The Ultimate Guide to Finance Function Outsourcing for Startups and SMEs: Benefits and Risks

Competent financial professionals are essential in any organization but maintaining an in-house finance team can be costly, prompting many companies to explore outsourcing their finance roles.

If you are also considering outsourcing your finance function, then this article will give you a comprehensive guide to outsourcing finance functions in detail along with its pros and cons. Apart from that, other questions that often arise are what services can be outsourced and whether it is even right for you to outsource. This will also be addressed here. 

What is Finance Outsourcing?

Finance outsourcing refers to getting finance services or hiring talent from outside your organization compared to having an in-house finance department. Outsourcing means hiring a third party to take on the finance function of business such as investing, financial analysis, financial planning, risk management, etc. 

One thing that has to be kept in mind is that finance and accounting are two very different functions, although the terms are used synonymously, both have vast differences. The finance function focuses on planning and directing financial transactions and managing resources to generate profits. 

Accounting on the other hand focuses on recording, categorizing, summarizing, and reporting financial transactions. Various stakeholders use the financial statements prepared as a result of this function for analyzing the growth and performance of the business. 

Benefits of Outsourcing Finance

Cost savings:

One of the key benefits of outsourcing the finance function is the cost savings it brings along. You won’t need to incur training costs because the freelancer or outsourcing company will already have the necessary expertise and experience to get started. 

In addition, the outsourcing costs will be lower than the salary expenses you might have to pay by hiring from your local area. This is especially true when hiring talent from regions like Latin America (LatAm) and Asia. Remote senior finance professionals from these areas offer expertise at lower monthly expenses compared to their US-based peers.

Focus on core competencies:

By delegating finance functions to outsourced experts, businesses can focus on core business activities such as product development, marketing, and customer service. This helps in freeing internal teams to focus on revenue generation and innovation. 

Exposure to new technologies and systems:

You can get access to advanced technology tools and platforms that might not be financially feasible for small businesses to implement on their own such as data analytics platforms or cloud based-accounting software. 

Access to finance specialists all over the world:

Outsourced finance providers usually have specialized knowledge and expertise in specific areas of finance allowing businesses to access high-quality services without the need for extensive training or hiring.

Flexibility and scalability:

Outsourcing offers a great deal of flexibility and scalability as it allows one to scale the finance operations up and down in response to changing situations, such as during periods of growth or contraction. 

Risk management:

The experts will help in identifying and mitigating financial risks associated with compliance, data security, and regulatory changes. 

Risks of Outsourcing Finance and How to Mitigate Them