No matter how big a business is, financial planning is the key to long-term stability. If anything, the 2020 covid-19 pandemic has proven that financial planning and having a roadmap are crucial to dodge unprecedented economic impacts. While big enterprises have enough resources to onboard finance leaders, most early-stage stage startups do not have this 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.
A virtual CFO, which could be an individual or a service provider, is an outsourced service provider specializing in managing the financial requirements of an organization. The role of a virtual CFO 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, budgeting, bookkeeping, payroll management, obtaining necessary licenses like GST Registration, TDS Registration, etc. amongst others. Virtual CFOs manage the books of accounts, data and information about the financial markets to take strategic calls that drive the business forward without straining its resources.
A large number of startups are run by innovators, who might be well-versed with core technologies, but not with finance, tax and other compliances. 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 full time CFO can address this 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 analyze financial data and break it down succinctly for the founders and promoters to help them make future business calls and make a course correction if there are flaws in the current system.
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