Scaling a Finance Team: In-House vs. Outsourced Solutions

It should be the goal of any startup to eventually grow and scale — and with any growth and scaling also comes expanded teams, like your finance team. Startups have a few options when it comes to expanding their finance team, notably doing it in-house or outsourcing certain services. Both options have their share of pros and cons — it’s just determining which method is right for your growing startup.

In this post, we’ll help you understand why startups need to scale their financial operations, the advantages and disadvantages of in-house financial management and outsourced teams, and other key considerations that you’ll want to weigh as you make your decision. Read on to learn more:

Why Scaling Finance Operations Are Crucial

As your startup grows, so does the complexity of its financial operations. Because of this, it’s important to scale up your financial team as your startup also grows. This is especially true if your startup is rapidly scaling and it can be challenging to keep your financial matters in order with increases in revenue and overhead.

Efficient financial operations are critical to so many aspects of your startup, from fundraising to cash flow management to tax preparation and strategic growth. If your finances are not in proper order, it’s going to have a more far-reaching impact on your startup than you may initially think.

The Role of a Scalable Finance Team

As a startup evolves, so must its financial team — and as a startup evolves, its finances are only likely to become more complicated and require more attention. This is why it is important that startups establish robust financial processes when it comes to their business’s financial management. Some of the key responsibilities of a financial team over time include financial reporting, financial planning and analysis (FP&A), accounting services, tax compliance and financial strategy advisory, among others.

These responsibilities are somewhat basic in the early days of the startup after it receives seed funding, but become more complex as operations evolve and Series A funding is awarded. Seed funding is primarily used to fund a startup’s early stages and get it off the ground, while Series A funding is used to facilitate further growth after it has demonstrated market traction and a good product or service market fit. Seed funding also involves investments from venture capitalists, who typically expect to see signs of adequate financial management before putting any support behind a growing startup.

In-House Finance Teams

Thinking of building an internal finance team at your startup? Here’s a look at some of the advantages and challenges of taking this route:

Advantages

Arguably the biggest advantage of building an in-house finance team is having full and direct control over the team and being able to collaborate and communicate with it whenever you want or need to. With an in-house team, you’re also able to help build a thorough, deep understanding of your startup and what it’s trying to accomplish to receive complete buy-in. This can also help ensure alignment with any long-term goals that have been established.

Challenges

People are the driving force behind revenue growth for startups, but hiring can significantly increase overhead costs. Building a financial team, especially with experienced professionals who possess the specific expertise your startup needs, can be both challenging and expensive. In addition to paying out salary and benefits, startups must also factor in the cost of retaining these professionals. Salaries alone for the professionals that your startup requires may cost several hundreds of thousands of dollars compared to working with a fractional finance team, which can be much more cost-effective.

Various other challenges come with bringing in an in-house financial team. These challenges include the time it takes to onboard professionals and get them familiar with your startup and financial tasks, which can be costly and hinder cost efficiency. There may also be limited flexibility to scale resources as quickly as you want or need to.

Outsourced Finance Solutions

The alternative to building an in-house team is to outsource financial operations and work with a fractional finance team. Here’s a look at the advantages and challenges of taking this route:

Advantages

Startups by definition are constrained by time and resources — and startups that try to do too many things within those constraints tend to have even more challenges. That’s one of the biggest benefits of outsourcing financial solutions to a trusted partner. Entrepreneurs tend to be creative thinkers, not financial experts. By outsourcing financial solutions, founders can lean more into this entrepreneurial spirit and focus on growing their startup and developing a product to disrupt the market and spend less time worrying about financial matters.

There are likely also significant cost savings associated with outsourcing financial operations versus hiring an in-house team when you consider having to pay out salary and benefits.

Aside from cost savings, when you work with a fractional team you can ensure that you’re tapping into a broad range of financial expertise. There’s also the opportunity to scale the level of financial service that you receive as your startup grows or changes over time.

Challenges

The biggest challenge of working with a fractional finance team is just ensuring you have a good working relationship and are able to effectively and efficiently communicate and collaborate when needed. This has the potential to pose some challenges compared to having an in-house team that’s employed directly by the startup. On a similar note, there’s also the perception that there’s perhaps less control working with a fractional team compared to working with an in-house team, especially when it comes to handling sensitive financial information.

Key Considerations for Startups

There’s no right or wrong answer when it comes to building an in-house finance team versus partnering with an external provider and working with a fractional team, just the solution that works best for your startup. To help determine which option is best for your startup, you should weigh these key considerations:

Growth Stage

If your startup is still in its early stages, it’s often better to work with a fractional finance team. This helps ensure your startup has access to expert financial professionals who can help it navigate throughout its early days and help guide it to meet any growth goals. There’s also the cost savings benefit of outsourcing these services versus bringing them in-house.

As a startup grows, it often becomes more feasible for it to bring in in-house financial professionals. In some cases, the startup will retain its fractional finance team to help assist any in-house professionals.

Capital Constraints

One of the biggest benefits of outsourcing is the cost savings that startups can realize. Typically, early-stage startups are cash-strapped and have limited budgets. On that note, it’s often not practical or responsible to hire in-house professionals until certain revenue or growth goals are met.

Complexity of Needs

Outsourcing ensures that startups have access to experienced financial professionals who can help them navigate some of the complex needs they have. Again, it can be costly to hire an in-house financial professional with the level of expertise or specialization that a startup requires, which makes outsourcing more practical in most situations. Working with a fractional team allows startups to balance efficiency, expertise and cost.

The Value of Fractional Finance Teams – Insights from the Graphite-Ramp Webinar

Efficiency. Expertise. Adaptability.

Those are some of the key benefits of working with a good fractional finance team. Rather than spend hundreds of thousands of dollars per year to build their own finance team, startups can have access to one with the level of experience and expertise needed for a fraction of the cost. What’s more is that these outsourced teams can scale and grow with the startup as necessary. For instance, Graphite offers various fractional finance plans for startups, which can be easily adjusted based on their specific needs.

Fractional finance teams also work with other programs, like Ramp, to automate expense management and track real-time spending to improve efficiency and transparency. Finally, fractional teams are also favored by venture capitalists who often want to see how their investments are paying off and what the financial status of a growing startup is.

Scale Your Finance Team with Graphite

For more information on the value of working with a fractional finance team and how to scale your startup’s finance team, contact Graphite today. Graphite has worked with hundreds of startups, helping them optimize their finances, set strategies and, ultimately, grow and prosper. Contact Graphite for more information and to schedule a free consultation.

FAQs

What is a fractional finance team?

A fractional finance team is a group of experienced financial professionals who work on a part-time or as-needed basis with one or more startups. Fractional finance teams specialize in providing expert financial advice and knowledge. These teams partner with companies and offer a more cost-effective alternative compared to bringing in an in-house team.

How does Graphite Financial support startups?

Graphite is well-positioned to support startups by serving as their fractional finance partner. With Graphite, startups can have access to a team with the level of experience and expertise they need for a fraction of the cost of bringing people in-house. Some of the key responsibilities of a Graphite fractional finance team include financial planning and analysis (FP&A), accounting, tax compliance, strategic advisory and more.

What are the cost benefits of outsourcing finance functions?

In addition to paying out salary and benefits, startups must also factor in the cost of retaining these professionals. Salaries alone for the professionals that your startup requires may cost several hundreds of thousands of dollars compared to working with a fractional finance team, which can be much more cost-effective.

When should a startup consider hiring an in-house finance team?

As a startup grows, it often becomes more feasible for it to bring in in-house financial professionals. In some cases, the startup may even retain its fractional finance team to help assist any in-house professionals.

Can outsourcing handle complex financial operations?

Yes, that’s one of the biggest benefits of outsourcing and working with a fractional team. When you outsource with a fractional team, you’re leaning into the experience and expertise of the team on just about every financial matter. At Graphite, we’ve successfully partnered with hundreds of startups, helping them grow and scale.

How does Ramp integrate with outsourced finance teams?

Ramp helps provide a centralized platform where financial data is readily and easily accessible. This helps improve transparency, automates certain financial practices and satisfies partners.