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VCFOs for Start-ups: Impact of VCFOs in Reinventing Finance Operations of Start-ups

Ashish M. Shaji

| Updated: Dec 07, 2022 | Category: CFO Service

VCFOs for Start-ups: Impact of VCFOs in Reinventing Finance Operations of Start-ups

Planning your financial operations is essential for both big and small companies. In the case of big companies, they can afford to spend on finance experts who can help the company handle all its financial operations. However, small companies like a start-up cannot afford financial officers and a full-time CFO may not even be required for a start-up. In such cases, Virtual Chief Financial Officers have become the new normal. In this article, we shall discuss how VCFOs for start-ups have reinvented their finance operations across the globe.

Who is a CFO?

CFO or Chief Financial Officer is responsible for managing the financial activities of a company. Such an officer is appointed to ensure financial planning[1] aligns with the company’s objectives. Apart from that, the CFO is required to do tax planning, cash flow forecasting, and risk management.

The CFO does strategic planning by identifying the risks involved in the business and taking steps to counter those potential risks. A company’s CFO is assisted by a team of accountants who prepare the roadmap for the way ahead.

Who is a VCFO?

VCFO or Virtual CFO provides services similar to an in-house CFO but only provides them when the company requires their services. VCFOs extend the services of financial planning and reporting without the requirement of hiring a full-time CFO.

Businesses not having extensive financial requirements generally opt for the services of a VCFO. VCFOs deploy their accounting knowledge, skills, and information on financial markets to make decisions that carry the company forward without exhausting its resources. VCFOs are also cost-effective compared to CFOs, as they are required to be paid only the amount for which the services have been offered.

Now, let’s understand the importance of VCFOs for start-ups.

Significance of VCFOs for Start-ups

Businesses have undergone huge changes in their perspectives and way of doing business. One cannot keep an old mindset to match today’s business requirements. Today the world has become increasingly competitive; therefore, business owners, especially new-age businesses, need to innovate. Thus, businesses have welcomed the idea of having VCFOs.

The two significant needs for starting a business, including a source of capital and a market for the end product, have come within reach of business enthusiasts. However, the bitter truth is that many start-ups have failed in the early stages due to intense competition.

As per research, 8 out of 10 start-ups fail and 7.5 out of 10 venture-backed start-ups fail.

There are a variety of reasons behind the fall of early-stage businesses. However, some of the common ones are as follows-

  • Lack of adequate financial planning;
  • Poor cash flow;
  • Lack of proper financial structure and administration.

Thus, getting right the financial aspect of the business is crucial. It has to be addressed right at the start of the business. Here comes the role of VCFOs.

The VCFOs can address these issues with minimum expenses. VCFOs can play multiple roles for start-ups, including accountants, financial advisors, risk managers, strategic enablers, and so on.

The Dilemma of Managing Finances through Technology

The start-ups that have inexperienced innovators find it difficult to manage finances through technology. Many founders of start-ups are also unaware of the complex financial regulations and tax incentives.

CFOs can manage this issue well as they are experienced however, some companies may not be able to afford the charges of the CFOs. In such a scenario, VCFOs can be a handy option.

VCFOs analyse the company’s financial data and categorise it in a manner that allows the company to make wise prospective business decisions. They also identify flaws, if any, in the current set-up.

VCFOs for Start-ups: Driving Finance Operations through Coordination with Banks

VCFOs engage with various organisations at a time which results in the analysis of a large number of financial transactions and data. Modern banking solutions creates a bridge between start-up and VCFOs.

Banks have to play the role of advising on cases where accounting compliance is necessary. Banks and VCFOs, ensure that the regulatory reporting covers all the crucial checklists.

VCFOs analyse the company’s financial health and identify the aspects that must be modified. Banks need to extend feasible solutions within their capacity when a VCFO does that and finds certain elements that require modification.

The banking and services landscape, driven by technology, is revolutionising. This is also true for VCFOs. Financial operations executed individually may become a part of the larger picture. Thus, the VCFOs should also adapt to the evolving time and age and deploy the use of cutting-edge technology that caters to the market.

How Are VCFOs Facilitating Improved Finance Operations in Start-Ups?

VCFOs have used various methods to facilitate better finance operations in start-ups. It has resorted to multiple techniques and plans to ensure that your business has an adequate financial structure.

Some of the crucial and common methods used by VCFOs have been discussed below-

Cash Flow Management

VCFOs ensure that the business or the start-up doesn’t fall prey to lacklustre cash flow management. In order to ensure better cash flow management, the VCFO trims unnecessary expenses, restructures financial set-up, and provides structure and shape to a complex and chaotic financial unit. VCFO ensures that the start-up stays prepared for market changes.

Develops and Chalks Out Strategies

A VCFO also chalks out strategies that ensure that the company’s financial operations don’t fall apart during market changes or turmoil. VCFOs look ahead and develop strategies and plans, getting them ready for rough financial patches of the business.

VCFOs utilise their experience and provide valuable suggestions and inputs for improving the company’s financial operations.

Evaluation of the Goal

As you know, a business needs to frame the goals and targets that it seeks to accomplish. In order to attain those targets, financial reports are crucial documents to track balance sheets and cash flow statements. A VCFO prepares the financial report and analyses it to reach the best results possible.

Data Backed Insights

VCFOs use financial data collected through cash flow statements, accounting books, etc., to develop business insights through data analytics. VCFOs deploy the use of the data to get valuable insights for the start-up.

Infrastructure

VCFOs assist start-ups in building upon a solid foundation. While looking after the scalability of the financial system and preparing the business to be upscale and downscale, VCFOs ensure that the funds are kept in advance to meet the requirements of challenging and uncertain times. An experienced VCFO can assist start-ups in establishing an efficient financial infrastructure that will drive the financial operations of the start-up.

Forecasting

VCFOs have an excellent grasp of multiple accounting tools and a broad knowledge of financial documents. Financial forecasts play a crucial role in winning investments for a businessman or woman. In such cases, VCFOs, with their skills and knowledge, can assist you with forecasting. Start-ups can also benefit from the forecasting aspect. Thus, the forecasting role of a VCFO is crucial for an established business or start-up.

Technology Integration

VCFOs are tech savvy therefore, they can introduce technological integration to your start-up, which will make the financial operations of the start-up more efficient. They are adept at integrating cutting-edge technology in the processes of the start-up. With the assistance of data analytics and AI technology, they can certainly pave the way for the advancement of your start-up’s financial set-up.  

Financial Results Interpretation

VCFOs can also interpret financial results for start-ups. They provide a detailed report on how they are functioning financially. They also give valuable insights by analysing financial statements.

Conclusion

VCFOs are a crucial means to the growth of the business. One can not only boost the finance operations of the start-ups through their assistance, but business owners can also save a considerable amount of money. The money and resources that have been saved can be utilised to fund your core business. VCFOs can drive growth and help you to stay competitive in the market. Therefore, the role of VCFOs for start-ups can never be undermined. With a wide range of services offered by VCFOs, including budgeting, forecasting, cash flow analysis, etc., they are certainly the new normal for the new age start-ups.

Read Our Article: Funding Alternatives for Start-ups and Small Businesses: Start-up Finance

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

Business Plan Consultant


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