By Graham Davies, CEO and founder at Addition, an outsourced finance business supporting over 180 SMEs and startups in the UK and US.
A common theme in startup culture is that entrepreneurs must wear many hats – sometimes, all at once – in order to get their business going.
But the newest generation of founders are stepping away from this narrative. Instead of ‘doing it all’, they’re making sure it all gets done – but not necessarily by them.
A 2021 national survey by Addition found that 82% of business founders ages 18-24 have chosen to outsource their bookkeeping and accounting – as opposed to a whopping 51% of founders aged 55+ who said they manage these tasks internally.
The 33% difference in uptake of outsourced accountants suggests a shift in the next generation of founders. Young start-up owners are embracing leaner core teams and offloading process-heavy tasks to external suppliers.
Why are young founders choosing outsourced accounting?
A key driver behind this sizable divide could be costs. Hiring an in-house bookkeeper in the UK will set you back an average of £24, 372 – not a shockingly high amount, but quite possibly out of reach for grassroots startups. But with VC investment at an all time high, funds might not be the deciding factor here.
The average self-employed person spends an average of 12 working days a year on tax compliance alone. Time is golddust to entrepreneurs, and 12 days worth of drumming up new leads (or spending time with loved ones) is a lot of time to spend on something you may not even fully understand.
The ‘Great Resignation’ that has sensationally gripped many countries is a prime example of a workforce who are reshuffling priorities for a better work-life balance. Young people are turning side hustles into their main income stream – and they see no reason why they should waste time and energy on DIY bookkeeping while they’re doing so.
And the outsourcing doesn’t just stop at balancing the books. Portfolio CFOs are gaining rapid popularity amongst startups and SMEs.These high-qualified individuals usually work with agencies or freelance, and will manage multiple company accounts – or portfolios – at once. They’ll typically have extensive experience in their field, and offer dedicated services at a much more affordable rate.
COO at Addition John Miller explains why even startups with funding are leaning away from onboarding an in-house CFO. “Startups don’t require a CFO on a full-time basis.” He reasons, “The cost is arguably not worth it. At £80k – £150k+ for a full time CFO in a startup to a medium company, this expense is often hard to justify.”
Of course, hiring a portfolio CFO is still an expense. However, the investment is well worth the cost. “The aim for all back-office roles, like finance, is to pay for yourself.” Says John, “Therefore, having a CFO on a part-time basis makes this easier in a small business. At £3k per month, it’s almost a third of the cost, whereas I would argue the benefits will not be a third of the size.”
What do startups need from outsourced accountants?
For founders taking advantage of outsourced financial services, the possibilities go beyond bookkeeping and even standard accounting. Entrepreneurs are looking to level the playing field between themselves and big companies. Here are four key ways that startups are utilizing the power of outsourced finance experts:
- Financial Management and Strategic Planning
Young founders are looking for support with implementing controls so funds can be spent easily, but with solid regulations. Portfolio CFOs are helping them determine where the company needs to go, and how to get it there.
- Forecasting and Budgeting
This is a major pain point for grassroots startups, which is why many are reaching out for support at breaking an overall strategic plan into nuts and bolts. Knowing how much they should spend, and on what, is a key advantage to have at such an early stage in their business.
- KPI and Performance Tracking
KPIs are vital to financial growth. A portfolio CFO will implement automated ways to periodically track performance to plan – which is another reason that new founders are hiring their services.
- Cash Flow Management
Cash is king for all startups. Staying on top of what is coming in and what is going out is vital for survival as well as success. Strategic allocation of resources is something the new generation of entrepreneurs are seeking help with earlier than ever.