When a small business or startup grows in size and complexity, executives often need to hire outside resources to manage accounting and inform strategic financial decisions. At this point, company executives may be torn between hiring full-time accounting resources or outsourced accounting expertise. Talent utilization must be optimal in order to maintain cost efficiency.
Growing businesses can benefit outsourced accounting and an in-house team at different stages of their growth. Outsourced accounting and finance leadership can help your business transition to an in-house team, but there are also opportunities to use outsourced support to provide additional value and continuity to an established in-house finance department.
Outsourced accounting enables you to strengthen your foundation and focus on decision making
Once a startup experiences rapid growth, it becomes complicated and arduous to maintain ledgers. If small business founders are spending a disproportionate amount of time managing day-to-day financial tasks, but they don’t have enough work for a full-time accounting team, it’s likely time to outsource accounting needs.
Outsourcing accounting gives businesses access to years of financial expertise from industry experts at a fraction of the cost of hiring them full-time. When a business outsources its accounting, it only pays per deliverable and doesn’t incur any HR-related costs like recruiting, PTO or employee benefits.
With their years of expertise, outsourced accounting teams and outsourced finance leadership will likely also establish sustainable and efficient accounting processes for the business (e.g., standard operating procedures, ERP software, etc.) so that the company can easily maintain and expand its accounting functions as it continues to grow.
Most importantly, outsourced accounting gives business executives more time to focus on what they do best—overall business strategy.
While outsourced accountants and bookkeepers are terrific assets to a company in the earliest stages of growth, companies that have received their first round of funding and have greater finance needs will need accounting oversight and leadership. Rapidly expanding companies may benefit from engaging a senior accountant or controller. These are professionals who oversee all of the accounting functions of a business and ensure that ledgers are accurate and compliant. Controllers can take on tasks like:
- Inventory accounting: monitoring, valuing and tracking inventory assets
- Revenue recognition: creating and applying controls for monthly financial reporting to ensure compliance
- Month-end close: enabling accurate reporting and analysis and providing insights on the company’s financial position
For businesses that are expanding their accounting teams without formal processes and guardrails, a fractional controller can put these procedures into place to set future team members up for success. For some companies, this will not be a full-time need, so a fractional professional would relieve the risk of underutilization.
Adding strategic leadership takes you to the next step
Most of the above are operational accounting tasks, but eventually the company will need more strategic guidance to inform big business decisions, like securing investors or entering new markets. Though a controller can often communicate with stakeholders and help you understand the meaning behind your numbers, an outsourced CFO can provide CEOs with the analytical tools they need to grow in a meaningful and sustainable way.
For Paro client inRange Solutions, whose CEO Steven Liebezeit was stretched thin with financial operations, the company needed stronger insights and analysis to keep up with growth. A Paro factional CFO was able to create a foundation for the company to analyze its performance, as well as a long-term structure for better decision making. The CFO helped to set up dashboards and forecasting tools to enable better decision making.
“The tools let us analyze the P&L and business using many different data points, including projects, customers, individual contributors and revenue per employee. It gives us a lot of interesting KPIs to look at to help analyze the business in a way that I’ve always wanted,” states Liebezeit
Companies may not have a need for a full-time CFO, but they can benefit from insight into specific opportunities or at critical junctures in their growth. Fractional CFOs can guide additional ventures, such as:
- M&A due diligence: reviewing and investigating a potential deal or investment opportunity for the business
- Fundraising: providing guidance around venture funding or raising debt to finance growth. This includes financial modeling, due diligence and developing pitch decks.
- Market expansion: conducting competitive research to decide which markets to expand to in order to maximize ROI
As a company scales, outsourced finance leadership provides niche industry expertise and immediate experience that can provide a CEO with a roadmap for their next steps.
When should businesses take accounting functions in-house?
Outsourced accounting teams are perfect for a growing business that only needs to meet with an accounting team once a week and doesn’t yet have the workload for a full-time team. However, as a company continues to grow, the executives may quickly find that they need more dedicated financial resources to help them make key business decisions.
Once a business starts to consider major growth, like major market expansion or an eventual IPO, an in-house accounting team will be essential to making informed, strategic moves. In-house accounting teams have the capacity to provide analyses and feedback to the executive team upon request, making them invaluable consultants to executives as they make key business decisions. Moreover, businesses seeking to secure additional funding or to go public often look more stable to potential investors. These stakeholders often prefer to have consistent and long-term communication with a dedicated CFO, controller or senior accountant.
The power of interim support for in-house teams
That being said, outsourced accounting professionals can still help a business that has transitioned to an in-house team. For example, outsourced CFOs can often make great interim CFOs during a company transition, because they can transfer historical knowledge to the new team. This knowledge share between outsourced accounting teams and in-house teams helps ensure business continuity once the in-house accounting team takes the reins.
Paro’s collaboration with a CPG (consumer-packaged goods) startup is a prime example of how an outsourced team can provide interim support for an in-house finance team. At the time of collaboration, the startup had been recently acquired by a top-five CPG company. It received two-weeks notice from its financial controller. Paro’s proprietary AI technology quickly matched the CPG startup with an outsourced controller that specialized in the CPG industry with less than ten days until the full-time controller’s departure.
While the initial scope of the engagement was just to provide accounting department leadership until the full-time controller position could be filled, the interim controller went above and beyond to set the startup up for success and scalability. The fractional controller quickly assessed the company’s accounting processes and successfully developed internal controls, documented standard operating procedures (SOP) and implemented a new cloud-based ERP system. The controller’s expert leadership doubled the accounting team’s capacity, ensuring the accounting team’s ability to maintain efficiency amidst company transitions. The CPG subsidiary is now ideally positioned with the tools, team and management it needs to keep pace with its growth.
Thus, even as a business grows and requires full-time financial support, outsourced accounting teams can add value.
How to outsource accounting services
Ready to drive the next phase of growth for your business? At Paro, we offer financial controller and strategic advisory services that provide strategy and direction so that you can seize new business opportunities and optimize your finance department. Our AI-enabled platform allows us to quickly identify fractional experts across the country with the right mix of skills, credentials and experience to achieve your company’s specific goals.