There’s a reason why cash flow has been called the “lifeblood” of a successful business. Companies can operate without profits for a period of time — just look at Amazon, which was unprofitable for years while it built market share in the emerging e-commerce space. 

But it takes cash to pay operating expenses and overhead. Businesses can only keep going for so long without cash, which is why boosting cash flow should be a top priority for financial executives and CFOs. In fact, poor cash flow is one of the main causes of business failures.

Here are 7 strategies for strengthening your company’s cash flow.

1.  Tighten your cash flow cycle. The goal here is to shorten the time between cash outflows used to pay expenses and cash inflows from collected receivables. To accelerate collections, pay close attention to your accounts receivable aging report. This will help you prioritize your collection efforts by showing which clients’ payments are past due, how late the payments are and how much money each overdue client owes. You can also negotiate payment terms with customers and offer discounts for prompt payments, such as 2-10, net-30.

On the flip side, try to stretch out payments to suppliers as far as possible. Talk to vendors about extended payment terms and take full advantage of the terms offered by setting up your accounts payable system so that payments are made on the due date, not before.

2.  Cut costs and overhead. It’s always smart to operate as “lean and mean” as you can, but this is especially important in today’s inflationary environment. Money saved through diligent expense management frees up cash and drops straight to your bottom line.

Scrutinize your expenses looking for waste at all levels of the business. One way to do this is to ask if an expense is generating return on investment or not. If it isn’t — underperforming sales and marketing efforts, for example — cut it now.

3.  Improve inventory management. Excess inventory represents a big expense for many companies — it’s literally cash sitting on the shelf. Examine your inventory and purge slow-moving items by discounting them deeply, if necessary. When it comes to raw materials, use just-in-time (JIT) inventory management techniques so they are delivered to your warehouse just when you need them, not weeks early.

4.  Consider equipment leasing. Leasing instead of buying equipment frees up cash you might otherwise spend on big-ticket items that you can use to meet current expenses instead. Equipment leasing also provides protection against equipment obsolescence and may offer tax benefits in certain situations. Be sure to speak with your tax advisor about these potential tax breaks.

5.  Partner with your bank. Banks offer a wide range of solutions that can strengthen cash flow, including lockbox and remote deposit capture (RDC). These solutions accelerate funds availability by getting checks deposited into your account faster. With lockbox, customers’ payments are mailed directly to a bank post office box for immediate processing. With RDC, checks can be deposited directly from your office using a special scanner and software.

Also talk to your bank about investment sweep accounts that automatically sweep excess cash in your business checking account into an interest-bearing account, like a money market fund or government obligation fund. Conversely, a loan sweep account will automatically sweep funds from operating accounts to pay down your business line of credit or other business loans.

6.  Roll out new product and service lines. You can potentially boost revenue and cash flow by introducing new products and services that your customers might be interested in purchasing, especially ones that complement existing products and services. Similarly, you could potentially expand marketing of your existing products and services to new geographic areas and/or customer segments.

7.  Consider outsourcing your finance function. Nearly half of all businesses now outsource their finance and accounting to a third-party specialist.1 Doing so by using Finance as a Service (FaaS) can help control costs, increase efficiency and boost cash flow. In fact, studies have shown that using FaaS can lower the cost of the finance function by between 30% and 40% compared to the fully loaded costs associated with staffing an internal finance department.

FaaS goes beyond simply outsourced accounting by offering a comprehensive approach to financial and accounting management, along with greater transparency and rigor. It provides a full suite of staff, services and software that’s capable of managing your entire finance and accounting operation. With FaaS, you can quickly scale up or down the finance function as needs arise or subside. 

Contact Consero Global to learn more about how using Finance as a Service could help strengthen your company’s cash flow.

The current market climate is as volatile and uncertain as it has been at any time since the Great Recession of 2008-2009. On top of 40-year inflation highs and soaring interest rates, we’re now facing uncertainty in the banking sector with the collapse of three U.S. banks over just five days in March.

Silvergate Bank and Signature Bank failed mainly due to turbulence in the cryptocurrency markets, while Silicon Valley Bank failed after a run that was triggered when it sold its Treasury bond portfolio. SVB was the second-largest bank failure in U.S. history and the largest since the financial crisis. 

Boost Efficiency, Control Costs with FaaS

In the face of so much volatility and uncertainty, it’s more important than ever for companies to increase efficiency and control costs. One way to do this is to adopt the Finance as a Service, or FaaS, model for outsourcing finance and accounting.

With FaaS, companies outsource their finance and accounting function to a third-party partner. Finance is now the second most outsourced business function behind information technology and ahead of payroll and customer service. Nearly half (44%) of businesses now outsource their finance function.1 The global market for FaaS is projected to grow from $37.9 billion in 2020 to $53.4 billion by 2026.

FaaS is a modern alternative to building an in-house finance and accounting team. It delivers greater financial visibility and improved operational scalability, along with a lower and more predictable cost structure. Studies have shown that using FaaS can lower the cost of the finance function by between 30% and 40% compared to the fully loaded costs associated with staffing an internal finance department.

How FaaS Works

Finance as a Service is sometimes confused with outsourced accounting. However, FaaS offers a much more comprehensive approach to financial and accounting management, along with greater transparency and rigor. 

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

FaaS offers a single, self-serve software interface that provides clarity and transparency. 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 provide access to anyone on the team with department-level visibility when needed. 

FaaS operates on a subscription-based pricing model with flexible and transparent pricing, which makes it easy to forecast costs as the company’s needs change in the future. FaaS service providers charge based on the technology utilized and service offered. This way, businesses know exactly what they’re paying for and how their costs will rise or fall as they scale up or down.

Five Benefits of FaaS

FaaS allows companies to quickly scale up the finance function, standardize reporting across portfolio companies and reduce costs. Here are five key benefits of FaaS:

1. Cost savings — FaaS eliminates the high cost of hiring, training and retaining in-house staff. As noted, using FaaS instead of building an in-house finance department can result in cost savings of between 30% and 40%. In addition, FaaS automates many manual activities while improving financial reporting.
2. Time savings — Since the finance function can run with minimal oversight, CFOs and other finance executives can spend their time focusing on high-impact business development initiatives and strategic activities that lead to company growth. In a study conducted by Consero Global, finance leaders whose companies switched to FaaS saved an average of 17 hours per week that they could spend on more strategic initiatives with high impact.
3. Scalability — The FaaS model allows companies to quickly scale up the finance function as needs arise. FaaS providers can deliver the right level of support and resources for the specific tasks required to grow along with your company’s needs.  
4. Less exposure to labor volatility — The labor shortage is especially acute in the finance and accounting industry, where highly sought-after employees can pick and choose from the best jobs. With FaaS, companies don’t have to worry about the headaches caused by constant turnover among finance and accounting staff. 
5. Standardized reporting and improved financial visibility — This enables companies to quickly and accurately assess the financial health of their portfolios and better understand financial metrics across time periods. With FaaS, companies receive financial reports in a unified and easy-to-read format that clearly presents both opportunities and challenges for the business and makes it easy to understand the current financial and cash flow position.

FaaS from Consero Global

Consero offers Finance as a Service via a fully managed software platform that’s equipped with pre-integrated, enterprise-grade finance and accounting software, featuring digital processes and workflows. With Consero’s cloud-based finance and accounting solution, you can complete a full digital transformation in 30 to 90 days — much less time than it would take to build an in-house finance and accounting function.

We can help you realize the many benefits of using the Finance as a Service model. Schedule a 20-minute introductory call to discuss your needs in more detail.

Depending on which economic forecaster you’re listening to, a recession or economic slowdown in the U.S. is probably likely sometime this year. Therefore, now is the time to start planning for how your company will prepare for whatever economic conditions arise.

Consero recently spoke with Kurt Ostermiller, an executive coach who specializes in working with CFOs and CEOs, about how executives can best prepare their companies for a recession or economic slowdown. Ostermiller was interviewed by Consero’s Bridget Howard in the “Beer with a CFO” video series where he stated, “It’s important to recognize that recessions are part of the normal business cycle”. “Many fortunes have been made during recessions, but you have to prepare ahead of time for how your company will weather the storm.”

Ostermiller uses the acronym L.I.K.E to describe how he believes CFOs and CEOs should prepare for recession. This stands for Leadership, Internal, King and External.

Leadership: Projecting a Positive Mindset

Ostermiller quotes leadership guru John Maxwell, who said that everything rises and falls on leadership. “Entering a recession or economic slowdown, employees look to the C-suite for leadership and direction,” he said. “The CEO and CFO need to project a positive mindset and an attitude that the company is going to make it through no matter what so this attitude can cascade throughout the organization.”

You’re probably familiar with the concept of “fight or flight” in which people either fight or run away when facing threatening circumstances. Ostermiller says there’s one more option that’s worse than either: inaction or freezing up and doing nothing. “Leaders can’t become paralyzed during times like this,” he said. “You have to be decisive and then make adjustments to your strategy as circumstances dictate.”

Or another way to put it: Act decisively even if you have imperfect information. “Face the facts with no denial, devise a strategy and move forward,” said Ostermiller.

Internal: Communication is Critical

Internal communication between leadership and staff is absolutely critical during recessionary times. “So is communication between the CEO and the CFO,” said Ostermiller. “This is actually one of the biggest problems I see at companies. The CEO and CFO must be aligned with each other and present a united message to the rest of the company.”

The board of directors is also part of the internal audience. “Most boards operate ‘noses in and fingers out,’” said Ostermiller. “But during times like this, boards need to be accessible and maybe a little more hands-on.” He recommends that businesses create a dedicated communication portal for board members to enable instant communication between them and executives. “Events are going to happen quickly and decisions have to be made fast,” he said.

King: As in Cash

Having a strong cash flow is always important, but it’s absolutely crucial during a recession. “We all know that Cash is King,” said Ostermiller. “Cash flow is vital to ensuring the survival of a business during recessionary times. You need to extend the runway and reduce the burn rate through cash flow analysis, rolling forecasts and scenario building.”

Ostermiller cautions against making cost cuts that could harm employee morale, like cancelling Christmas parties or employee lunches. “How much money do cuts like these really save in comparison to the damage to employee morale?” he said.

External: Customers and Supply Chains

There are two external audiences that CEOs and CFOs should pay especially close attention to during recessionary times. The first, obviously, is customers. “This is the perfect time to get out and visit your customers and talk about what’s going on in their business,” said Ostermiller.

The good news is that video technology like Zoom makes meeting with customers fast and easy now. “You can meet with customers all over the world in a matter of hours without leaving your office,” said Ostermiller. “Take advantage of this technology to have honest conversations with customers about their cash flow, markets and other aspects of their business.”

The second is supply chains. “You need to identify any potential risks in your supply chains,” said Ostermiller. “Everybody is going to buckle down during a recession so you don’t want to end up getting stuck in the middle.”

Harness Technology, Including FaaS

Ostermiller also stressed the importance of harnessing technology during recessionary times to speed up the flow of information and allow data to be shared in real time. This includes using Finances as a Service, or FaaS, to outsource the CFO and/or finance and accounting function.

Consero Global offers Finance as a Service for middle-market businesses across a wide range of industries. To learn more about how FaaS can help your company prepare for a recession or economic slowdown, visit us online and where you can schedule a complimentary introduction and consultation.

Chris Hartenstein, VP of Client Solutions, talks with us about carve-outs and roll-ups, which are two common strategies used in the corporate M&A world. Following is a closeup look at these strategies, including some of the challenges associated with each.

Carve Out: Divesting a Business Line

In a carve-out, a larger company will spin off or divest a line of business out of the existing company typically to become its own new entity.

The carve-out separates completely from the parent company and becomes its own standalone entity. As a result, new company will have to set up its own finance and accounting system so that it can provide financial statements to its new board of directors.

The new entity will typically sign a Temporary Services Agreement (or TSA) with the parent company (or seller) with a defined timeline that’s usually between four and six months. During this time, the parent company agrees to continue to provide finance, accounting and administrative support while the new entity sets up it’s own finance and accounting system.

These new spinoffs face a number of challenges that need to be solved very quickly due to the limited among of time the parent has agreed to support them. These challenges include the following:

• They must start from scratch with everything this includes recruiting and on-boarding a completely new finance and accounting team selecting and negotiating software agreements for a new ERP, T&E package and any other F&A software that may be needed developing new process and procedure documents for operations, invoicing, AP, payroll and creating reporting and KPI packages
• The team that is hired probably hasn’t implemented new systems more than a few times in their career and necessitates the hiring of outside consultants to assist with software implementation
• Internal implementation will take between six months and one year, which may be longer than the TSA lasts.
• The new entity may be unable to provide basic financial reports on a timely basis.
• It can be difficult to obtain starting balances and other support (e.g., trial balances, AP and AR, and accrual and prepaid details).

Keep in mind that once the carve-out deal is closed, the seller will not place a priority on providing financial information to the new entity. It becomes “out of sight, out of mind.” Therefore, it’s usually smart to try and negotiate a holdback of some of the purchase price until the transition is complete and all of the financial information and support has been provided.

Roll-up: Acquiring and Merging Similar Businesses

In a roll-up play, a private equity firm acquires multiple small companies that offer similar types of services and have similar revenue streams and merges them together. This allows the firm tobuild economies of scale through a single brand supported by shared sales, marketing and operations to increase the value of the whole.

The acquired companies are usually smaller businesses that sometimes don’t place great value on high-level finance and accounting support. As a result, the accounting team skillsets are often lacking at the companies. There may also be turnover risk at the acquired businesses if employees don’t want to stick around after the acquisition.

Companies may face a number of challenges when performing a roll-up, including the following:

• Just like with a carve-out, companies have to start from scratch with everything.
• The staff at the acquired businesses sometimes lack high-level accounting knowledge and experience.
• Similar to a carve-out, internal implementation will usually take between six months and one year and the new entity may be unable to provide basic financial reports on a timely basis.
• The acquired small businesses typically use cash basis accounting requiring additional work to move them to accrual/GAAP accounting

Before adding a roll-up, be aware that you may need to convert from cash basis to accrual basis or GAAP accounting. Also be prepared for difficulty in obtain starting balances and other support due to the cash basis accounting. Sometimes the individual businesses and the private equity firm may not be on the same page as it relates to the structure, processes and procedures and reporting.

Both carve-outs and roll-ups will require their own implementation including:

• Software setup (e.g. Intacct, Nexonia, BILL)
• Entering prior period data, vendors and employees
• Training acquired businesses on processes and procedures
• Setting up consolidations

How Consero Can Help

Consero can help your business with a carve-out or roll-up. We have a set of best practice processes and workflows and dedicated implementation to support the transfer and setup, along with a predetermined integrated tech stack.

We can complete the implementation of a carve-out in a 30 to 90-day timeframe and a roll-up in a 30-day timeframe. This allows CFOs to focus on strategic issues and further acquisition targets. Connect with us to learn more about how Consero’s Finance as a Service solution can help your investment firm and your portfolio companies: https://conseroglobal.com/request-a-consultation/

In the current uncertain economic environment in which some economists are predicting an economic slowdown or even recession, it’s important for CFOs to carefully evaluate cost containment.

Consero recently hosted a virtual CFO Roundtable in which several CFOs discussed how they are doing this. Participating in the panel were Steve Isom, CFO of Bloomerang, a vertical SAS company; Jessica Hamilton, the CFO/COO of ActiveProspect, a marketing technology company; and David Dolmanet, the CFO of BryComm, a supplier to the commercial construction industry.

Preparing for a Downturn

In response to the question, “How can CFOs prepare for and predict the impact of a potential downturn?,” Steve Isom stated that “the era of free money is over and with it the mindset of growth at all cost. This doesn’t mean growth isn’t important, but efficient and durable growth is critical.”

Isom noted that there’s a lot of talk about softness in the market and negative signals. “I encourage CFOs to look closely at their own demand signals and understand what’s happening in their business,” he said. “For example, we manage and monitor top-of-funnel metrics daily to stay on top of what’s happening. It’s the old saying: Plan for the best but expect the worst.”

Scenario planning will be critical in 2023, said Isom. “You need to have a good handle on what happens if your business doesn’t hold up well in 2023,” he said. Isom cautioned against cutting too much. “Keep a firm handle on your own demand signals and keep an eye on macro trends.”

Balancing Growth and Investing in Operations

Jessica Hamilton was asked about how she sees the grow-at-all-cost strategy evolving and finding the right balance between growth and investing in operations. “Finding this balance is more important now than ever,” she said. “For us, it’s the balance between growing and investing capital in sales and marketing and product engineering.”

ActiveProspect has always operated with the Rule of 40 in mind, said Hamilton. The Rule of 40 is an indicator of the balance between revenue growth and profitability. It states that a company’s combined growth rate and profit margin should not exceed 40%. This helps ensure capital efficient growth and wise spending.

“When we have to cut back on some investment initiatives, we’re prepared,” Hamilton said. “We’re not cutting all the way back to hit the Rule of 40. Our plan for 2023 is Rule of 31 — we’re not comfortable making any more cuts than this.”

Lowering the Cost of Debt

In response to the question “How do you lower expenses when cost of debt is increasing each quarter?,” David Dolmanet noted that many people on his team have only experienced an economic environment in which interest rates have been at or near zero.

“In this environment you don’t have to make decisions regarding the time value of money,” he said. “Since our interest expense has more than doubled, I now manage my cash position much tighter in managing my line of credit balance. If I continue to use the line of credit while maintaining a high cash balance, we’re paying significantly more in interest than we were before.”

Dolmanet added that the company is trying to manage its line of credit and inventory more tightly and focus more on its cash cycle than it would during a grow-at-all-cost environment.

Winning the Talent and Wage Wars

Talent is one of the biggest costs companies face today and it isn’t going down anytime soon. Hamilton talked about her company’s strategy when it comes to hiring and retaining top talent.

“We decided we weren’t going to engage in the ‘wage wars’ when salaries started going up extraordinarily and lost a few employees who left for higher pay,” she said. “But we had done succession planning and had built a strong bench.”

The company took a hard look at the benefits and perks employees valued, eliminating perks they didn’t place value on and replacing them with perks they did value. “Happy hours and virtual games that were popular coming out of the pandemic were no longer valued,” she said. “What our employees do value is workplace flexibility and career development so we focus on these.” For example, the company is now 100 percent remote.

Isom said Bloomerang is focusing on high-impact employee perks. “Since we’re in the non-profit space, we gave each employee $100 to donate to the nonprofit of their choice on Giving Tuesday,” he said. “The amount of uplift we got from this really paid off for us.”

Dolmanet said that the tight labor market and rising inflation have made compensation strategies challenging. “Employees expect raises to keep pace with inflation,” he said. “We are focused on taking care of the employees who have the greatest impact on the business.” The company is also using variable compensation to grow overall compensation for more employees and recognize their contributions to the success of the company.

Outsourcing the Finance Function

In the current economic environment, some CFOs are considering outsourcing functions they might not have outsourced before, including all or part of the finance function. Isom says this depends on the specific circumstances of each company.

“One of the good things about outsourcing finance is that you can pick and choose which functions you outsource and which ones you keep in house,” he said. “For example, we kept FP&A in house and outsourced day-to-day accounting. This was a good balance for us.”

Consero Global offers outsourcing of the finance function via Finance as a Service (FaaS). To learn more about FaaS and how it can help you manage costs during an economic downturn, connect with us at https://conseroglobal.com/request-a-consultation/

The worker shortage that began during the COVID-19 pandemic is starting to ease up in some industries, but it remains a challenge in accounting and finance. In a survey recently conducted by Robert Half, nearly nine out of 10 (87%) managers at U.S. companies said they are finding it increasingly difficult to find talent to fill general accounting, financial reporting and financial planning and analysis positions.

This shortage of financial and accounting talent is affecting all size companies across many different industries. Small and privately held businesses, however, are especially feeling the pinch.

Statistics Illuminate the Problem

A recent article in The Wall Street Journal pointed to more statistics illuminating the talent shortage in finance and accounting. There were 36,540 more postings for accounting and audit jobs in the U.S. in 2022 (through November 30) than there were the prior year. This was the highest number of accounting and audit job postings (177,880) since 2008.

In addition, employees started just 113,400 of these jobs (through November 30), which was down 16% from the prior year. It’s now taking 56 days on average to fill accounting and audit jobs, which is up 10 days from the prior year.

The article pointed to several possible reasons for the financial and accounting talent shortage. For starters, fewer young people today are pursuing college degrees in finance and accounting. The number of students in the U.S. who completed accounting degrees during the 2019-2020 academic year fell by 2.8% for bachelor’s degrees and 8.4% for master’s degrees compared to the prior year, according to the AICPA.

There is often a lack of awareness among young people about career opportunities in audit and accounting, noted an AICPA spokesperson. The organization is actively working to raise awareness about the profession among middle-school and high-school students. Meanwhile, demand for accounting and finance employees is expected to remain strong in the near-term future.

Outsource Finance and Accounting Using FaaS

To attract and retain accounting and finance employees, many companies are offering higher starting salaries, more frequent salary increases and faster promotion opportunities. But there’s another solution to the financial and accounting talent shortage: Outsourcing the finance and accounting function to a third-party service provider.

Sometimes referred to as Finance as a Service, or FaaS, this approach gives companies a full suite of staff, services and software that’s capable of managing the entire finance and accounting operation. This includes processing transactions and customer payments, paying vendors and producing monthly financials and more. It is very typical for a FaaS solution to lower the cost of a finance function compared the traditional “build it in-house” approach. Many customers experience a 20-40% reduction in the cost of their finance function.

In other words, FaaS is a one-stop financial and accounting services shop. The FaaS provider will have its own staff and software platform, so the customer does not have to bear the burden of staffing issues or software upgrades.

FaaS also features transparent pricing so it’s easy to forecast what costs will be as the company’s needs change in the future. A FaaS provider charges based on headcount and services offered, not by the hour or based on the level of staff assigned to the client. This way, companies know exactly what they’re paying for and how their costs will rise or fall as they scale up or down.

With FaaS, companies have access to skilled finance and accounting professionals with the right level of expertise for their specific needs. For example, sometimes businesses need a higher level of strategic expertise, like when performing acquisitions and onboarding new entities. With FaaS, businesses pay for this higher level of service only when they need it.

FaaS: A Creative Solution

Incorporating the FaaS model is one creative way middle-market corporations can meet the challenge of today’s financial and accounting talent shortage. It will also relieve finance and accounting managers of the time-consuming and expensive task of interviewing, hiring and training potential new employees and retaining them once they’re on board. This will free managers up to spend more time doing strategic, value-added work for your company.

Consero Global offers Finance as a Service for middle-market businesses across a wide range of industries. To learn more about FaaS and how it can help you overcome the challenges of the talent shortage, connect with us today: https://conseroglobal.com/request-a-consultation/

There’s both good news and bad news for emerging hedge fund managers in a new report from Hedgeweek. First, the good news: Emerging managers have outperformed hedge funds for three consecutive years by an average of 4.8%.

Despite this, investors remain hesitant to invest in emerging managers who don’t have a strong industry reputation, solid capital base or structured team. These are the results of the latest Industry Report from Hedgeweek, The Next Generation: How emerging managers are adapting to the new hedge fund landscape.

Capturing Investors’ Attention

The Hedgeweek report makes it clear that emerging managers are struggling to capture the attention of hedge fund investors. More than eight out of 10 emerging managers (defined as those with less than $300 million in assets under management, or AUM, and fewer than five years of experience) say that attracting investor flows is their single biggest challenge during the initial launch process.

Despite this positive performance and their reputation at previous firms, nearly half (46%) of emerging managers said that it’s harder to raise capital now than it was a year ago. Two out of 10 consider a lack of an established track record and industry reputation to be major hurdles to raising capital.

One survey respondent put it this way: “You may have someone who has a ten-year track record in a particular strategy launching by themselves and even though you can follow the breadcrumbs of the track record, investors are still reluctant. It is frustrating,”

Caution Abounds

It’s not really surprising that after a rough start to this year, some hedge fund investors have decided to err on the side of caution. As another survey respondent put it, they’re looking to avoid the next “blow-up” and don’t want to take on what they perceive to be more risk with an emerging hedge fund manager. But while there may be more risk, emerging managers do offer value and the potential for strong returns, as the Hedgeweek report makes clear.

For example, emerging managers often bring innovation and a fresh perspective to hedge fund management, which can lead to novel approaches to their strategies. Complacency, on the other hand, can lead to sub-par returns. In the 2022 Alternative Investment Allocator Survey conducted by Seward & Kissel, more than 70% of investors said they have invested in managers founded under two years ago.

Investors tend to look for three key attributes in hedge fund managers:

1. The manager’s return history and previous experience.
2. Enough AUM to cover operating expenses and business risks to ensure that investors are getting the exposure and returns they expect.
3. Proof of concept and faith in the manager’s investment process to give investors confidence that the firm will grow over time.

An Early Path to Institutionalization

According to one survey respondent, emerging hedge fund managers need a path to institutionalization early in their life cycle in order to meet investors’ expectations. “Investors aren’t waiting on the sidelines for new managers to produce a three-year track record,” he said. “They’re making allocations earlier in a fund’s lifecycle, and with earlier support comes accelerated expectations.”

One way emerging managers can stay focused on managing investments and attracting new investors is to outsource the fund’s finance and accounting functions to a third-party service provider. This will free up fund managers to spend more time focusing on alpha generation.

These services are sometimes referred to as Finance as a Service, or FaaS. FaaS goes beyond outsourced accounting to include a full suite of staff to support startup and launch efforts, payroll and HR support and financial records and planning services along with software that’s capable of managing the firm’s finance and accounting operations. In other words, FaaS is a one-stop financial and accounting services shop.

FaaS features flexible and transparent pricing, which makes it easy to forecast costs as the fund’s needs change in the future. 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 firm. As a result, hedge funds know exactly what they’re paying for and how their costs will rise or fall as they scale up or down.

Consero: The FaaS Specialists

Consero offers Finance as a Service to emerging hedge fund managers, PE/VC firms and their portfolio companies. If you would like to discuss the potential benefits of FaaS for your fund, please request a complimentary consultation. 

After peaking at the end of last year, venture capital funding in North America has started to decline. Total venture dollar volume for the quarter ended on December 31, 2021, was close to $100 billion, but this fell to about $63 billion at the end of this June, according to data compiled by Crunchbase. This was a decline of 27% from the end of March and 25% from a year earlier.

The funding downturn has been especially sharp in the technology, healthcare, software and life sciences industries. This has spilled over into private startup valuations. Investors have not been investing heavily in pre-IPO rounds, which has also contributed to the downturn.

Breaking Funding Down by Stages

The sharpest funding declines occurred in the late-stage and technology growth rounds. A total of $36 billion was invested into these growth rounds in the second quarter of this year, which was down 33% from the first quarter and 30% from a year earlier. This marked the lowest quarterly funding total at this stage since 2020.

Round counts, meanwhile, fell to 371, which was down 25% quarter-over-quarter and 27% year-over-year. Big late-stage financings were done despite cuts and contracting valuations at many unicorns.

Early-stage investing has seen less contraction than late stage. A total of $23 billion was invested in Series A and B startups in the second quarter of this year, which was down 15% from the first quarter and 17% from a year earlier. Round counts fell to 1,015, which was down 15% from the first quarter and 20% from a year earlier.

Seed-stage funding remained near historic highs in the second quarter, though it was down from its peak at the end of the first quarter. A total of $3.5 billion was invested in seed-stage companies in the second quarter of this year, which was down 30% from the record-setting first quarter and 6% from a year earlier. However, round counts fell to about 1,300, which was the lowest level in more than two years.

VC-backed Exits and Acquisitions

With regard to venture-backed exits, these are mostly coming from acquisitions. Acquirers bought VC-funded companies at a brisk clip, including several for more than $1 billion. While a few VC-funded companies made market debuts in the second quarter, the IPO window was mostly closed. 

As this data shows, the second quarter wasn’t great for VC-backed startups. Startups are facing more pressure to reduce burn and preserve cash reserves, especially given falling public market comps for unprofitable technology companies.

But there is a silver lining: Given the fact that the funding downturn has been much more pronounced at the late-stage growth rounds, investors seem to be more confident about the prospects for early-stage and seed-stage deals. These deals stand a better chance of reaching maturity under better market conditions.

Boost Efficiency and Lower Costs with FaaS

With the slowdown in venture capital funding, many companies are looking for areas where they can boost efficiency and lower costs. One way to accomplish this is to outsource the finance and accounting function using Finance as a Service, or FaaS. This approach goes beyond outsourced accounting to include:

• A suite of remote and skilled finance & accounting staff
• Well-documented processes with digital workflows
• Cloud-based software that’s capable of managing the entire finance and accounting operation

Using the FaaS model can help PE and VC-backed businesses grow quickly while maintaining a low-cost finance and accounting function. FaaS offers flexible and transparent pricing, which makes it easy to forecast costs as a company’s needs change over time. The FaaS provider charges based on the services offered, not by the hour or based on the level of staff assigned.

In other words, you only pay for the finance and accounting functions you need, when you need them. As a result, you know exactly what you’re paying for and how your costs will change as you scale up or down.

Consero: The FaaS Specialists

Consero offers Finance as a Service to growing investor-backed businesses. Get an optimized finance and accounting function using FaaS and increase efficiency while reducing costs in the current tight finding environment. 

Contact us by requesting a complimentary consultation to discuss your situation in more detail.