Many business owners and CEOs still rely on their in-house finance and accounting team to process transactions and provide them with financial statements each month.
While that’s the traditional model, when it comes to managing your organization’s financial standing, traditional is not always most efficient and cost-effective. Finance as a Service (FaaS) is here to disrupt the finance and accounting landscape.
FaaS and in-house finance services offer different workflows for managing the finance and accounting for your business. It all depends on your business needs, but the enterprise-level software and controls, automation, and cost-effectiveness that a FaaS solution offers is usually more beneficial for high-growth middle-market businesses, especially if they are investor-backed.
When companies take institutional funding, the need for timely, accurate and advanced reporting requirements is accelerated. If you need to streamline your finance and accounting department, we’ll compare whether Finance as a Service vs. in-house is the right model for you.
The Finance Function’s Role
Traditionally, finance teams were only concerned with reporting and compliance. Today, F&A is expected to provide decision support, which includes pricing and investment strategy, interactive forecasting, evaluation of strategic initiatives, analysis of commercial alternatives, and data analytics.
Investor-backed businesses need effective, efficient, flexible, and integrated finance functions. The modern finance function should cover compliance and back-office responsibility, while also supporting business growth.
The scope of today’s finance is expanded and includes:
- Business support: Covering processes, activities, and people that aren’t mandatory, but support and add value to the business.
- Business services: Covering processes, activities, and people in support of ongoing business operations (including providing back-office services).
- Compliance: Adjusting along with changing rules and regulations.
The key areas that finance leaders focus on are enabling effective decision-making, maintaining a manageable cost structure, and adding value to the business overall.
The ultimate measure of finance’s performance is its ability to support your business strategy. We’ll explore how well an in-house team vs. an outsourced finance function delivers on these needs.
Benefits: In-House vs. FaaS
Both in-house finance teams and those powered through the FaaS model offer key advantages for growing businesses.
In-house
Benefits of having an in-house finance department include:
- More direct day-to-day control over your company’s finances
- Access your financial position at any given moment
- On-site team availability to help or provide information (when needed).
- Team familiarity to get answers to any questions you have from someone who knows your business inside and out.
- Adaptability to meet specialized, specific, and unique finance and accounting needs.
- Multi-tasking: in-house finance means that the function can evolve and adapt to support the needs of a growing business.
FaaS
Benefits of outsourced accounting powered by the FaaS model include:
- Lower upfront investments: Since you are not building an in-house department or purchasing software, the initial cost and future cost-effectiveness will be less.
- Flexibility: With financial programs and support that live online, you can access and manage your company’s financial affairs anytime from remote locations.
- Automatic updates: The FaaS services you use will always be up-to-date.
- Improved insight through connected data: When financial data is collected, stored, and presented in a unified form via a cloud-based, centralized system, everyone can make sense of the current opportunities and challenges (not just CFOs or other finance experts).
- Better financial visibility and a more complete picture: As your business grows and evolves, you should be able to see the dependencies and interactions of all business departments. With automation and data analytics, you’ll be able to see your business as a whole.
Internal Controls
To make sure the flow of information into your accounting system is timely, accurate, and classified correctly, you need to establish proper internal controls. This will also provide a series of invaluable checks and balances to reduce the risk of fraud.
SMBs typically have one or two employees handling the books, which increases the chances for fraud or mistakes. The person reconciling the bank account might be the same person paying the bills, and since there is no separation of duties, they are in a position to steal your company’s funds and cover their tracks.
Without proper financial controls and policies to monitor and safeguards expenditure and revenue transactions, businesses are open to internal fraud, overpayments, and lost revenue.
Outsourcing with FaaS moves your systems to a consolidated platform, removing the need for paper-based processes. In addition to instant creation of a separation of duties, this can expedite collections, improve reporting, and reduce the opportunities for fraud.
When providing financial statements for the business, there’s access to financial reports that allow you to review any information that might seem incongruent or discrepant.
Financial Reporting
Timely and accurate financial reports are critical to maintaining cash flow and helping make data-driven decisions that govern the business.
In-house accountants and bookkeepers can create and deliver reports for your business, but you will have to make sure that they have the right expertise, skill sets, training, and education to provide accurate financial reports.
Oftentimes, in-house finance team members have to multi-task – they have other responsibilities, such as Human Resources, that can take their focus and time away from accounting (which is their core duty). When that happens, financial reporting can suffer because recording invoices, data entry, and paying bills take priority.
FaaS, on the other hand, can help alleviate meaningless, inaccurate, and late financial reporting. It allows you to choose exactly what you need for your business. Furthermore, FaaS can often make your finance team more effective by freeing them focus on their core job descriptions.
Cost-Effectiveness
For many SMBs, cost-effectiveness is one of the biggest determining factors when choosing how to build their finance function.
An average annual salary of a full-time in-house bookkeeper is about $45,000, while a full-time accountant can make around $60,000. In other words, just these two employees will cost you more than $100,000 per year.
On top of their salary, you will need to add 20% on top of it for additional costs, which include:
- Retirement plans
- Medical/benefits
- Payroll taxes
- Hiring costs (advertising for a vacant job position, interviews, testing, and training)
Using a FaaS solution, your organization won’t have to pay for overhead costs and can accurately benchmark the effectiveness of your F&A spending. Your only expense will be a monthly subscription for leveraging a skilled finance team and using the cloud-based finance software, which is significantly less than having to pay an accountant, bookkeeper and additional support.
With an integrated financial management solution, your team will be free to focus on core tasks and productive work instead of repetitive (and often tedious) administrative tasks.
Connected and unified systems as well as financial data visualization will support critical performance metrics, key checkpoints, and segregation of duties to prevent internal fraud as well as unintended errors.
By significantly reducing duplicate entries and repetitive tasks, your team will be able handle higher transaction volumes in the same amount of time.
Fast-Track Your Finance Transformation
When comparing in-house vs. finance as a service, FaaS offers a more disruptive way to develop more effective, efficient, and supportive financial operations.
FaaS requires a smaller investment to building in-house that can significantly improve the service and value of your business finances by improving financial visibility, benchmarking, and providing access to best-in-breed accounting technology.
Finance as a Service also gives you enterprise-level control and reporting at a fraction of the time and cost required to setup and run an entire in-house finance department.
As the pioneer of FaaS, Consero can help you streamline your finance and accounting functions to achieve maximum financial clarity with minimal client time. Request a consultation to remove the barriers holding your business from going forward.
