports, financial data, and figures that can help entrepreneurs to seal the deal.
The outsourced CFO makes realistic projections about the Startups’s future business growth that easily convinces investors to fund the startup. These financial projections form the basis of budgets and business investments. Startups can use these projections to keep accurate tabs on their expenses and also estimate future incomes. The CFO has vast experience across various industry and business sectors and uses it to make a careful study of all past and present data and estimate the company growth in the coming years.
4. Strategic planning:
Startup entrepreneurs are usually newbies to various business scenarios and could end up making decisions that could have adverse effects on their business. An experienced outsourced CFO on the other hand provides the right advice on various financial and business strategies. The CFO helps startups to formulate and implement strategies related to product pricing, expansion, acquisitions, etc. The CFO also helps startups by creating various strategic plans based on the data available and providing financial implications of each plan to the entrepreneur who is free to take the best course of action
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5. Data Analysis:
The outsourced CFO is positioned to have access to all the data and records of the company as a whole. This allows the CFO to make better analyses related to finances as well as other business activities including inventories, sales, payroll, and customer behavior. The CFO analyzes and interprets financial data and identifies the important areas that need to be monitored closely by generating regular reports. The CFO generates quality data analysis that helps entrepreneurs to make business strategies that will always work in their favor.
6. Customer Contract Review:
The outsourced CFO carefully reviews contract terms to ensure that they are in the best interest of the startup. They help in contract negotiation and pricing and identify any potential risk clauses in the contract that could lead to a loss or a legal issue for the startup.
7. Risk Management:
An outsourced CFO has vast knowledge and experience in various industry sectors and this helps in identifying any potential risks that the startups may face along with advising various ways and means to mitigate the same. The CFO helps startups to create contingency plans and helps them to manage unforeseen events like recessions, increased overhead cost, shut-downs, pandemics, etc.
8. Legal and Compliance Management:
An outsourced CFO is a well-informed professional who knows all the nitty-gritties of various laws including Company Laws, Income Tax, GST, etc. The CFO helps startups to avail the benefits of the government schemes to the best of their advantage. They carefully guide the startup entrepreneurs about the statutory laws and government policies and ensure the same is adhered to within the stipulated deadlines.
9. HR Management:
The outsourced CFO helps startups in manpower planning which can have a huge financial impact on the financials. The CFO provides an estimate on the number and type of employees required for every department and prepares SOPs and MIS for employees to work smoothly. The CFO also assists the startups in formulating various compensation and incentive packages to motivate the employees while ensuring that there is the minimum financial burden on the company’s finances.
10. Steer Growth:
Startups grow up rapidly and as the business grows it can also go out of control. The CFO can make a growth map with the available data and know exactly where the company stands and what is hindering its growth. An outsourced CFO can be of great help to entrepreneurs to scale up their business by ensuring that they procure funds from the right sources and ensure that they have a strong financial system in place as the business starts picking up its pace. The CFO also does financial projections and cost-profit analysis so that there are no surprises and the startup is ready to face any challenges on its growth journey.
An outsourced CFO provides many more services that can boost a startup and help it climb the ladder of success, what one needs to do is find the right service provider. Diligen is one of the best VCFO service providers to provide clients with round-the-clock services. Our VCFO team of professional and experienced CFOs help you to stay focused on your financial performance and achieve success. Diligen provides the best quality customized VCFO services at affordable prices. At Diligen we foster an inclusive culture and respect every client’s needs thereby achieving and experiencing success together with our clients.