• Gaurav Nanda

Why startups are focusing more on Virtual CFO in comparison to physical CFO?

Virtual CFO or vCFO refers to a Virtual Chief Financial Officer. He acts as the financing executive for usually a small business, startup. It can be an individual or a group of people. The role of a vCFO is not limited as it may sound to many. It can in fact prove to be more efficient.

Small-businesses and startups often contribute to a huge part of economy, especially in developing countries. The best part is, they are not limited to any specific field and the scope is as vast as it can be. However being new in the business industry, they need proper guidance and management of finance, accounting, compliances, fund raising etc. which is the basic and most important part of any startup. The vCFOs are, hence, ideal for this job. Let us see how?

People who want to be entrepreneurs and have no prior experience of the same, nor anyone to help them out often feel left out or lack confidence while dealing with several aspects of the task they have taken up. Even though starting a whole new business is no small task in itself however we cannot ignore the legal, advisory and financial records regarding it. If they want to concentrate fully on the startup, it might often be the case that they won’t put the same amount of energy on finance or other important aspect. Also, they might neither have enough proficiency nor expertise for the same because these are all tasks to be managed by a CFO. Here, then, comes a Virtual CFO at rescue.

When starting a business, the first thing is to believe in oneself. No big companies started as they are today. However persistence, hard-work, guidance and proper investment has done wonders. A business doesn’t just require accounting and finance, it wants you to focus on data, budget, right decisions, planning, strategies etc. Listed below are some of the benefits hiring virtual CFO:

Cost friendly: A full-time CFO proves to be very costly for startups. A separate space-to-work is also not required and other travelling expenses are saved. A Virtual CFO would thus help save more than 50% of the outlays.

Main focus on business: Once the accounting and finance has been the core focus can be put on growing the business. The more the concentration on business, the more productivity and growth.

No Legal repercussions: Since the work is now divided, the tax, legal and other bank related matters can be handled by the Virtual CFO or his team. They will deal with all these matters in the right manner and time thus saving a lot of time and energy.

Smooth fund raising rounds: We have seen that tax, legal and regulatory non-compliances have become bottlenecks during funding rounds of the Companies. A professional investor always looks for these lapses at the time of the Due Diligence. There are instances where the funding rounds got abandoned/cancelled due to these lapses on the side the startups. It is always better to spend some amount of money in the beginning itself, so as to not lose out on huge opportunities and cough up big money in the future.

Calculated decisions: SMEs, especially startups prepare their financial data for financial reporting only at the time of year end for the purpose of audits and regulatory filing (that too reluctantly doing since it is mandatory to do so). Most startups resort to this practice due to cost constraints. Hence, most of the time, they are unaware of the financial position of the firm. Taking business decision without knowing the financial implication can cost big and may not end up well. Since Virtual CFO Team can cheaper compared to conventional CFO, they are affordable. Hence a Virtual CFO Team can help you with taking informed decision making by considering all relevant factors.

Broad Network and Exposure: The Virtual CFO does not limit himself to a single startup. He often handles more than just one business at a time. This increases his experience and widen the scope of thinking about the profits and losses. The network is also expanded. This exposure is thus helpful for the startups in making strategic decisions.

Signs that you need a virtual CFO if you’re engaged in a startup:

  1. No proper financing and account.

  2. Having difficulty in concentrating thus decision making.

  3. Debts.

  4. Lack of expertise thus losing on most of the opportunities.

  5. Not enough time to spare for both financing and business efficiently.

  6. Losing confidence in the startup.

  7. Not sure what step to take up next.

With all the benefits listen above, it becomes evident that a Virtual CFO definitely eases up the task by half. Also, in times like these of pandemic, when work-from-home becomes a necessity, the demand for a virtual CFO increases. Small businesses usually do not have a full-time CFO either due to cost restrictions or due to the instability. In these cases, a vCFO proves to be ideal. He helps in controlling the debts. The job of a CFO thus, provides the strategic planning and leadership to grow the business.

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