No matter how big a business is, financial planning is the key to long-term stability. If anything, the 2020 pandemic has proven that financial planning and having a roadmap are crucial to dodge unprecedented economic impacts. While enterprises have enough resources to onboard finance leaders, most early-stage stage startups do not have that liberty as they direct their resources to product development and technology. Most startups only consider financial planning after they have raised funds or when they are in the process of raising funds. This is where the trend of virtual CFO is gaining momentum in India.

Virtual CFO

The role of a virtual CFO, which could be an individual or a service provider, is like any other full-time CFO employed by a large business - financial and tax planning, risk management, compliance management, cash-flow forecasting, cost-control measures, bookkeeping, payroll automation, obtaining necessary licenses like GST Registration, TDS Registration, etc. amongst others. Virtual CFOs manage the accounting of finances, use their accounting knowledge, data and information about the financial markets to take strategic calls that drive the business forward without straining its resources.

The dire need for Virtual CFOs in early-stage startups 

A large number of startups are run by innovators, who might be well-versed with core technologies, but not  when it comes to managing finances. First-time entrepreneurs tend to be less aware of financial regulations and tax incentives, which can prove very costly for startups with not much money in the bank. A CFO can address the experience part easily, but the costs involved are too high, which is why virtual CFOs have become an option.

One of the major tasks of a virtual CFO is to analyse financial data and break it down succinctly for the top management to help them make future business calls and make a course correction if there are flaws in the current system. 

The roles of a Virtual CFO include:

  • Managing finances: Early-stage startups might face problems with regular bookkeeping. Manual bookkeeping might not be efficient as there is a great possibility for founders and to lose track of their finances and forget where money was spent. Virtual CFOs can help such startups in maintaining and investing money in the right path, and keep a track of investments.
  • Better decision making: There is a great chance that young founders face hurdles in the way of efficient financial decision making, partly due to lack of experience and partly due to the absence of proper guidance. Virtual CFOs help you with rational decision making to increase your overall growth.
  • Stabilizing the budget: Virtual CFOs focus on maintaining the expense and performance as defined in the budget plan. It is one of the responsibilities of the virtual CFO to take the right approach to maintain the budget.
  • Risk management and mitigation: CFO is also responsible to analyze potential financial risks, and find a way to minimize or mitigate the same.
  • Insurance Management: The Virtual CFO also takes care of the company’s insurance policies and related systems.
  • Maintaining Professional Relationships: The virtual CFO maintains business relations with employees to solve problems, and also works as a mediator between the board and stakeholders.

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