What is a Virtual Chief Financial Officer (Virtual CFO)? How can it help startups?

08 March 2021

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.

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 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.

The roles of a Virtual CFO include:

  • Bookkeeping and Managing finances: Early-stage startups might face problems with regular bookkeeping. Manual bookkeeping might not be efficient as there is a great possibility of founders losing track of their finances due to being caught up with product and business development activity. Virtual CFOs can help such startups in maintaining proper books of accounts and keeping track of all revenue and expenses.
  • Financial 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.
  • Budgeting: 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.
  • Statutory Compliances: The Virtual CFO also takes care of the company’s statutory compliances required as per the provisions of Income Tax Laws, GST Laws and various labor laws, among others.
  • 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.
  • Other Functions: Virtual CFOs take up various other functions like invoicing, payroll management, insurance management and helping founders in taking insurance related relations like employee insurance, general insurance, keyman insurance, etc.

The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife Consulting is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

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