Many business owners and CEOs rely on their in-house finance and accounting team to process transactions and provide them with financial statements each month. That’s how things used to be done and it is what they are used to. But when it comes to managing your organization’s financial standing, traditional is not always most efficient and cost-effective. With recent technological advancements, Finance as a service (FaaS) is here to disrupt the finance and accounting landscape.
Finance as a service and in-house finance services offer different workflows when managing the finance and accounting for your business. It all depends on your business needs, but the enterprise-level software and controls along with the automation and cost-effectiveness that comes with a FaaS solution is oftentimes more beneficial to high-growth middle-market businesses, especially if they are investor-backed. When companies take institutional funding, the need for timely, accurate and advanced reporting requirements is accelerated.
Finance as a service Helps with Addressing New Challenges
CFOs and other financial leaders are being presented with new opportunities and facing new challenges at the same time. To be able to harness those opportunities and meet those challenges, finance must be effective, efficient, flexible, and integrated. However, there are internal issues that need to be overcome to allow this to happen. Finance executives and teams need to tackle those challenges to build an integrated, flexible, and modern finance function that meets compliance and back office responsibility, but also supports and serves the business.
The scope of today’s finance is expanded and it includes:
- Business support. Covering processes, activities, and people that aren’t mandatory, but support and add value to the business.
- Business services. Covering processes, activities, and people in support of ongoing business operations (including providing back office services).
- Compliance. Adjusting along with changing rules and regulations.
Once, finance’s only role was only concerned with reporting and compliance. Today, that has shifted to decision support, which includes pricing and investment strategy, interactive forecasting, evaluation of strategic initiatives, analysis of commercial alternatives, and data analytics.
The key areas that finance leaders focus on are enabling effective decision-making, maintaining a manageable cost structure, and adding value to the business overall. The ultimate measure of finance’s performance is its ability to support your business strategy.
Benefits of In-House vs. Finance as a service
Benefits of having an in-house finance department include:
- Having more day-to-day control over your company’s finances
- The ability to access your financial position at any given moment
- Always having someone available to help or provide information (when needed).
- Getting the quickest answers to any questions you have from someone who knows your business inside and out.
- The ability to meet specialized, specific, and unique finance and accounting needs.
- Multi-tasking – in-house finance means that the function can evolve and adapt to support the needs of a growing business.
Benefits of using Finance as a service include:
- Lower upfront investments – Since you are not building an in-house department or purchasing software, the initial cost and future cost-effectiveness will be less.
- Minimal space – No need to buy and install hardware or accounting software at the office.
- Flexibility – With financial programs and support that live online, you can access and manage your company’s financial affairs anytime from remote locations.
- Automatic updates – The FaaS services you use will always be up-to-date.
- Collaborative capacity. The ability to interact with your team and clients in an online space. This also brings the advantage of being able to collaborate to make a more efficient program.
- Improved insight through connected data – When financial data is collected, stored, and presented in a unified form via a centralized system, everyone can make sense of the current opportunities and challenges (not just CFOs or other finance experts).
- Improved financial visibility and a more complete picture – As your business grows and evolves, you should be able to see the dependencies and interactions of all business departments. With automation and data analytics, you’ll be able to see your business as a whole.
Internal Controls for FaaS vs. In-House Department
To make sure the flow of information into your accounting system is timely, accurate, and classified correctly, you need to establish proper internal controls. Also, that will provide a series of invaluable checks and balances to reduce the risk of fraud. For example, having a few employees handling books, the risk of fraud increases. The person reconciling the bank account might be the same person paying the bills, and since there is no separation of duties, they are in a position to steal your company’s funds and cover their tracks.
Without proper financial controls and policies to monitor and safeguards expenditure and revenue transactions, businesses are open to internal fraud, overpayments, and lost revenue. However, moving to a consolidated platform and removing the need for paper-based processes can expedite collections, improve reporting, and reduce the opportunities for fraud. When providing financial statements for the business, there is a separation of duties and there’s access to financial reports that allow you to review any information that might seem incongruent or discrepant.
Financial Reporting Performed FaaS vs. In-House Department
Finance and accounting functions along with financial reporting processes differ for each business, depending on industry considerations, number of monthly transactions, specific business needs, and other factors. In-house accountants and bookkeepers can create and deliver reports for your business, but you will have to make sure that they have the right expertise, skill sets, training, and education to provide accurate financial reports. Oftentimes, in-house finance team members have to multi-task – they have other responsibilities, such as Human Resources, that can take their focus and time away from accounting (which is their core duty). When that happens, financial reporting can suffer because recording invoices, data entry, and paying bills take priority. For a business owner or CEO, financial reports are critical to maintaining cash flow and helping make data-driven decisions that govern the business.
Finance as a service, on the other hand, can help alleviate meaningless, inaccurate, and late financial reporting. It allows you to choose exactly what you need for your business. Furthermore, FaaS can often make your finance team more effective by letting them focus on their core job descriptions.
Cost-Effectiveness of FaaS vs. In-House Department
For many SMBs (small and medium-sized businesses), cost-effectiveness is one of the biggest determining factors when choosing a finance service. An average annual salary of a full-time in-house bookkeeper is about $45,000, while a full-time accountant can make around $60,000. In other words, just these two employees will cost you more than $100,000 per year. On top of their salary, you will need to add 20% on top of it for additional costs, which include:
- Retirement plans
- Payroll taxes
- Hiring costs – advertising for a vacant job position, interviews, testing, and training
Using a FaaS solution from outsourced companies, your organization won’t have to pay for overhead costs. Your only expense will be a monthly subscription for leveraging a skilled finance team and using the cloud-based finance software, which is significantly less than having to pay an accountant, bookkeeper and additional support.
With an integrated financial management solution, your team will be free to focus on core tasks and productive work instead of repetitive (and often tedious) administrative tasks. Connected and unified systems as well as financial data visualization will support critical performance metrics, key checkpoints, and segregation of duties to prevent internal fraud as well as unintended errors. And by significantly reducing duplicate entries and repetitive tasks, your team will be able handle higher transaction volumes in the same amount of time.
FaaS came as a result of the drive to develop more effective, efficient, and supportive operations. Every type of digital transformation initiative aims to achieve more with less, and FaaS requires an investment that can significantly improve the service and value of your business finances. This transformation extends beyond the mere transactional service and goes into technical and professional services, strategic planning, and commercial decision support.
When compared to an in-house finance department, outsourced financial services or FaaS can help improve financial visibility as well as drive greater understanding and awareness of the role finance can play, benchmarking, new technology, and developing services models. In fact, there is a real trend and inclination for finance to move from being finance as a function to become finance as a service.
Finance as a service gives you enterprise level control and financial visibility at a fraction of the time and cost required to setup and run an entire in-house finance department. Also, it helps you save money and you get management reporting that will paint a clear picture of how your company is performing financially. As one of the leaders in the FaaS industry, Consero can help you with your finance and accounting functions so you can achieve maximum success with minimal client time and remove barriers holding your business from going forward.