In the early stages of a startup, the entire focus of the organisation is on finding product market fit – and rightly so. While finance and accounting operations are undeniably important, it is not where that battle is won. At these stages, outsourcing such operations is powerful because it converts a fixed cost into a variable cost – giving founders full control and flexibility to scale and descale as the business evolves. A seed stage startup, for example, may choose to focus on basic bookkeeping and monthly MIS, while a growth stage startup could also choose to focus on financial planning & analysis, investor reporting and fundraising support.
But cost efficiency, while real, is only one part of the story. There is a broader shift underway in how businesses are thinking about outsourcing. For decades, outsourced functions were treated purely as cost centres. That is shifting – and the rise of Global Capability Centres (GCCs) is a case in point demonstrating that cost arbitrage play is now moving into genuine capability play.
Outsourcing of finance and accounting operations is following the same arc. Let us dive deeper into non-cost considerations driving outsourcing by startups.
Critical Factors Driving Outsourced Accounting Services for Startups
Compounding complexity
It is no easy feat to stay ahead of the growing complexity of compliance, tax and regulations. Such requirements do not just change frequently over a period of time but become even more complex as startups grow. Staying ahead of this is possible only with a specialist who lives in the space full time. Not just any specialist, but a one who distills and brings lessons of every client they have worked with. Picture a startup that is tackling a thorny compliance problem. And now picture a compliance specialist who is available to this startup – someone who has successfully solved this same problem for 5 other startups. That is indeed invaluable. Outsourcing enables startups to tap into much deeper expertise that they otherwise would not have had access to.
This becomes especially important today, where Indian startups are not just building for India, but for the rest of the world. This means navigating not only India’s regulatory environment but compliance frameworks across the US, EU, Southeast Asia, and other markets. It will be very challenging for an in-house expert to stay current across all of this.
The automation and AI advantage
All startups are thinking about how to infuse AI into their operations – however, for the time being, they are more focused on infusing AI into their core operations rather than support functions. The reality is that support functions including finance and accounting sit further down most founders’ priority list.
Leading outsourced service providers such as SBS Global, however, bring embedded automation, digitised workflows, AI/ML tools to finance and accounting so that clients can benefit from productivity gains without having to invest in building in-house. What is better is that these tools have already been battle tested – introduced, reiterated, refined and then scaled successfully at other clients too. One of the most significant benefits of outsourcing is the push toward digitization, automation, and AI -infusion.
When a startup is ready to outsource a finance function, there are typically three ways forward:
- Transfer, then transform – hand over the function first, then let the outsourced service provider transform the function through process re-engineering, automation and AI.
- Transform, then transfer – the organisation rebuilds the function internally before handing over to the outsourced providers.
- Parallel run – transfer and transform happen simultaneously
With the right service provider as partner, the first option of transfer and then transform is the right answer – where transformation is the job of the people who know it best. This is also the answer that ensures minimal disruption for the startup.
There is a longer-term view that is also important. We have witnessed the rapid pace of technological evolution with AI. In the future, there will be newer technologies that will provide significant gains to a startup. With an outsourced partner, experimentation becomes easy and comes with much lower risk – the partner absorbs the experimentation risk, iterates across their client base and delivers the gains.
Right focus
This is likely the most overlooked aspect. Outsourcing to the right partner removes a cognitive and managerial burden for founders. Every hour a founder spends on a finance query is an hour not spent on the product or customers. Many founders have echoed that the biggest gain was the mental bandwidth and the biggest relief was not having to constantly context switch.
In the past, outsourcing was tied to the size and maturity of a startup. Hiring an in-house team was a sign of the growing scale of a startup. This is not the case anymore. Startups are strategically choosing to keep finance and accounting outsourced with the right partner even as they grow because they know where to build – and are allocating their core attention and resources to areas such as product and GTM.