Owners and CEOs often don’t think about due diligence and audit preparedness during the early stages of the business startup. But maybe they should.

Research has indicated that between 90% and 95% of companies that receive seed funding don’t achieve a successful exit. This raises the question: What’s the difference between seed companies that achieve a successful exit — whether this is going public or some other type of exit — and those that don’t?

Of course, one of the biggest factors is achieving the right product-market fit. But another factor that isn’t talked about as much is an early focus and emphasis on due diligence and audit preparedness, especially as the company moves through the various stages of capital fundraising.

Growth Stages and Funding Milestones

Following are some of the key steps that should be taken from a due diligence and audit preparedness standpoint for each major growth stage and funding milestone. Note that there is more complexity at each milestone, requiring greater sophistication on the part of the financial management team.

Pre-seed to Seed:

• Build your financial system and organize financial files

• Implement financial controls

• Set up collections processes to maximize efficiency

Fundraising Series A:

• Financial modeling and long-range planning

• Fundraising project plan and investor presentation

• Series A fundraising overview, current trends and term sheets

Fundraising Series B:

• Financial metrics, benchmarking and data analytics

• Annual financial planning/forecasting and cash flow management

• Board financial reporting packages

• GAAP accounting and revenue recognition

Fundraising Series C:

• Financial guidance for strategic decisions

• Merger and acquisition assistance (if needed)

• Board/investor presentations

• Potential international expansion

“The key is to maintain funding readiness throughout each of these stages,” says Jason Burke with Consero. “This should always be top of mind for seed companies. For example, make sure compliance is up to date, financial records are maintained and documentation is prepared so when opportunity arises, you’re ready to take advantage of it,” he notes. 

Get Started Early

Jason stresses that due diligence and audit preparedness should begin on day one of the startup. “It’s never too early to get started,” he says. “You’re going to need a lot of supporting information to back the numbers in your financial statements.”

He lists the following due diligence and audit preparedness steps:

• Gather formation documents such as articles of incorporation, bylaws and shareholder agreements.

• Identify and build relationships with professional service providers including a CPA, banker, attorney, insurance broker and industry-specific consultants.

ª Gather such information as internal control narratives and a summary of related party transactions.

• Prepare revenue and gross profit projections by product offering.

• Obtain audited financial statements for the last two years, or three years for a public company buyer.

• Consult with an audit firm about complex accounting requirements.

“It’s important to maintain your own financial documents and not rely on your CPA firm for this,” says Jason. “If you switch firms, important data that substantiates a tax position could be lost.”

Jason also stresses the importance of keeping financial statements in good order and maintaining adequate internal controls at all times. “Failure to do so can lead to numerous problems when it’s time to exit the business, not to mention higher taxes,” he says.

Your Finance and Accounting Team

Building a strong finance and accounting team is critical to proper due diligence and audit preparedness. This can be done internally or on an outsourced basis, which tends to be more common among seed startups.

Consero can help you build the finance and accounting team you need to assure adequate due diligence and audit preparedness. Contact us today and schedule a complimentary consultation. 

As a CFO, your corporate board of directors is one of your most important constituencies. Therefore, it’s critical to manage board relations carefully and strategically and to make sure that you and your CEO are aligned on your approach and your respective roles.

This starts with understanding the unique interests of each of the individual members, knowing their data needs, and determining who should be communicating with which board member and on what cadence, says Consero’s CFO and COO, Mike Dansby. “This will enable board members to most effectively support and govern the company,” says Dansby. “And it will lessen the chance that there are unmet board member expectations on the part of your company.”

The Makeup of Your Board

Managing board relations effectively starts with achieving the right makeup for your board. In smaller organizations, the board might consist of just investors and the founders. But as businesses grow, the makeup of their board should evolve as well.  For instance, “independent” board members may be added to bring specific industry, product or functional expertise to the board.  Additionally, with growth the board will evolve and form committees.  Quite often, someone with deep financial expertise is added to chair the audit committee.

Over time, conflicts can sometimes arise based on how the board makeup is structured. Consider a venture capital-backed business with both early- and late-stage investors. The early-stage investors might not be as patient as time passes and might prefer a quick sale to generate liquidity whereas late-stage investors may be more willing to take a long-term view of the business.

“I have seen this scenario play out many times,” says Dansby. “It can be avoided by carefully managing the makeup of your board to achieve a balanced representation of shareholders, management and independent directors. Also, the company should pay close attention to the voting rights and preferences given to each series of shareholder to understand if decision making is balanced or loaded in favor of a particular shareholder class.”

Communicating with Your Board

Another key to effective board relations is knowing how to communicate with board members in the language they want to hear. For example, a business that’s backed by venture capitalists most often operates at a loss. In this scenario, the VC board members will be primarily interested in the progress of bookings growth and how to use cash flow to help drive growth, not in things like marketing and expense management. 

“There’s no need to go over a detailed P&L statement with them or talk about expense reduction,” says Dansby. “Instead, spend your time with them focusing on sales, revenue and cash flow.”

On the other hand, a business that’s owned by private equity investors is probably more established. The PE board members will likely be most interested in ways to boost efficiency and cash flow in order to service debt, as well as adherence to loan covenants. If debt is minimal, they will probably be interested in expense management and what types of investments are needed to grow the business. 

“Private equity owners tend to demand more data and perhaps be more hands-on with the business,” says Dansby. “Sometimes this requires a little more patience on the part of CFOs.”

Organizing and Facilitating the Meeting

According to Dansby, it’s important to choose a consistent format and agenda for your board meetings so members know what to expect. “Have a consistent flow to your meetings and a consistent set of metrics so they have a similar experience and get the same view every time,” he says.

For example, you might get routine business matters out of the way up front, like approving stock options. Next, you could cover the executive summary and key strategic initiatives. Then you can spend the rest of the time focusing on the things that are important to your board members, as discussed above.

Dansby recommends preparing the board deck and distributing it to board members several days in advance so they can review it and be better prepared. Get consensus early on as to key metrics and analytics for the business and stick to those.  Relegate the GAAP financials to the appendix as most boards prefer to look at some version of an adjusted EBITDA analysis.

The hardest aspect of keeping board members up to speed might involve translating complex financial data into actionable insights. “Board members might be unfamiliar with financial concepts that CFOs analyze regularly and confused by accounting jargon,” says Dansby. “Therefore, it’s important to keep reports simple and make sure they’re timely, consistent and concise.”

The CFO’s Role in the Meeting

At times CFOs might feel like a stick in the mud when they have to follow the CEO at a board meeting. The CEO is the optimist who talks about big-picture strategy and headline numbers, and then the CFO has to explain what the numbers mean, how the company can achieve them, and perhaps a dose of reality to the discussion. 

“Sometimes CFOs even need to reign CEOs in a little bit,” says Dansby. “But a board meeting isn’t the right time or place for open disagreements or to challenge the CEO. Instead, be adaptable and explain to the board what assumptions need to be met for the company to achieve the CEO’s vision and goals.”

If you have more questions about managing your corporate board more effectively, request a complimentary consultation.

The phrase “war for talent” was coined by McKinsey & Co. in the late 1990s to describe an environment where competition among employers for skilled workers was becoming more intense as the workforce began aging and employees exhibited less loyalty to the companies they worked for. 

This so-called war has only intensified since then. The demographic and societal trends that started more than two decades ago have continued with baby boomers starting to retire in droves and highly skilled employees hopping from job to job as new opportunities arise. COVID-19 has also played a large role in the upheaval of the workforce as both businesses and employees adjust to new ways of working due to the pandemic.

In fact, one out of every four employees say they plan to change jobs once the pandemic subsides, according to the Pulse of the American Worker Survey conducted last spring by Prudential. 

Challenges in Accounting and Finance

The war for talent can be even more intense in the finance and accounting industry. Highly skilled finance and accounting employees can often pick and choose from among the best jobs, which makes it hard for corporations and CFOs to build and maintain a stable finance and accounting staff.

The good news is that building such a staff isn’t always necessary anymore. Instead, businesses can utilize Finance as a Service, or FaaS, to meet their finance and accounting requirements. With FaaS, the finance and accounting back-office duties are outsourced to a third-party service provider. This relieves the CEO or CFO of the difficult, expensive and time-consuming job of hiring and retaining a full-time finance and accounting staff.

FaaS: A Comprehensive Approach to the Finance Function

Finance as a Service is sometimes confused with the services provided by outsourced accounting firms. However, FaaS offers a much more comprehensive approach to financial and accounting management than simple outsourced accounting, along with greater transparency and rigor.

First, FaaS provides a full suite of staff, services and software that’s capable of managing a corporation’s entire finance and accounting operations. This includes processing transactions and customer payments, paying vendors and producing monthly financials. In other words, FaaS is a one-stop financial and accounting services shop. 

FaaS also offers a single, self-serve software interface instead of multiple programs that corporations have to manage themselves. This interface should provide clarity and transparency with regard to financial and accounting information. With FaaS, knowledge isn’t concentrated with a single individual who is the only one who can access relevant financial and accounting data. Instead, this data can be easily accessed by anyone on the team when needed. With a single, self-service interface, more than one person can get that system to meet their needs on any given day.

In addition, FaaS features flexible and transparent pricing which makes it easy to forecast what costs will be as the company’s needs change in the future. Practically speaking, this means that a FaaS provider charges based on the service offered, not by the hour or based on the level of staff assigned to the client. This way, corporations know exactly what they’re paying for and how their costs will rise or fall as they scale up or down

Finally, FaaS offers access to skilled finance and accounting professionals who have the appropriate level of expertise for the corporation’s specific needs. While much of financial operations is fairly straightforward, sometimes corporations need a higher level of strategic thinking and expertise, like when performing acquisitions and onboarding new entities, for example. With FaaS, corporations only pay for this higher level of service when it’s needed. 

FaaS Service Brings Everything Together

In the end, Finance as a Service comes down to one word: service. This is what brings together the comprehensive offering, single self-serve interface, pricing transparency and customized level of expertise. A true FaaS provider will offer this kind of comprehensive approach to managing the finance and accounting function.

As a CEO, now would be a good time to think about how adopting Finance as a Service could help you win the war for talent. To discuss the potential benefits of FaaS for your business in more detail, please connect with us here. 

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Finance as a Service (FaaS) is quickly becoming one of the most popular ways for Professional Service firms to save money. Professional Services organizations, such as Marketing & Advertising, Business Consulting, Educational Services and Wellness & Healthcare can use FaaS to eliminate the need for costly in-house technical staff while still having access to all the benefits of these services.

The following article will discuss what FaaS are and how they work, along with some of their key benefits.

What Is Finance as a Service?

Finance as a Service (FaaS) is a type of agile service delivery model. It makes use of the best finance operation management practices by leveraging some of the most advanced technologies. These include things such as Artificial Intelligence, Machine Learning, cloud computing, automation, and more.

The Professional Service industry has grown by leaps and bounds in recent years. This is because it provides a wide range of services that are valuable to many organizations, including but not limited to marketing & advertising, business consulting, education service and health & wellness to name just a few.

Organizations are grappling with the challenges of high operational costs and low margins. This is causing some to move away from product development and focus on services only to compensate for this challenging business climate that they are facing.

Finance as a Service (FaaS) offers Professional Services organizations the opportunity to grow their business while reducing operational costs and increasing margins through automation, increased scalability, cost savings, and more.

The Benefits of FaaS for Professional Service Firms

Partnering with outsourced finance and accounting service providers creates tangible benefits for companies and intangible benefits for business owners. FaaS can help those in the Professional Service sector by providing benefits like cost savings, scalability, financial visibility, CFO assistance, and more.

Cost Saving

One of the most apparent benefits of FaaS is in terms of cost savings. Professional service firms are all about delivering a high-quality product. But to do this, they need to invest in their people and infrastructure. FaaS helps these companies spend less on the finance & accounting department by outsourcing back-office functions such as processing accounts receivable, accounts payable, and utilizing enterprise-grade finance & accounting software. 

Cost savings come about via multiple processes that FaaS can provide. Among these, we can include things such as:

• Automating many manual and repetitive processes.
• FaaS providers can customize and address their clients’ unique needs, determining the best processes to tackle their needs.
• Increased financial reporting capabilities.
• FaaS providers also have trained and skilled finance experts that their clients can leverage.

When companies don’t have a CFO, they’re always left without actionable financial reports and analytics. In simpler terms – without better reports or data, the business can be difficult to maintain, let alone grow and expand.

This also enables businesses to understand the financial health of their company, which is used to make better decisions for business needs. Organizations in the professional service sector will feel a sense of relief when they use a Finance as a Service provider. With these providers, companies can benefit from enterprise-level finance software that allows an organization to save time and engage with data and reporting for better understanding.

Easy Scalability

FaaS providers are structured for specific tasks and provide the right level of resource accordingly. FaaS providers can jump in and help quickly, allowing your company to be more scalable (having a higher capacity) than it would be with an in-house department.

Finance as a Service helps streamline scalability by providing the resources and tools necessary to operate your Professional Service business. FaaS providers help you avoid understaffing or overstaffing, which can lead to unnecessary costs.

The benefits of scalability include being able to accommodate new opportunities quickly as they arise without having any significant setbacks in other areas of your Professional Service company.

CFO Support

FaaS can provide CFO assistance to Professional Service organizations. Many Professional Services firms are structured in such a way that there is no one person with the primary responsibility for financial management and operations, which often leads to what we call “spreadsheet hell” or lack of focus on numbers. There may be several people managing spreadsheets because they don’t have time to do it themselves or nobody wants all the overhead involved with being responsible for accounting and other complex tasks like reporting.

This means that many Professional Services organizations miss out on opportunities when it comes to financial visibility, risk analysis, cost control, etc., without realizing any benefit from their analytics efforts – both financially and operationally speaking.

In contrast, FaaS service providers can assist by providing Professional Service organizations with the information they need to make critical decisions. Professional Services organizations that outsource their Finance as a Service will benefit from improved financial visibility, reduced risk of financial penalties due to missed deadlines, and lower costs required for IT infrastructure maintenance.

Finance as a Service enables companies engaged in the professional service industry to save money, manage finances better, and more. Consider Consero for CFO support – an expert financial advisor who can help provide advice on your expenses.

The FaaS model is appealing for many service providers because it reduces repetitive tasks, freeing up time and resources to focus on the data. A CFO provides perspective and helps you focus on the growth of your business.

Increased Financial Visibility

When using paper-based systems and collecting their data in spreadsheets, professional service organizations set themselves up for all sorts of human errors and time-consuming tasks. The result is often a lack of visibility into the organization’s financial performance.

Professional service organizations can use FaaS solutions to make their business more efficient by automating back-office operations, providing better tools and reports for managing finances, and decreasing time spent on data entry.

Professional services providers can access real-time reporting without paying for expensive subscriptions or hiring staff members with extensive IT experience.

The FaaS model facilitates a clear view of the future and present-day challenges offered by easy-to-read reports. Improved financial visibility will help companies by:

• Providing a bird’s eye view over cash flow and current financial position.
• Tracking ongoing account profitability and customer acquisition costs.
• Demonstrate performance gains to potential investors.
• Identify errors and potential fraud faster.
• Better utilize your current and future investment capabilities to make better financial decisions.
• Evaluate service lines in real-time.

With a bird’ eye view of your company’s performance, you can better mitigate risks and future-proof your strategy. With financial visibility to ensure all data is connected, you’ll be able to zoom in on the details as well.

Otherwise, depending on data stored in multiple disconnected systems prevents you from getting a view of unified information, which is crucial for making decisive decisions.

CEOs of Professional Service organizations usually bring business decisions without seeing what is happening across the entire business. Better financial visibility is vital in understanding and managing the organization’s progress better. As a result, they are less successful than companies with employees who can offer support, such as Finance as a Service (FaaS).

Faster Optimization

Finance as a Service can help Professional Services firms and account for their operations more quickly. This is because FaaS eliminates the need to manually input data, which speeds up processes that typically take hours or days by reducing them down to minutes or seconds.

Financial visibility of transactions in real-time allows Professional Services firms to adjust pricing models on the fly with increased accuracy, making it easier for clients to predict what they will be charged in any given scenario.

Professional Services companies can focus on developing new services rather than spending valuable resources worrying about reconciling invoices and payments from providers who charge hourly rates, etcetera.

When it comes to a company’s problems in finance and accounting, they often follow the same procedure – looking for an organization that researches systems and then picks one that fits their needs best. Next, they configure the system and implement it. This process takes longer to complete because most organizations need 18-24 months to optimize their finance function. One of the leading challenges that Professional Service organizations face is time management. They need to dedicate a lot of time and energy to get their systems up to date, which takes away from managing daily operations and provides less time for core functions.

The FaaS model is perfect for finance teams looking to spend less and get going faster. With the FaaS solution, in 60 days or less, you can:

• Optimize your finance function more cost-effectively than with an in-house department.
• Save time upfront as well as long-term time spent on business growth initiatives.
• Get access to resources like tax experienced CFOs, FP&A experts, controllers, and more to see a #1 differentiator from our competitors.

Increase Efficiency and Reduce Fraud

In a company growing in size, trying to stay productive and accurate using paper-based or excel-driven workflows while maintaining control over everything can be challenging. Fraud and error-prone manual input by staff is a significant risk. Instead of spending their time on value-adding activities, they waste their time undertaking manual tasks that result in errors.

By integrating financial management systems, FaaS offers help with tasks such as reducing duplicated listings and repetitive actions.

A consolidated financial platform that unifies all your data and eliminates paper-based processes will improve financial reporting, expedite collections, and reduce the chance of fraud. Furthermore, segregated duties and critical performance metrics are supported by integrated financial management, which leaves your staff with more time to focus on their core tasks.

Conclusion

Finance as a Service can provide plenty of benefits to Professional Service organizations that use them. Professional Services organizations that use FaaS can lower their costs, provide scalability and financial visibility to make the decision-making process easier for CFOs, and receive assistance from a qualified professional in finance.

FaaS is also flexible and provides more control over finances than traditional accounting systems. Professional service firms can spend less time on administrative tasks thanks to Finance as a Service. They eliminate the need for manual data entry, work cycle delays caused by waiting for accounts payable or payroll department approvals, and any other variables which lead to lost productivity hours spent on compliance issues related to bookkeeping.

In today’s highly volatile and uncertain business environment, technology has also played its part in the overall disturbance. The rise of cloud computing and automation has changed the finance leader role in surprising and unexpected ways.

CFOs have always had an important role in C-level decision-making, but now they also play a pivotal role as partners and problem-solvers for their client organizations.

The CFO’s new responsibilities include being the chief customer advocate, understanding customers’ challenges and opportunities better than any other person on the C-suite executive team.

The CFO is a C-level executive who has traditionally been in charge of running financial operations for the organization. Historically, this meant they were primarily focused on ensuring the company had the funds necessary to operate and grow. With cloud technology becoming more prevalent, CFOs have shifted their focus from managing the budget to leading decisions around critical strategic questions: What does it cost? What should we invest in next? Who are our customers? How do we make them happy enough to give us their business again and again?”

Below we will be looking at how the roles of finance leaders in the professional service sector have changed and what CFOs need to do to succeed in this new environment.

The Finance Department’s Shift Towards The Customer

Unlike the manufacturing sector, where product defects can be immediately identified and repaired, the professional service sector faces more unique customer challenges. Since true service quality is only proven later in the customer cycle, it will only initially be based on the service provider’s initial reputation and overall trustworthiness.

Professional service firms have historically focused on promoting “expertise” to win the trust and reputation of their customers. Statistics show that around 46% of executives point towards “expertise” as the main differentiation amongst the competition.

But as agile, customer-centric competitors seek to challenge established businesses, expertise alone is not enough. Professionals have also expressed great anxiety over these new customer expectations.

Customers now demand more value, a better quality of work, and an increased speed of service delivery. This is thanks to the technological improvements that allow for less human input.

The CFOs in organizations must find solutions that are both effective but also maximize customer satisfaction through transparency and accountability – all while not slowing down on their current responsibilities.

Also, according to the study above, “customer loyalty and advocacy will increasingly become the one true way to stand out from the competition. The research clearly finds that a new basis of competition is arising. Incumbents must evolve, or risk losing business to more nimble firms with innovative business models.”

In other words, decision-makers at professional service firms need a better understanding of how to delight customers than in the past. This change has transformed the expectations of CFOs and the finance function. One study has also shown that nearly 2/3 of CFOs feel substantial pressure to change their team’s mindsets to become more customer-centric.

Similarly, some 64% of customers, who are better informed and more tech-savvy, expect that companies respond and interact with them in real-time. CFOs are more likely to get involved in the decision-making process regarding product and service pricing.

How Automation and Cloud Computing Influence the Finance Function

Cloud computing has dramatically influenced the CFO role, as CFOs can now take advantage of new opportunities through cloud services such as business intelligence software and automation tools to free up time for strategic decision-making and customer-facing roles.

CFOs are increasingly required to make strategic decisions to anticipate and better react to the market conditions, consumer behavior, regulatory change, etc., which has traditionally been more of a CEO’s role.

The CFOs also have responsibility for understanding the customer and ensuring that they are happy with their experience while doing business with the organization, which was not traditionally a CFO function.

Aside from direct customer expectations, today’s cloud and mobile technologies have directly impacted the daily finance function operations. CFOs are typically responsible for financial reporting, forecasting, budgeting, taxes, and regulatory change investment decisions.

CFOs also have a critical role in managing the company’s IT infrastructure: servers, storage systems/warehouse management, and the company’s IT department. And because of this connection, CFOs are also expected to reach beyond their core capabilities. This ranges from finding new ways to developing revenue streams to adopting new metrics by which you measure success.

Aside from that, other areas of concern include billing, cash flow management, and expenses. In addition to their increased workload, finance leaders also need to focus on talent acquisition and management.

With increasingly automated and AI-empowered Cloud technologies, finance professionals are now expected to have more data-driven skills than task-based ones.

How Professional Service CFOs Succeed?

The most effective managers in professional service organizations are those with the ability to combine strategic vision and change management skills. As the CFO has become increasingly decision-oriented, they have been able to better anticipate and react to trends. Unfortunately, not all finance leaders are able to take on this role.

Common reasons for this include:

• Risk Adversity – A major responsibility of the CFO, in many organizations, is risk management. When dealing with mature outdated infrastructures and processes, this can lead to a myopic focus on problems instead of broader possibilities.
• Limited Strategic Leadership Skills – Professional service companies traditionally promote people based on leadership qualities such as who has been with the company for the longest or who has billed a large number of hours. These qualities do not always translate well to effective leadership, especially in challenging times.
• Limited Resource or Energy to Manage New Demands – Accounting leaders already spend a significant proportion of their time overseeing the implementation of organizational projects and managing expectations from other leadership teams. This leaves CFOs with less of a chance to handle additional demands on their time.

To succeed in a changing industry, successful CFOs need to do the following:

Embrace the Digital Transformation

The CFO has the potential to be a driving force in helping organizations embrace digital transformation and drive success. They have access to all of the data that is needed and knowledge about how best to use it for successful decisions.

CFOs are also key ambassadors between external stakeholders such as customers, investors or partners, internal C-level executives, owners, and other stakeholders. CFOs can play a critical role in the success of an organization by balancing financial objectives with innovation and customer-centricity.

Top areas to focus on include:

• Using intelligent real-time technology to build a better customer relationship. This helps the CFO understand what is important to customers and then make these changes in their products.
• Encourage safe spaces across the organization for experimentation and creative thinking to help talent-scarce SMEs develop the full potential of talented individuals.
• With cloud technology and automation, the role of a modern finance leader has shifted. They now take more direct actions to help incorporate customer feedback, such as listening to different departments and synthesizing that knowledge with the customer’s needs, expectations, and pain points.

Investing In The Right Digital Tools

CFOs should also look towards the right tools capable of automating their daily routine processes and allowing them to focus on customer relationships. CFOs should be looking for the right tools that will make their work easier and more efficient and cut costs in the form of time or money. CFOs need to invest in new technologies if they are not already doing so.

One such tool is Consero SIMPL. Designed specifically for CFOs, executives, managers, and other department heads, SIMPL is a cloud-based one-stop platform for all financial needs. CFOs can run their entire company from this software, including reporting and all aspects of financial management. CFOs will be able to cut costs on paper now that they have the right tools for automating processes, as well as streamlining tasks and projects with a single-source system.

Among the features of this platform, we can include:

• Cloud Accounting Software
• Customer Invoicing & Vendor Billing
• Employee Expense Approvals & Payments
• Statutory & Management Financial Reporting
• Task Management & Workflow Software
• Graphical Metrics & KPIs

This CFO software can be integrated with other business applications such as project management, accounting, and time tracking. CFOs will also be able to access client information in real-time, which allows for better customer service and quicker decision-making.

CFOs are no longer the behind-the-scenes managers of a company’s finances – they are critical players in the organization’s overall success. CFOs are often the most knowledgeable about all aspects of a company’s finances and have access to essential data points when making decisions.

Cloud CFO software empowers CFOs with an easy-to-use platform that allows them to make more informed decisions, provide better customer service, and manage their organization in ways they never could.

Professional services have seen a tremendous boom in recent years, with the number of companies in this sector growing significantly over the last decade. Professional service organizations are characterized by providing expert advice or skills to clients rather than manufacturing products (e.g., marketing & advertising services).

One challenge facing these businesses today is how to stand out from the competition and attract talent. Professional service organizations have to focus on building their reputation, and often, this means becoming a household name in the industry of professional services they operate in.

Another challenge is managing finances; financial management has traditionally been complicated because each organization operates differently with its own financial needs, goals, and processes.

In today’s business environment, financial management is no longer a task that can be done on the side. Professional service organizations are starting to realize that Finance as a service (FaaS) is more than just an expense, it’s an investment. Professional services companies have been utilizing FaaS for years and they’ve seen improvements in their ROI, streamlined operations, and future prospects of the industry.

The role of CFOs in professional service companies has also evolved with technology, which allows them to work remotely as well as spend time on higher-level tasks instead of basic accounting duties such as budgeting for expenses like travel budgets or making sure invoices get paid on time.

Changing Responsibilities for CFOs

In the past, CFOs were responsible for financial reporting and shareholder communications. However, in recent years their responsibilities have expanded to great lengths due to changing management demands. Professional service organizations are looking for input from a CFO on how they should use their resources, better hire qualified employees, improve their customer experience, better manage their customers, and more.

The role of the CFO is changing as a result of technological advancements in recent years. For example, artificial intelligence can assist with forecasting, and automation can be used to make financial decisions. Professional service organizations must know how these technological advancements will affect their future, so they need a CFO who is aware of the latest developments in technology and wants to stay on top of them.

To succeed in their new roles and responsibilities, CFOs need to adapt and adopt new skills, such as integrating data and using analytics. To do this, they will need to embrace a company-wide digital transformation that will streamline operations, capture new data sources and improve their ROI.

By being a driving force behind digital transformation and success, CFOs will have access to all the data that is needed and knowledge of how to best use this data for successful decisions.

CFOs play a vital role between the company and its stakeholders. When you have a CFO who can balance financial objectives with customer-centricity, they can be hugely influential in the organization’s success.

By embracing the digital transformation, CFOs will be able to achieve the following:

• Technology like artificial intelligence and automation help financial professionals know what customers want.
• Make company policy to provide a safe space for every talent-scarce SME so they can let their talented people flourish.
• With current cloud technology and automation, a modern finance leader takes more direct action to help incorporate customer feedback. For example, they may listen to the different departments and synthesize that knowledge with the customers’ needs and expectations to provide a better experience.

Similarly, CFOs will need to use FaaS if they wish to excel in the coming years.

CFOs should also have a strong understanding of their company’s culture and what is important to them before they start strategizing on how best to improve ROI and when it comes time for financial reporting or budgeting.

What Is Finance as a Service?

Finance as a Service is an agile model that enables companies to outsource their finance function to financial services firms. Professional service organizations that are heavy on the technology side will often benefit most from FaaS. It allows them to focus more time and energy on what they do best: servicing clients while also minimizing expenses related to managing and maintaining their finance and accounting function.

Indeed, finance as a service has proven to be an effective model for the industry. It is predicted that this will remain true in the near future, thanks to technological innovations and new technologies such as artificial intelligence, machine learning, and automation.

Depending on the finance as a service provider, professional service organizations can also benefit from other FaaS services such as payroll, benefits administration, full-service bookkeeping, controller level compliance and reporting, financial planning and analysis, and strategic CFO support, among others.

In the past few years, it’s become clear that many professional service organizations are eagerly adopting finance as a service (FaaS) solutions. It allows them to focus more time and energy on what they do best: servicing clients while minimizing expenses.

The Benefits of FaaS for Professional Service Organizations

Professional service organizations are constantly seeking ways to streamline their operations. FaaS is one of the ways they can do so by providing them with visibility into where costs and savings opportunities exist across all departments in real-time.

Professional services firms, such as law offices or financial advisory companies, have historically relied on outside providers for many of their needs, such as accounting, tax preparation, and business financing. They can also leverage FaaS to build a finance department that provides the same services without outsourcing anything or spending additional money building their infrastructure.

One of the benefits of FaaS is increased efficiency for professional service companies because they can integrate many aspects of the organization into the system. Below are some of the most common FaaS benefits for the Professional Service sector.

Cost Savings

Professional service companies are always looking for ways to reduce costs to stay competitive and increase their ROI. One of the best solutions is finance as a service, which helps with invoicing, budgeting, payments processing, – all from one central location that can be accessed by multiple offices or even remote employees.

Professional services providers can also use FaaS software to automate billing processes, so they don’t have to spend time doing them manually each month. The increased automation reduces errors and saves money on labor hours while increasing accuracy over time, leading directly to savings!

FaaS also has other cost-saving benefits: it includes expense management tools that help optimize travel expenses using expense management. Professional service providers also get access to analytics tools that help them analyze their data to improve performance and profit margins.

Enhanced Financial Visibility

FaaS makes it possible to increase the financial visibility of Professional Services organizations. With FaaS, Professional Service companies can now get a complete view of their operations in real-time from anywhere, anytime, on any device with internet access.

With this insight, they can make strategic decisions about where investments need to be made and what projects should be prioritized for growth while reducing unnecessary spending that may not lead towards profitability. Tighter control over expenses also means Professional Services organizations can enjoy improved margins without sacrificing quality or service levels.

The Finance as a Service model helps professional services organizations get ahead. Improved financial visibility will help companies by providing insight into areas such as:

• Giving a high-level overview of cash flow and current financial position.
• Tracking ongoing profitability and customer acquisition costs.
• Highlight performance gained to any potential investors.
• Detect errors and fraud faster.
• Finance as a service helps you better manage your investment capabilities to make the best financial decisions.

CEOs of Professional Service organizations often lack enough business visibility to make the best decisions. Better financial visibility is key in understanding and managing your organization’s progress better. As a result, they are less successful than companies with employees who offer support, such as Finance as a Service (FaaS).

Seamless Scalability

As for scalability, the FaaS model is already a proven winner. Professional services companies need to easily scale their business as demand ebbs and flow on an annual basis. This not only applies in terms of managing headcount but also resources such as physical space or equipment.

Professional service organizations can cost-effectively manage their resources with finance as a service model. They pay for what they use rather than committing upfront capital expenditures resulting in wasted assets if usage patterns change later down the line.

In addition, there is no commitment to any particular vendor which offers additional flexibility when it comes time to make changes; instead, whether paying per transaction or by subscription fee-paying for what they use means that professional service organizations will always have the best deal.

Lastly, when it comes time to make changes, professional service organizations can quickly switch providers as they are not locked into any contract with a vendor, which also offers additional flexibility and cost savings for this type of company.

Increased Optimization

Professional service organizations save time and money while increasing their productivity, but there’s one more big benefit to FaaS: improved optimization.

We’re not talking about the apparent benefits like cost efficiency or a streamlined accounting process which have already been discussed in detail – we mean an increased understanding of what is happening with your business by way of data analytics and artificial intelligence optimizations.

Professional service firms need accurate information on how they perform against the competition, so if you invest in these new technologies, they will give you detailed insights into your operations. For example, consider AI algorithms that analyze potential customers across multiple fields and machine learning technology that offers predictive insights.

The CFO in a Professional Service Organization is no longer simply the Chief Financial Officer but rather an influencer across all aspects of the business. They help manage risks and growth opportunities and lead ongoing strategic initiatives that have a significant impact on your company’s bottom-line profitability.

Strategic CFO Support

FaaS service can also help CFOs by providing strategic assistance. Professional service companies will often find themselves facing a variety of operational challenges that need to be addressed for the company to succeed, as well as ongoing business needs which demand financial attention and time management.

FaaS offers an opportunity for professional service organizations by providing tactical and strategic assistance with everything from day-to-day tasks like managing budgets or forecasting revenues, all the way up through long-term planning such as designing new opportunities and building out more comprehensive strategies based on future projections.

Finance is no longer just about crunching numbers – it’s also about getting results! The role of a Chief Financial Officer has evolved; today, they are expected to manage finances and take on an advisory role within the organization.

FaaS offers Professional Service Organizations ways to achieve better ROI, improved operating efficiencies, and the opportunity for creative solutions.

Many Professional Services companies are already using FaaS successfully internally to improve their operations. Some of these include:

• Strategic Planning – helping an organization plan out its goals for the future.
• Business Forecasting – forecasting revenue based on historical data and projecting into the future.
• Budgeting and Cost Control – managing budget allocations across departments or divisions within a company as well as controlling expenses throughout each department’s operational life cycle.

It is hoped that professional service organizations will also use FaaS externally by leveraging this technology to help them with day-to-day tasks and improve the level of collaboration and communication with their clients.

Furthermore, FaaS will have an enormous impact on the role of CFOs in Professional Service organizations. It is hoped that these professionals will feel more empowered to take control over day-to-day operations while also focusing their time on strategic planning and business forecasting.

Professional Service Sector Trends

The future of the professional service sector will be, in large part, dictated by the proliferation of technology. The advent of cloud-based software, for example, is changing the way that work gets done and how professional service organizations are structured. Professional services firms increasingly implement business strategies that rely on flexible labor models to adapt to increasing demand for short-term projects with incomplete requirements.

Consequently, professional service providers need a solution that allows them to scale their operations quickly and use tools that will give them a competitive edge in the marketplace. Finance as a Service is one of the most flexible and efficient solutions available to companies in this complex, technology-driven environment.

A value-driven revenue model is also something that professional service organizations should consider. Professional service providers need to calculate their time in hours and the value of that hour as if they were a consulting firm. A value-driven revenue model will charge clients based on their own success and profits, which will not only increase their profits and help their clients see the benefits of using FaaS.

Professional services companies should establish best practices for collaborating with clients and using resources more efficiently, such as cloud computing and remote data storage. By doing this, these organizations would focus on what they do best: providing excellent customer service!

How Consero Can Help

With Consero’s Finance as a Service, businesses in the professional service sector can leverage their service offerings with a turnkey financial solution. Professional services firms can outsource their finance and accounting functions, freeing valuable time for more important business activities like client development or product innovation.

Consero’s Finance as a Service provides professional service organizations the ability to strategically outsource their finance and accounting departments, all in order to maintain a core finance team. This fresh approach to the finance department will provide financial experts who are experienced and knowledgeable enough to make your business a success.

Our services help bridge a gap between your company’s financial goals and numbers (often the cause of business failure). By increasing financial visibility, you can monitor performance and measure progress more accurately. Additionally, this will allow you to assess risk in all potential scenarios, meet challenges head-on, work to create new opportunities, and overcome obstacles to business growth.

Finance as a Service has also removed the need to buy software or hire and train new people. In the past, this has been done over and over again, adding to inefficiencies in both buying software and hiring for each new company. There’s a never-ending process to account payable that every company needs in order to thrive. Consero is equipped with sophisticated technology and top-of-the-line financial expertise, so you have access to a team of experts who can navigate these waters anytime throughout your growth.

Our mission is to provide the infrastructure, staff, and technology that lets professional service organizations achieve accurate information and easy-to-read reporting. This can take the form of implementing our solution quickly so that we are ahead of a client’s internal resources.

With less time wasted on tedious operational tasks, CEOs and CFOs can get more out of their workday. Finance as a Service (FaaS) collects data in automated and efficient ways with help from artificial intelligence so general business people can make sense of it all.

In addition to all this, our clients will receive access to SIMPL – our aggregation platform that combines transaction details, support documents, real-time information, and financial dashboards into one place. We live in an age where people want updates on the go via their smartphones, and we have developed a system that caters to this need.

For more information, contact us directly!

Monthly recurring revenue is a crucial metric for subscription-based SaaS companies. Understanding it can help you grow your company and improve customer satisfaction. Those who are new to the software industry, or those who are looking for a better understanding of MRR, will find this guide to be extremely helpful.

Software as a Service (SaaS) companies are becoming increasingly commonplace. The modern business model is shifting towards a more digital and customer-centric approach, which can be seen in the rise of SaaS companies. Subscription pricing also offers many benefits for consumers who are looking to switch services at any time without penalty or expiry date.

When it comes to the long-term success of any SaaS company, it is crucial for them to understand monthly recurring revenue (MRR). MRR can be defined as the total of all future payments made by customers who are currently subscribed.

The most important metric that needs to be closely monitored at a subscription business is monthly recurring revenue (MRR). Before calculating MRR, it is critical for the company to define and accurately measure it. It’s important to get your MRR calculations right because doing so will tell you the rate at which your company is growing and keep you honest with investors.

This guide will discuss MRR in detail, including its various components such as New MRR, Net New MRR, Churn MRR, Expansion MRR, Reactivation MRR, etc. We will also talk about how to calculate the monthly recurring revenue and methods of improving it.

What Is The Monthly Recurring Revenue (MRR)?

According to Investopedia, “recurring revenue is the portion of a company’s revenue that is expected to continue in the future. Unlike one-off sales, these revenues are predictable, stable, and can be counted on to occur at regular intervals going forward with a relatively high degree of certainty.”

Monthly recurring revenue is a part of a business’s total income that is likely to continue on a monthly basis. As a form of predictable revenue, MRR is a valuable number for companies to keep track of.

MRR refers to the revenue generated from subscriptions and other customer contracts with a monthly cycle, such as Amazon Prime or Netflix. MRR does not include any one-time payments like annual fees, installation charges, and setup costs.

MMR is what drives SaaS businesses and provides insight into the overall business health. It’s like a power plant that spurs growth for these companies!

What is The Annual Recurring Revenue (ARR)?

Some companies offer annual or multi-year deals to their subscribers. As the annual version of the Monthly Recurring Revenue, the Annual Recurring Revenue (ARR) is the annualized version of MRR.

Monthly recurring revenue is a measure that subscription-based SaaS companies should use. The definition of MRR and the factors it consists of, and how to calculate this metric are essential knowledge. Improving your MRR will depend on your budgeting, customer retention, and improving your product – among other things.

The only difference between ARR and MRR is when they’re normalized within the year or month, respectively; long-term vs. short-term view. A company’s ARR provides a long-term view while MRR provides a short-term view indicating changes in business performance over time.

Why Should Businesses Track Their MRR?

Firstly, Monthly Recurring Revenue is significant because it helps your business control and plans your future growth by providing a monthly cash flow and budget forecast. In addition, MRR gives you a clear picture of how your software business is performing. And this can help your organization grow and develop.

In addition, MRR helps with customer acquisition and retention. It’s a sign of customer satisfaction that will lead customers to stay with your company in the long run and increase future MRR revenue by upselling existing products or services.

MRR is also crucial for planning purposes. Your business can track how much money they have each month (New MRR) and compare that amount against their expenses. They can see any profit margins left over after paying for overhead costs like software development, hosting fees, etc.

The importance of MRR, or the monthly recurring revenue, is that it can aid your business in areas such as tracking growth, forecasting expectations of future financial needs, motivating staff, and assisting budgeting.

How to Calculate MRR

Calculating MRR is pretty simple and straightforward. Businesses need to multiply the number of monthly subscribers by the average revenue per user (ARPU).

Number of subscribers under a monthly plan X ARPU = MRR

For example, if there are ten subscribers on a $150 monthly plan, the MRR will be 10 X $150 = $1,500.

Calculating monthly recurring revenue for an annual subscription plan involves dividing the yearly price by 12 and multiplying the result.

The Different types of MRR

The MRR establishes a correlation between customers and their accounts, highlighting their subscription behavior.

When a company experiences an increase in its MRR, it may represent profit growth or customer acquisition. However, the cause of this influx can vary as companies see different gains. Among these include an increase in new customers, plan upgrades from your existing customers or a combination of both.

A drop in monthly revenue means that customers are downgrading, canceling their subscriptions, or churning. If MRR sharply drops, this can signal an upcoming company-wide financial catastrophe.

Understanding the causes of fluctuations in monthly recurring revenue is complicated, but there are ways to identify specific factors that cause this. When you break down the MRR into more specific MRR types, each offers distinctive insights about revenue, customer behavior, and business health.

New MRR – The new MRR is the additional revenue generated from all new subscriptions. This can be determined by multiplying the total MRR for a time period and dividing it by that same period’s total number of paying customers.

Upgrade MRR – Upgrade MRR is the total revenue generated from all customers who have upgraded to a higher level of service. This can be calculated by multiplying the number of upgrades for a time period and dividing it by that same period’s total number of paying customers.

Churn MRR – Churn MRR is the amount earned in lost revenues due to customer cancellations or downgrades, which is calculated as (the churn rate multiplied by) average monthly recurring revenue per customer.

Expansion MRR – Expansion MRR is any increase in new subscribers over previous periods with no change in pricing plans, such as through an email campaign or social media advertisement. Expansion MRR is also generated through upselling, cross-selling, and add-ons. When there is positive Expansion MRR, companies know that they can retain their customers through satisfaction and loyalty. This is good news for the SaaS business bottom line as there is no Customer Acquisition Cost (CAC) involved in these sales to existing clients.

To calculate the rate of growth in expansion MRR for a month:

(Expansion MRR in the current month / Total MRR at the beginning of the month) X 100

Downgrade MRR – Downgrade MRR is the total number of subscribers that were downgraded in a given month. This can include people who switched to lower-priced plans or upgraded from one tier to another, which both reduce revenue for SaaS companies.

To calculate the rate of decline in downgrade MRR for a month:

(Downgrades at the end of the current period – Downgrades at the beginning of this period) X 100

Reactivation MRR – The Reactivation MRR is the total number of subscribers who reactivated their accounts in a given month. This can include people who forgot to cancel after the trial period or those suspended for not meeting payment obligations.

To calculate the rate of growth in Reactivation MRR for a month:

(Reactivated subscribers at the end of this period – total reactivations) X 100

Contraction MRR – This represents the amount that the business loses as a result of cancellations and downgrades. If a customer cancels their subscription, downgrades it, pauses it, uses a discount, or spots a recurring add-on, then the MRR will be affected.

The rate of growth in Contraction MRR for a month is calculated by:

(Cancellations and downgrades at the end of this period) X 100

Net New MRR – This is the new revenue that a business generates by acquiring new customers and retaining old ones. It indicates how much the company’s revenue has grown or shrunk compared to the previous month.

To calculate the Net New MRR:

Net New MRR= New MRR + Expansion MRR – Churned MRR.

If the sum of your New MRR and Expansion MRR receded to below the Churn MRR (a negative value), it means you lost more revenue than you gained. If the Net New MRR is positive, then that means you’ve gained revenue.

The Net MRR Growth Rate

Aside from the useful SaaS metrics mentioned above, businesses must also pay close attention to their Net Monthly Recurring Revenue Growth Rate as a means of determining their business growth.

A positive Net MRR Growth Rate means a business is experiencing monthly growth. On the other hand, a negative value indicates that these businesses are steadily losing revenue month after month.

To calculate your company’s net MRR growth rate: divide the sum of all your Expansion and Churn MRRs by the starting amount before you started to take into account churned customers (i.e., excluding any changes from New or Reactivated).

This number should be expressed as a percentage; if it isn’t, multiply it by 100%. The higher this figure goes up, the better business owners can feel about their prospects regarding expansion into new markets or increasing product prices because they’ll still have enough committed dollars coming through every month.

To get their Net MRR Growth Rate, SaaS companies should follow this formula:

[(Current Net MRR – Previous Net MRR) / Previous Net MRR] X 100

Say, for instance, the company’s Net MRR in October was $12,000, and its Net MRR in September was $15,000. The Net MRR Growth Rate = [($15,000-$12,000) / $12,000] X 100 = 25%

According to Redpoint Venture Capitalist, Tomasz Tunguz, an MRR growth rate of 15-20% is a pretty good target for post-Seed/pre-Series A SaaS startups to have.

MRR Calculation Mistakes to Avoid

The monthly recurring revenue is an essential financial metric, so it’s crucial to get the total figure right when calculating it. There are a few common mistakes that need to be avoided for MRR to always be reliable. Among these, we can include the following:

• One-time payments – The MRR calculation can be thrown off when a company receives one-time payments. For example, if the sales of an annual subscription were made on February 15th and March 16th but totaled $200, then those two transactions are considered as separate purchases rather than being added together for the monthly recurring revenue
• Non-recurring payments – Non-recurring payments can also throw off MRR calculations. For example, if you’ve received a one-time payment of $500 and this is your only sale for the month, then that will be recorded as an extra zero in the total revenue
• Deferred payments – Deferrals often lead to inaccurate monthly recurring revenues because it means customers are paying over several months rather than all at once. To solve this problem, calculate how much they should pay upfront instead of deferring their payment or selling them on credit
• Expired subscriptions – Expired subscriptions not being removed from MRR calculations will mean there’s more money coming through than was generated. To avoid making these mistakes, remove any expired subscriptions from the calculations.
• Free trials – Free trials typically lead to higher-than-expected MRR calculations because people are often registering multiple accounts. To avoid this, use a conversion rate (for example, .03%) as the assumed percentage of all free trials which will convert and pay.
• Multiple packages – If you have more than one package price for your product or service, then you need to make sure that these are being calculated separately to figure out overall revenue across different plans
• Renewals – Renewals can be tricky, especially if they’re paid upfront instead of on a monthly basis. To calculate them accurately, divide their ongoing charge total from the year against how many months those charges cover.
• Promotions – When customers are provided with a promotion code, this should be separated from the MRR and then subtracted from the monthly subscription price for the duration of the promotion.

How to Increase Monthly Recurring Revenue?

Knowing how to calculate the MRR is an essential first step. The next phase, however, is to understand how to increase the MRR. There are several strategies that companies can employ to increase the monthly recurring revenue.

Increased Efficiency and Better Budgeting – To increase your MRR, reduce costs and expenses. Doing this will increase revenue because it takes away from your income. In addition to that, you should discover potential pitfalls as soon as you start strategically planning, which will save you money, time, and effort.

Unbundling Features – The average customer uses a subset of the functionalities available to them in their current package. For that reason, it may make sense for you to experiment with splitting your product’s features into add-on services so customers can pick and choose. As long as core functions will not be removed and the product’s overall value will be maintained, your customers will not miss these features. And if they do need them, they will be willing to pay only for their use.

Changing the Price – Most marketers are fully aware that a product or service’s price is an excellent quality indicator. While a low price may attract more customers, a too low of a price might indicate to potential customers that there’s something wrong with the product. Saas companies need to play with their prices until they find the right balance to bring in the most total MRR without increasing customer churn.

Reconsidering the Free Plan – While free plans are excellent in raising brand awareness, they do very little in MRR. Renouncing the available free program may result in losing the free customers. Although, those who have seen the value that your product has to offer will continue on the paid plan.

Focusing on Customer Retention – For subscription-based SaaS companies, there’s another way to increase MRR that doesn’t involve a price hike. Focusing on customer retention can be done through outreach emails and upsell offers after their trial period is over. This will help retain customers who might have churned from your service or product.

Continuous Product Improvement – Continuous product improvement is another option for retaining and generating MRR. By constantly improving the service or product you are offering, your customers will feel that they’re getting a better value for their money.

Conclusion

At the end of the day, metrics are just numbers. What matters is how you use those numbers to help your business grow. A SaaS business should constantly be working to improve its MRR to grow and succeed.

Strive to keep your customers happy and optimistic about your company’s future by providing incentives for their dedication and acknowledging their purchases.

Without the proper tools to get the job done, keeping track and understanding any of these metrics would be impossible. Consero is a provider of Finance as a Service which is a robust financial solution that can help leaders make highly informed decisions to grow their organization. We are a reliable partner that can help you stay up-to-date on your company’s financial health, freeing you from the accounting process. Feel free to request a demo today!

Running a successful business depends on efficient and accurate finance & accounting operations. In more recent years, numerous organizations have started outsourcing some of these functions to specialized professionals to bring a tremendous benefit to the company. Outsourcing part or all financial processes to a Finance as a Service (FaaS) partner will offer numerous growth opportunities down the line while also allowing the business owner to focus more on the core aspects of the organization.

Several variables can help businesses determine whether they should outsource their finance functions and accounting department. Firstly, a finance and accounting professional can bring a significant advantage to the table through the state-of-the-art technology they use. Second is the issue of whether the organization can or can’t afford a full-time in-house team.

In addition, businesses often consider outsourcing solutions if they can’t find qualified personnel able to do high-value work or if the in-house employees are making too many errors. Resolving these errors is often a time-consuming and expensive process. But by outsourcing these accounting operations to finance professionals, businesses will also take advantage of the multiple layers of review built into the service provider’s workflow, which allows them to keep these errors at a minimum.

Put simply, outsourcing one’s financial operations to a specialized services provider will help overhead and labor cost reduction and have access to better financial leadership for improved business decisions. In addition, it will help with financial stability, relieve the human resources department, and provide for scaling opportunities. That said, not all outsourced providers are the same. Below, we’ll look at what businesses should consider for their outsourced financial business partners to determine whether or not they will be a good fit.

Choosing an Ideal FaaS Outsourcing Provider?

Once a company has decided that outsourcing is the right choice, it’s time to find a partner capable of meeting its finance and accounting requirements.

What Are Your Needs?

Not everyone needs the same level of services from their finance and accounting provider. Businesses need to determine their needs, which can also include the level of security measures required. This will depend on the type of data shared with the outsourced team.

Companies also need to determine whether they also need Controller Services, Financial Planning, and CFO consulting, alongside an accounting core function. These are all factors that need to be determined before searching for an eligible partner can even begin.

In addition, businesses should also consider what specific roles need to be outsourced, which can include things such as bookkeeping, accounting management, tax accounting, payroll processing, financial data analysis, CFO, and more.

Determine Their Technical Expertise

A professional outsourcing service provider should explain their methodology to you when it comes to managing projects, track results, and resolve any issues that may arise. This is important as it helps you understand how your projects will be handled. In addition, they should have a business continuity plan that will ensure they can deliver uninterrupted services to your organization.

How’s The Culture Fit?

When working with a FaaS provider, it’s always best that they are willing to align to your vision and business objectives. Among the best financial service providers are those willing to provide financial visibility through regular reporting. A company’s culture is strongly tied to its own success, and the service provider needs to understand that.

What About their Communications and Client Management?

Businesses need to discuss their expectations with their potential partners so that everyone on the outsourcing team will be available by phone, email, or other communication systems during predetermined times. If operating in different time zones, the outsourced accounting team must ensure that both your working hours align to a certain degree to minimize any communication gaps. The same thing will also apply to have a designated point of contact for any queries, feedback, or concerns.

How’s Their Tech Infrastructure?

Outsourced service providers need to be technologically ready and capable of taking on any financial and accounting responsibilities that may come their way. It’s only by having advanced software and other IT infrastructures such as a reliable network and integrations that they can cover all of your needs and expectations.

What’s Their Reputation?

Once you’ve done a quick overview of their capabilities, it’s time to check their reputation by looking for client references, reviews, and testimonials. Various online platforms offer such reviews from clients that they’ve worked with in the past. Pay attention to the reviews coming from companies that have similar needs to your own. See what they had to say about the finance provider’s performance, quality of work, core competencies, overall collaborative relationship, and staff. Use that information to narrow your selection to a few potential candidates.

The Trial Run

After all of the steps mentioned above have been accomplished, it’s time to put the final FaaS candidates to the test. The best way of doing this is by working with them on a short project, allowing them to present their skills which will enable you to evaluate their performance firsthand properly. When doing this trial run, consider the following:

• Overall Efficiency – What were the outsourced team’s performance and efficiency based on the work given.
• Overall Compatibility – How well the financial services provider works with your in-house staff? Determine if there are any serious communication gaps or barriers that negatively affect your business operations.
• Overall Value – How well do their professional services complement your needs and requirements?

Once the trial project is over, you should have a pretty clear picture of how well that particular outsourcing services provider fits your financial and accounting needs.  The FaaS service provider and/or CPA firm you decide to partner with should understand the financial aspect of your organization while also having sufficient industry knowledge in your niche. By using the best practices and modern software solutions, they should also be able to cover any accounting gaps in your organization.

Consero as Your Finance as a Service Partner

With Consero’s Finance as a Service, businesses can strategically outsource their financial and accounting functions while still maintaining a core finance team. Our services can help organizations bridge the gap between their financial numbers and goals and provide financial stability to smaller and larger organizations.

By increasing financial visibility, companies can also monitor their progress and measure their performance in real-time. In addition, they will be able to improve their risk management and risk mitigation procedures in various scenarios, overcome obstacles, and facilitate business growth.

Unlike simple accounting outsourcing services, Consero’s FaaS also removes the hassle of staying on top of the latest accounting software and employee onboarding. Consero is equipped with state-of-the-art technology and has an established and experienced finance department that has successfully implemented the right resources and mapped out the process numerous times.

By providing both the right tools and human resources that can, in turn, generate accurate data and easy-to-understand reporting, organizations no longer have to design their finance and accounting processes from the ground up. With the system already in place, our customers only need to get into it and have everything up and running within a couple of months. This is in comparison to roughly 18 months it takes to do everything from scratch.

All of this will free up your leadership team, allowing it to focus on more critical business areas. Our Finance as a Service platform collects tremendous amounts of information, while our artificial intelligence technology ensures that everything is up to date, accurate, and correctly automated. Every report generated will be created in an easy-to-read format that even stakeholders with a non-financial background will be able to understand.

Takeaway

As the outsourced financial services industry continues to show its value to organizations of all shapes and sizes, more are willing to outsource more complex financial functions. Instead of just outsourcing basic bookkeeping services, they are now looking for long-term outsourcing relationships with partners that can create IRR forecasts, project valuations, cash flow models, and other complex finance and accounting tasks.

Together with Consero as your partner, you will increase your financial visibility and achieve financial stability while also maintaining your own core finance team. Let’s discuss your FaaS needs and a potential customizable solution by requesting a free demo today!

Regardless of their size or industry, businesses need to have their financial transactions processed without the incidence of fraud or error. They also need to create financial statements, close their books on time, and, if required, create accurate financial reports for their investors.  However, ensuring that all daily operations are running smoothly is not always as straightforward, particularly if the finance team or CFO is constantly distracted by other issues within the organization.

Typically, outsourcing financial and accounting services revolves primarily around transactional processes. That’s because these processes are mainly routine, rule-based, and do not require any in-depth business knowledge. Therefore, these financial services are simple to transfer to an external service provider. And while outsourcing these types of core accounting processes to experts will usually be cost-effective, getting more value-added services from these professionals will often be even more beneficial.

This is where Finance as a Service (FaaS) comes into play. Put simply, FaaS goes one step further, and beyond covering the core competency in the form of transactional bookkeeping and controller services, it will also provide more comprehensive services in the form of financial planning and analysis, as well as strategic CFO support if it is needed.

Today’s middle-market and high-growth businesses require quality insights, timeliness, and financial performance reliability. That said, there are some potential challenges of outsourcing with Finance as a Service.

Determining the Target Scope of Services

Whenever outsourcing services, business owners always need to clearly define which processes and associated activities need to be considered for outsourcing. They also need to undergo an in-depth analysis. This will determine the process flows to accomplish the activities considered for outsourcing. The analysis will also identify the control processes that need to be retained, outsourced, or shared. In addition, this process also needs to include the interfaces with work being done in other parts of the organization.

While this may be true for most outsourcing initiatives, finance and accounting operations (FAO) are typically somewhat decentralized to the different business units and outside of the direct control and supervision of the CFO. As such, due diligence needs to extend into these individual business units. To put the basis for an effective and optimal outsourcing solution, the FAO analysis must identify financial and accounting operating similarities and differences across all business units in the current work structure and identify which processes should be standardized.

Regulatory Compliance

Another perceived challenge that can often prevent companies from outsourcing their F&A processes is the risk related to regulatory compliance such as Sarbanes-Oxley (SOX), HIPPA, or ERISA, among others. While, in the long term, regulatory compliance may accelerate the need for finance and accounting process outsourcing. In time, finance service providers will leverage their expertise to ensure ongoing compliance and change management for their clients’ benefit. If done internally, these activities will likely cost more. However, building trust and confidence is the major challenge going forward.

Indeed, some FaaS providers did not take a proactive approach in supporting their customer organizations in risk avoidance and mitigation activities. Instead of recognizing that helping their customers manage regulatory risk is a basic part of FAO and have those associated costs already built into their solutions from the beginning, they, instead, charge extra for this level of service.

However, there’s no room for any lack of clarity regarding outsourcing governance and the provider’s obligations to assist their customers in meeting regulatory requirements. There’s also very little room for error when it comes to other finance and accounting services as it is. Three significant aspects need to be addressed when it comes to covering regulatory risks. These include:

1. The explicit articulation of both the service provider’s and customer’s roles and responsibilities regarding meeting regulatory compliance.
2. Negotiating a shared-risk arrangement where the vendor is obligated to share in the costs of not meeting the needed regulatory requirements.
3. A collaborative approach towards dealing with risk management.

Outsourcing Costs Higher than Expected

One of the most common challenges in finance and accounting outsourcing is possible “hidden costs.” Suppose a senior financial analyst from the outsourced accounting firm and another one from the customer organization come together to analyze the return on investment for the proposed FAO. In that case, they may come to different conclusions. Most often, the disagreement will arise around the cost of transition and the fees not included in the baseline pricing.

Some F&A managers may have difficulty understanding all the benefits of outsourcing, especially if the initial outsourcing operating costs may be higher than the current run rate. It’s, however, essential to keep in mind that many F&A processes are pretty ingrained into the daily organizational operations. Frequently, there are institutionalized inefficiencies in these traditional processes, such as relying on spreadsheets for system interfaces, having an over-reliance on paper, and more. These need to be addressed when outsourcing services to ensure cost control.

As expected, transforming these inefficient processes to industry best practices will require some up-front investment in time, money, and resources. The pricing will need to reflect this and could be higher than initially expected by the customer. This is especially true if they’ve never actually investigated the cost of these improvements before outsourcing.

In addition, there are the so-called “soft” cost savings that can be difficult to quantify. For example, it’s difficult to put a number on the added value of internal resource redeployment to facilitate timely and accurate business analysis. This type of ROI needs to be recognized, even though it’s often underestimated.

Low Organizational Readiness

Last but not least in this list is the relatively low levels of outsourcing maturity and cultural readiness to accept outside finance organizations as an alternative to internal control of finance and accounting processes. By having limited prior experience with outsourcing, companies may have a challenging time accepting an outsourced provider as part of the team, and their commitment to providing high levels of service to fulfilling business objectives.

Skeptics often wonder if the service provider’s team will be invested enough to respond to emergencies outside working hours. Checking references and testimonials from other customers can corroborate their commitment and level of customer service provided. Suffice to say, without prior experience in outsourcing core business functions to a third party; organizations may be hesitant in making the first step.

In such situations of low organizational readiness towards outsourcing, starting small is often the best approach. No matter how much due diligence and contractual assurance are done beforehand, the fear of the unknown is still difficult to overcome. Unless there are strong cultural leaders ready to back up outsourcing to other stakeholders and see it through to the end, a larger outsourcing initiative is likely doomed.

The fear of regulatory risks, questions around pricing, and uncertainty about scope can be quite challenging to overcome with a large project. Creating a small but successful outsourcing pilot project together with a professional and competent service provider will significantly influence expectations. It will work towards the cultural readiness of a larger FaaS project.

Takeaway

Finance as a Service is a growing trend with more and today’s finance leaders are paying more attention. Similarly, FaaS providers are going through their maturity cycle regarding their service delivery, regulatory compliance, and value-added services.

Nevertheless, the benefits will far outweigh the initial challenges that may arise from first outsourcing the finance and accounting function. In today’s highly competitive and uncertain business environment, outsourced solutions are the perfect way to adapt and even thrive.

With Consero’s Finance as a Service, you will be able to strategically outsource your accounting and finance function while still maintaining your core finance team. This approach will allow our financial experts to support your finance department with a high degree of discretion and accuracy.

In today’s highly disrupted and unpredictable business environment, operating a company, be it a startup or a multinational organization, will come with its series of challenges and rewards. Not surprisingly, finance plays a considerable role in all business operations. From monthly accounts payable/receivables to payroll and everything else in between, an optimized accounting operation is needed within every business.

This is why energy, capital, and resources are spent on training staff, investing in the right tools, and employing qualified accounting professionals to manage these tasks effectively. That said, maintaining in-house finance teams can often prove a costly investment, especially when it comes to middle-market and high-growth businesses.

It’s under these circumstances that outsourcing with Finance as a Service (FaaS) has come into existence, providing businesses with flexible solutions capable of fulfilling their specific needs and requirements while also fitting neatly into their budgets. By outsourcing financial operations, companies are avoiding the large costs associated with hiring additional staff and have access to a dedicated team of financial professionals that are perfectly able to handle daily accounting core functions and more intricate financial tasks.

Outsourcing the finance and accounting function to an expert team of professionals will provide a high degree of flexibility when responding to market volatility and when dealing with cash flow management. It also eliminates the additional cost of training an in-house team or spending on expensive accounting or ERP software.

As businesses grow and scale their operations, they will also have to expand their accounting team, which, in turn, leads to more infrastructure and resources being needed to facilitate the extra team members. These increasing costs can, however, be mitigated by using the services of an outsourced provider,

Another benefit of outsourcing the finance function is that it will help reduce the operational and continuity risk, providing more control over other aspects of the business. Moreover, professional outsourcing firms have the necessary experience in financial planning that can perfectly fit into your other business decisions.

What is Finance as a Service?

Financial and accounting services outsourcing allows businesses to transfer their financial tasks to third-party organizations to focus more on core aspects of the business. Outsourcing financial responsibilities is also an effective way of lowering overhead costs, freeing the company from dealing with processes such as recruiting, hiring, onboarding and training accounting service providers.

A third party will take over all of the time-consuming financial activities for a lower price than the total overhead costs of an in-house team. This is precisely what outsourced financial services are all about. It allows business owners and other team members to focus on adding value and growing the business while getting all of the full-scale services of an entire in-house finance department at only a fraction of the price.

But unlike the traditional outsourced accounting services, Finance as a Service (FaaS) goes a step beyond. A FaaS organization leverages standard operating procedures and combines them with scalable systems, and advanced cloud computing with digital workflows. It increases their agility to meet the specific needs of their partners while also providing easy-to-read financial dashboards and statutory and custom reporting capabilities.

What Outsourcing with FaaS Has to Offer

With the recent technological advancements, the traditional way of doing things may not necessarily be the best way of tackling the company’s finances. By outsourcing their accounting tasks, companies will make use of a professional finance team that’s perfectly able to handle all accounting activities, relieving the organization from the drawbacks of having full-time employees while still enjoying the benefits. But what exactly does Finance as a Service have to offer?

• Finance Professionals – As mentioned, businesses that use FaaS will also have a professional team of finance providers that can assist them at any given moment. There is on-demand access to the expertise and experience of the entire team without having to rely solely on a handful of in-house individuals. Additionally, FaaS also allows companies to customize the services they need, allowing them to cover any accounting gaps that they might have.
• Access to the Latest Finance Services and Processes – For those looking to use state-of-the-art systems and processes while also reducing their operational costs, outsourcing services are the way to go. In today’s digital environment, paper-based processes are more of an obstacle than anything else. A professional Finance as a Service provider will be using the right digital tools to eliminate these processes, improving efficiency while also allowing core staff members to focus on more critical business tasks.
• Cutting-edge Technology – Similar to the point above, an outsourced accounting service provider will surely embrace modern software solutions in the form of cloud computing, artificial intelligence, and advanced analytics, among others. These types of accounting software will eliminate the need for any non-integrated digital tools and traditional spreadsheets. Instead, there will be numerous dashboards that will generate easy-to-understand business intelligence in real-time.
• Timely Reporting – Outsourcing providers also means that there will be a dedicated team ready to handle financial reporting. By combining it with integrated systems that track all metrics and key performance indicators, organizations will have immediate insight into the business finances, wherever needed.

The Benefits of Outsourcing Financial Services

Outsourcing with Finance as a Service can bring numerous benefits to the table. The most common of these benefits include the following:

Scalability

FaaS providers are structured in such a way so they can always allocate the right level of resources to every specific task. By helping companies set up the right systems and streamline their internal controls and processes, FaaS accounting providers can quickly and effectively jump in and help with any accounting activities, allowing the organization to become more scalable in the process.

CFO Support

Many startups and small and medium enterprises (SMEs), don’t have a Chief Financial Officer (CFO). If this is the case, some FaaS providers, such as Consero, can offer CFO support. This is a financial expert who will become part of the company’s team and provide financial guidance. With the FaaS model taking care of many of the repetitive tasks that go into finance and accounting, the company’s financial leadership can focus more on analysis. The CFO comes in to help steer the attention towards the organization’s future growth and provide a more strategic planning trajectory.

Improving Financial Visibility

Spreadsheets and paper-based systems are not only time-consuming but also increase the incidence of human error. As the business grows, leadership needs to gain a bird’s-eye view of the situation on all aspects and segments of the organization. FaaS provides them with financial reporting that presents the current opportunities and challenges facing the company. By improving their financial visibility, companies will better understand their financial situation and better monitor cash flow, make informed business decisions, track their account profitability, monitor customer acquisitions, and more.

Cost Savings

FaaS services can bring on significant cost savings to the organization by comparison to an in-house finance department. And as organizations continue to grow, FaaS cost-effectiveness is only expected to increase. It does this by automating many repetitive tasks, reducing errors related to manual entry and providing a big pool of trained and skilled financial experts, among other such cost-effective benefits.

Additionally, the improved reporting capabilities provided by FaaS can drive business growth. This data is used to drive better decisions, eliminate inefficiencies, and take advantage of the opportunities that may arise.

What to Expect from Finance as a Service?

Outdated systems, inefficient processes, and the wrong team can grind any company’s gears, stifling its potential for growth and success. For many new and/or small organizations, their finance and accounting departments can rarely deliver accurate information to provide any clear insight into their performance. Yet, without this data, business leaders can rarely make the right decisions.

Through strategic finance, businesses can maintain their mission for growth and where their decisions have long-term effects. It’s by responding quickly to today’s unpredictable business environment that organizations can hope to remain relevant. And it’s through forward-looking reporting, precise financial data, and a thorough understanding of the right key performance indicators that business leaders can keep their company on the right track. At the same time, they still need to stay on top of more mundane things such as payroll processing, risk management, cash flow management, documentation automation, and more.

This is why finance and accounting outsourcing can prove to be a cost-effective option. Finance as a Service goes beyond simple accounting outsourcing, delivering process automation, advanced integrated technology, strategic CFO guidance, data analysis, and more. Consero offers services that will give an overview of your financial capabilities, enabling you to plan for the long term.