Why Your VC Firm Should Use Outsourced Accounting Services

A venture capital (VC) firm is an engine of economic growth. With a never-ending stream of potential moonshots on the horizon, the spigot of the VC deal pipeline must constantly stay engaged and flowing. They cannot be bogged down by extraneous tasks unrelated to deal flow. 

This is why an increasing number of firms are outsourcing essential, albeit tertiary, business activities, such as their accounting. But what are the benefits of VC outsourced accounting?  

Here are six reasons you should consider hiring a fractional accounting service. 

#1: Due Diligence Support 

For most VC firms, the prime deal entry point occurs early on within the innovation life cycle stage. This is the crucial juncture where companies desire to commercialize their innovation, but they typically lack the necessary infrastructure and balance sheet investment to do so.  

Before a VC can pursue a deal, it is necessary to perform due diligence. 

Depending on the availability of company and market data, a VC firm may need to perform an inside-out or outside-in investigation to uncover more information about operations, finances, and market opportunities. A team of outsourced accountants could manage these essential due diligence tasks, which include reviewing the company’s financial statements.

Namely, there are the income statements, the balance sheets, and the cash flow statements. And accounting experts have a strong understanding of the interplay between these statements. As such, they can use that data to set reasonable expectations and paint a clearer picture of how much financing the company would require. 

#2: Expertise and Guidance 

Outsourcing accounting and financial services can be a net benefit for role specialization alone. Fractional accountants can be a VC firm’s go-to expert for any accounting or finance-related questions. But a firm cannot trust such a vital job to just any outsourced accountant. 

To derive the most value from this symbiotic relationship, it is much better to partner with a VC firm that has years of experience supporting other VC firms. By working with specialists who have hands-on experience and industry knowledge, you will secure a valuable resource that can be used for internal management, deal analysis, and financial guidance.  

#3: Focus On What You Do Best 

Accounting is probably not a revenue driver for the vast majority of VC firms.

While it is critical to ensure that your books are in order, this is likely not a task that the analysts, associates, or partners in the firm should be focusing on.

In a VCs early stages, practically everyone will have to wear multiple hats. But that is not a long-term solution; it can lead to stress, lapses in productivity, and waste, especially as each task becomes more complex and time intensive.

Eventually, you will need to hire people whose sole job is to focus on those tasks. 

Accounting is often one of the first activities for which this is true. Between financial planning, bookkeeping, payroll, invoicing, budgeting, and reporting, there is just so much to handle.  

Instead of spending time on financial and accounting activities—tasks you are not necessarily an expert in—you can outsource these duties, freeing up employees to focus on value-add tasks. 

Equipped with more time and resources, you will be better prepared to hit your goals.

#4: Save Money

If you reach the point where accounting tasks become too great a burden to be handled by a non-specialist, you typically have one of two options: hire in-house or outsource. 

But hiring in-house comes with a host of expenses and headaches. You will need to: 

• Set up the accounting department
• Find a trustworthy finance and accounting professional to lead it 
• Go through the costly hiring process, which involves identifying top candidates, interviewing them, hiring the top choice, then training and onboarding them
• Pay a salary and benefits to new employees
• Potentially find more office space to house the entire firm 

A 2020 Deloitte Survey found that 70% of businesses cited cost reduction as their primary reason for outsourcing. With outsourced accounting, you can save on or completely eliminate these in-house expenses. For a fraction of the cost of a single, full-time CPA, you could likely outsource an entire accounting support team. 

The best part of the fractional model is that you only pay for the accounting services you need.

There’s far less waste. And, at the same time, you enjoy the flexibility to scale up your outsourced accounting team whenever the need arises. 

#5: Regulatory Compliance 

Whether your VC firm is an exempt reporting adviser (ERA) or registered as an investment adviser with the US Securities and Exchange Commission (SEC RIA), each year brings increased scrutiny and regulatory pressures.

And, depending on your specific area of investment focus, you may be legally obligated to comply with various regulations, such as Bank Secrecy Act (BSA) or Know Your Customer (KYC).

Specialized outsourced accountants could help ensure that your taxes and reporting are in order. They may also provide regulatory compliance and industry standards support.

#6: Professional Insights 

Do you know the healthiest way to grow your VC firm?

Are your current financial numbers aligned with your long-term goals?

Outsourced financial and accounting service experts can do much more than maintain a general ledger and file taxes. By partnering with the right team of professionals, your firm could gain access to financial experts that provide professional insights and strategic advice about long-term strategies, financial opportunities, and professional networking.