The Cost Benefits of Outsourcing Startup Accounting Services

All startups need professional accounting services. How your startup attains them is a key decision that leadership must make.

There are options. In a startup’s early days, many founders serve as jacks of all trades, and such duties may include accounting. There’s also the option of hiring an accounting professional to work in-house. However, for many startups and small businesses alike, a more strategic and affordable decision is to outsource startup accounting services to a qualified professional.

The rise of the worldwide outsourcing business has made it easier than ever for startups to find specialized accounting expertise without the limitations of local hiring. Outsourcing can save up to 60 percent versus hiring a professional in-house. What’s more, a qualified external partner can do more than just manage your startup’s books, but also assist with your startup’s growth and fundraising. When you work with the right professional, the relationship becomes more than just a partnership, but an extension of your startup that can help establish competitive advantages.

The True Cost of In-House Accounting vs. Outsourcing

While many startups can gain financial expertise by hiring an in-house professional, these professionals come at a cost. For instance, the typical CFO salary in the United States ranges from $140,000 to $400,000 per year plus benefits and payroll taxes, making in-house hiring a significant investment. On top of this base salary, there are various other costs that your startup will have to allocate, including initial recruitment for the position, training and onboarding, additional software licenses and a benefits package.

By outsourcing, startups can access a similar — or even higher — level of expertise at a fraction of the cost of hiring an in house accounting team. Fractional CFO rates often range from $150 to $300 per hour, depending on the scope of work that’s required. Rather than charge hourly, some outsourced services charge by the month. For instance, Graphite Financial’s fractional CFO service packages start at $1,250 per month.

Quantifying the Cost Benefits: ROI Analysis for Startups

While an outsourced professional can represent up to a 60 percent cost savings compared to hiring the same type of financial professional in-house, there are other measurable benefits associated with working with an external partner. Startups can expect operational improvements, such as faster monthly close processes, which can represent significant time savings for founders. There’s also less risk of errors and more proactive risk management.

The Startup Growth Multiplier Effect

Saving money on your startup’s accounting services can allow you to reinvest in your business and make it more attractive to investors. For instance, the budget you save by outsourcing can be allocated to customer acquisition strategies and product development, which can help accelerate growth. Your partner can also help support the fundraising process by preparing investor-ready financials to raise money during fundraising rounds faster.

If startup leadership is still doing double duty and managing the financial books, outsourcing bookkeeping services is a way to free up their time so they can return to revenue-generating activities while having peace of mind that their startup’s finances are being properly managed.

Beyond Cost Savings: Value Creation Through Outsourcing

Working with an external financial professional can represent more than just cost savings. The right professional can go beyond routine financial tasks and acting as a valued partner to become a true extension of your startup. The value proposition of working with a qualified outsourced professional includes:

• Access to senior-level expertise with industry specialization: Many accounting service professionals have worked as CPAs, controllers and even CFOs, so you’re gaining valuable experience with an outsourced partner. You can also select a professional who has more experience in your specific industry than your existing internal accounting team for even more value-added service.
• Advanced financial reporting capability: Outsourced partners bring more than experience; they also bring advanced capabilities to help with budgeting, forecasting and fundraising — all without the full-time CFO salary.
• Startup specialization: Outsourced accounting firms, such as Graphite, specialize in working with startups and serving as their long-term financial partner from seed to exit.

Cost Benefits by Startup Stage and Industry

A good outsourced partner can support your startup from the early stage through maturity. In the early, pre-revenue stages of a startup, a financial professional can help you build the infrastructure, model and forecast, and support fundraising initiatives. In the growth stage, the focus shifts to strategic planning, managing financial performance and scaling — all while managing investor and stakeholder relationships. Flexibility and scalability are key, and outsourced partners can adapt their services to meet the evolving needs of your startup as it evolves. As your startup scales and its finances become more complex, the benefits of working with a qualified outsourced professional can compound.

SaaS Startups: Maximizing Unit Economics Through Smart Accounting

SaaS startups can particularly benefit from working with a professional who has experience in the industry, largely due to the unique SaaS business model. For instance, SaaS recognizes revenue differently from many other types of businesses, and startups need to adhere to these requirements or risk non-compliance. They can also help track advanced SaaS metrics, create investor-ready financial models and scale their services to grow with your startup.

Technology and Efficiency: How Outsourcing Delivers More for Less

When you outsource financial services, you’re not just getting an expert professional to work with. You’re also getting all the tools that they work with. Professional service providers have access to premium accounting software and programs, saving you money on direct licensing costs while optimizing your financial management.

Many of these programs can easily integrate your existing financial data and also automate certain accounting processes, further streamlining various accounting practices, like monthly close-outs. For instance, more advanced programming can trim the monthly close from 15 days to as little as 5 days.

Furthermore, these tools and technologies can more proactively manage your startup’s finances, catching mistakes sooner so they can be corrected before they become major issues.

Risk Mitigation: The Insurance Value of Professional Accounting

Expert financial professionals aren’t just able to adequately manage your startup’s books, assist with forecasting and modeling, and help drive fundraising rounds — they can also help ensure that you stay compliant. Compliance assurance helps prevent potentially costly penalties, which can result in more than just monetary fines, but a diminished reputation.

Good partners carry professional liability insurance coverage that can eliminate single-person risk. They also oversee cash flow management to prevent the potential for oversights and financial pitfalls that could threaten your entire startup.

Fundraising Acceleration: How Outsourcing Pays for Itself

Startups rely on investors to accelerate growth, but leading investment campaigns can be challenging. It represents another way an external financial partner can add value to your startup. Outsourcing these investment-related functions can help enhance fundraising efficiency, as experienced accounting professionals can tap into more networks to make for a faster and more efficient overall process.

Investor-ready financial models and documents can help accelerate the due diligence process during later fundraising rounds and build investor confidence. This is a stark contrast to delayed fundraising efforts, which can result in runway burn and missed opportunities.

The Fundraising Time Value of Money

Efficient fundraising can pay for itself over time in improved investor confidence, higher valuation and better market positioning. Conversely, startups that are inexperienced in navigating fundraising rounds are more likely to experience delays, which can be costly in terms of runway burn. Working with a qualified financial partner can ensure your startup is well-positioned and prepared for its fundraising rounds to maximize its chances for success.

Scalability Economics: Growing Without Growing Costs

One of the biggest advantages of working with an external partner is that these services are scalable, allowing you to grow without needing to expand your office space. In other words, as your startup grows and evolves, so too can your accounting support services. Rather than hire additional accounting professionals to support your startup’s growth, you can just enhance the level of service that you’re receiving from your partner and pay for only the services you need at any given time. For instance, many accounting service providers offer various packages. Growth may mean that you have to upgrade to a more comprehensive package, which still represents a fraction of the cost of hiring internally.

Measuring and Maximizing Your Outsourcing ROI

The decision to outsource financial services goes beyond cost savings. Outsourced professionals create quantifiable value. Some of the KPIs to help you measure this value include cost per invoice, cost savings percentage, return on investment versus the outsourced cost, turnaround times and accuracy rates. Communicating this value to investors and other stakeholders helps validate your startup’s decision to outsource such services.

The Cost Benefit Scorecard: Tracking Your Wins

How can you measure and communicate outsourcing value within your startup? It starts by defining quantitative metrics like cost savings, time savings and error reduction to show how your partner is overcoming common financial challenges. There are also various intangibles to communicate to stakeholders, such as peace of mind, investor confidence and more strategic insights. It’s best practice to create a template for ROI reporting and optimization.

Making the Business Case: When Outsourcing Delivers Maximum Value

When should you outsource financial services to maximize value to your startup? Generally, consider outsourcing when you’re experiencing rapid growth, if your finances are becoming increasingly complex or if your leadership is no longer able to adequately handle this responsibility on its own.

While there may be initial concerns about outsourcing services (e.g., loss of control, hidden fees, security risks for sensitive financial data), the cost savings and value-added benefits of working with an external professional can pay for themselves over time. To ensure you’re maximizing value and that investing in an external partner is worth it, consider conducting a cost-benefit analysis that considers the long-term savings compared to the investment in this partner. This helps many startups better understand the true value of an external financial partner.

Ready to Unlock Your Accounting Cost Benefits?

Are you ready to make your startup’s financial management a competitive advantage? Graphite is here to help. As a professional accounting services firm that specializes in working with startups, we deliver measurable benefits and expert service to our clients. Working with Graphite allows startups to combine cost efficiency and financial expertise that can accelerate growth and meet fundraising goals. Contact us today to learn more and schedule a consultation to learn more about the cost-benefit opportunities for your startup.

FAQs

How much can startups typically save by outsourcing accounting?

Startups can save up to 60 percent by outsourcing accounting services rather than hiring a professional to work in-house.

The value proposition is justified by increased productivity if your startup is still in its early stages and the founders are handling financial management. Hiring an external partner allows founders more time to work on revenue-generating activities and growing operations.

What’s the ROI timeline for accounting outsourcing investments?

While this varies based on several factors, most startups report initial returns as quickly as the first few months of outsourcing. ROI does depend on the scope of the outsourced task, the stage of your startup and other factors.

Do cost benefits increase as startups grow and scale?

Yes, the benefit of working with an external financial partner increases as your startup grows and its finances become more complex. A good partner can help your startup scale and use their expertise to help fundraise, create financial models and manage risk.

How do I calculate the true cost comparison between in-house and outsourced?

While direct costs are easy to quantify, don’t overlook hidden costs. Also, consider the benefits and value of an in-house expert versus an external partnership.

What hidden costs should I factor into my outsourcing decision?

Hidden costs exist for both internal employees and external partners. Internally, hidden costs include recruitment and training, compliance risks, time and resources spent managing the professional, and any costs associated with professional development. External hidden costs may include vendor management time and effort, security risks and the cost for additional services not included in the initial agreement.

How does outsourcing impact fundraising speed and success rates?

Outsourcing can enhance your startup’s financial operations and how it presents its financial data to investors. It can help improve your efficiency and focus, demonstrate specialized expertise and discipline, and ultimately increase fundraising success rates.

What cost benefits are specific to my startup’s industry vertical?

Cost benefits include cost savings and flexibility, the ability to scale accounting and bookkeeping services without adding significant overhead, improved financial management and streamlined fundraising processes.

How do I measure and track outsourcing ROI over time?

This involves setting clear objectives and regularly tracking the relevant metrics to evaluate the true impact of your outsourced partner.