CFO Services To Boost The Financial Health Of Startups

The statistics on the number of startups across the world are overwhelming, according to conservative estimates, there are at least 100 million startups that open up each year. India too has a huge chunk of this pie and if the latest figures are to be believed, the country is home to over 50,000 startups.

With this, India has managed to reinforce its position as the third-largest startup ecosystem in the world. But hiding behind these staggering statistics is the not so glamorous reality of failure; each year, scores of startups meet their demise even before having taken off the ground, and this failure can usually be attributed to poor financial management.  Here is where the services of a chief financial officer (CFO) can come into play.

It is a common misconception that CFO positions are only confined to large global corporations and enterprises. Having a CFO can be extremely useful for startups to grow their business in a financially sound manner. But startups usually don’t have budgets to hire CFOs because the most experienced full-time and in-house CFOs come in with large overhead salary demands.

However, due to recently amended governmental reforms concerning financial firms, startups today have the advantage of outsourcing this role and availing of the full-suite of CFO services at an affordable remuneration.

Outsourcing CFO services has a host of benefits; apart from the reduced costs, hiring an experienced CFO who works across multiple industries may lend startups the much-needed advantage of perspective and guidance.

Here are a few key financial areas to which a CFO can add immense value.

Managing Cash Flow And Improving Financial Processes

Due to their nascence in the world of business, startups often find themselves at the receiving end of financial turbulence. Studies show that around 60% of startups run out of money before their product can even launch. In order to avoid such a scenario, startups need to have a CFO who can guide entrepreneurs with a better understanding of cash inflows and outflows, and help with a long-term analysis of the company’s finances. CFOs can also help make the hard decisions about fund allocation and advise startup founders through tough financial decisions.

Startup entrepreneurs often get too caught up in focusing on product development and sales numbers and let financial planning slip through the cracks. Important and basic processes of maintaining clear financial records and bookkeeping can get ignored in the rush of launching and keeping a company afloat. A CFO can help streamline all such financial processes and put in place systems and controls at each level of revenue & expenses. Pristine financial records are crucial for a company while securing funding and courting investors, hence, investing in a CFO who can implement the best practices for accounting is a must.

Getting an experienced CFO onboard can also take a lot off the plate of a startup entrepreneur—who may already be juggling multiple roles—and allow him/her much-needed time to focus on areas like marketing, management, and product development.

Compliance And Regulatory Laws

Compliance and regulatory laws is a tricky field to navigate. With a host of statutory compliances such as Company Law, GST, Income Tax, etc. to adhere to, startup founders are bound to be overwhelmed. Having a CFO who is well-versed in the subject matter can ensure that entrepreneurs get the right kind of guidance when it comes to government rules and policies.  A CFO can help entrepreneurs avail maximum advantages from government schemes that are meant to benefit small business owners and startup entrepreneurs.

Risk Management

Putting strong risk management processes in place is another key area of neglect in startups. Simply put, risk entails unforeseen scenarios that harm business and can derail a company’s financial and sales goals. Risk is a part and parcel of entrepreneurship and very often, it can’t be avoided. However, the impact of these risks can be mitigated if they are identified and planned for in advance.

A CFO is tasked with studying and planning for the myriad financial risks that can arise from crisis like the current pandemic. Startups need to have contingency plans for situations such as priority payments during a recession or managing overhead costs during shutdowns. A CFO—with their years of multi-industry experience—can help company leadership chalk out and execute such plans.

Ecosystem Synergy

An outsourced CFO comes armed with experience from across industries, hence, the wealth of cross-industry knowledge can further facilitate the exchange of information and keep entrepreneurs informed of all the latest developments. Outsourced CFOs are exposed to a plethora of information and networks from various sources that can be useful for start-ups trying to take off. A CFO’s role at a startup entails keeping stakeholders abreast of internal and external financial activities, and other related developments.

In the world of big business, startup organisations stand out with their unique ecosystem that is characterized by youthful energy, liberal work culture, flat hierarchy systems, and open communication channels. However, they often struggle with maintaining healthy financial practices and it is the reason why so many startups go under even before getting started. Hiring CFO services can bring immense value to a startup and ensure that an entrepreneurial venture has the best chance to succeed.