Savvy business owners may understand the power of outsourcing but have more trepidation when it comes to outsourcing financial tasks. Poorly managed finances have led more than one company to ruin. But what if you could effectively outsource financial management and reap the rewards?
What are some benefits to outsourcing financial management needs?
Marcus Sheridan: For many small businesses, hiring someone to solely "do the books" is a big financial investment, and frankly doesn't merit a full-time gig/salary. Besides that, if you’re going to hire someone that really understands money, it ain't cheap. So this means you're either paying a lot for an employee, or a smaller amount for [a contractor] with a likelihood of greater qualifications.
Ron Tite: When I became an entrepreneur, I had the creative and strategic knowledge to advise clients and build the business, but I didn’t have the financial expertise to keep it running. So I outsourced it.
The benefits? It’s all about focus—knowing finances are being handled by someone more knowledgeable, I can focus on what I’m good at and grow the business. When I need to make tough decisions, I get the best advice from an unbiased source. Finances should never be one of those "I’ll go with my gut” areas of the business.
What scares business owners about outsourcing this component of business?
Sheridan: For many, it's the feeling that someone else is playing with their money, and therefore it comes down to a lack of control. Many, because they simply don't understand the financial side of their business, feel uneasy because they know they lack needed knowledge, but there's very little they can actually do about it.
Tite: Try getting [entrepreneurs] to admit they’re weak in something as objective as finances. It frightens people, because way back in the deep, dark recesses of their mind, they think, ”If I can’t do that, where else am I lacking?” Self-doubt isn’t usually a trait that entrepreneurs want to illuminate.
What part of a company’s financial management simply cannot be outsourced?
Sheridan: What you buy/invest in that can have a direct impact on the business, like sales or marketing software. If someone doesn't fully understand your business, there's no way they can make a statement like, "Spending $15K a year on that CRM is worth it."
Tite: The decisions. At the end of the day, it’s your money, and no spreadsheet in the world will make a decision for you. The numbers can inform and maybe even guide you toward a resolution, but the big decisions aren't to be taken lightly and they’re not to be made by someone outside the organization. Step up, put your big boy or girl pants on, and make the tough calls. You don’t need to know it all. You just need to know enough to make informed decisions.
How has your company benefited from outsourcing your financial management?
Sheridan: The biggest benefit for me has been finding someone who really understands the tax implications on all purchases. Paying taxes as a small business is always the elephant in the room—the bill that never sleeps. Anything that can be done to prevent surprises and eliminate overpaying is a massive benefit.
Tite: There have been numerous benefits. The most basic but most important is that our staff gets paid through direct deposit every two weeks, and there has never been an error. All the basics are covered: We bill everything in a timely manner, pay suppliers as fast as possible, pay our taxes, look at balance sheets, plan around cash flow, and generally know where we stand on a daily basis. All that happens with very little direct personal involvement.
Beyond that, our financial partners have given us great advice on lease terms for the office, equity options and industry standards on allocations—compensation, space, equipment, etc.
What three questions should companies ask when interviewing potential financial management partners?
Sheridan: How would you define success as a financial manager within this relationship? What are the most common mistakes you've seen your clients make with money, and how did you react to what they were doing? Would you rather offend me and tell me the truth, or be my best friend and keep me as a client for a long time?
Tite: How will you add value to my business beyond the basic financial needs? What's your greatest area of expertise or interest? How have you helped a small organization become larger?
What’s one mistake companies make when outsourcing their financial management needs?
Sheridan: The biggest mistake is not paying attention to the details, and then being taken advantage of. Or worse, they get embezzled from. Embezzlement happens with in-house employees and outsourced help, and it's a huge issue—almost like the dirty little secret no one talks about until you've been embezzled from, and then you find out just how many of your friends have experienced an embezzlement as well.
Tite: It’s the lack of balance. Many live on either side of the spectrum—either micromanaging the process like it’s their personal account or throwing their hands up and walking away from the responsibility entirely. As with most things in life, the best answer lies somewhere in the middle.
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