Should you outsource your financial operations?

This week everyone has been talking about Zirtual – the on-demand virtual assistant company that collapsed on Sunday night, suddenly laying off more than 400 employees (the company now is going to be acquired by Startups.co).

Zirtual CEO Maren Kate Donovan blamed the collapse partly on an outsourced CFO firm and numbers that failed to account for two additional pay periods. You can read Donovan’s story, as well as Ryan Keating’s account (the outsourced CFO) in Fortune.

In the wake of Zirtual’s story, many are now saying that a startup should never outsource its financials. But I don’t necessarily agree.

I don’t know the specifics of this story beyond what’s in the media, so I can’t comment on Zirtual’s experience. But generally speaking, my advice to startups is that you should never outsource activities that are core to your business.

For most startups, core functions are product design, product development, marketing, sales, PR, and customer service. But it can be okay to outsource the things that don’t create a competitive advantage, such as: legal, accounting, hosting, and analytics.

However, whenever you do outsource a function, you need to be on top of your service provider. For finance, your CFO firm should deliver monthly numbers within 2-3 weeks of month’s end…and you need to go through these numbers and understand them. For legal, you need to read and understand any and all documents that your lawyer creates.

It’s the same as with any service provider or vendor. If you don’t stay on top of the service they’re delivering, you can end up either getting poor quality results or paying a lot of money for the level of work you’re getting.

Of course, as you scale, you will start to take your outsourced functions in-house. For example, you’ll probably need a controller once you reach 30-40 people and really large companies have their own corporate counsel.

But the bottom line is if you have been outsourcing your financials – and have been happy with the results thus far – you don’t need to suddenly change your strategy just because of this high profile example.

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