In 2020, around over 99% of all businesses in the UK are classed as a Micro or Small business. Therefore being efficient and well structured has never been more important. Gone are the days of lots of large national and multi national businesses. Gone are the forever expanding teams (including the finance team). Most small businesses (of which a lot have under 50 employees) have a few different part time people finance staff. Or otherwise they employ one full time finance staff who does everything in the accounting function. However in recent years, a new trend has started emerging; the Virtual Finance Department (or VFD for short).
A virtual finance department is just that. They don’t sit in the clients office for set hours each day/week. They are often accountancy firms who have staff who specialise in different parts of the accounting function.
How it works
- A Bookkeeper who will make sure all bills are logged and coded correctly. Usually via an AI service that extracts all the important data. Who checks the automated bank feed for transactions coming in and out. They mark off payments received and paid and reconcile against the statement. They can assist in preparing a list of bills due to be paid and send remittance advices.
- A client manager who checks the work of the Bookkeeper. They liaise with the client for outstanding paperwork and on any queries. Often they make the payments to the suppliers after the client has authorised it. They may or may not also do the payroll.
- A senior who who prepares and checks the VAT along with the company accounts, and company tax returns.
Depending on the company, one of the above or similar will also do the credit control. Someone will be liaising with HMRC where appropriate and someone will be giving the client management information from reports. They can include profit and loss, balance sheet and cashflows. They may or may not do forecasting and budgeting, dependant on the client needs.
So why would a business choose a virtual finance department? Over having a finance offer in house to do everything, or a few part time staff?
- It’s more efficient-If you have one person doing everything you can be open to absence issues. If they are off ill or on holiday, the finance function will ground to a halt, or be left to staff who don’t know anything about it. This may end up making the finance staff members job a lot harder when they return! If there are a few part time people this is avoided in some ways. However staff absence, especially long term, can cause a massive impact. With a virtual finance department, the firm you are dealing with is responsible for managing the staff that are working with you. They will make sure there is relevant cross training in cased of absence. They will also be about more often during the range of normal working hours, and able to come back to the client within a good time frame. As opposed to Jane Smith who works Mondays and Tuesdays only so if there is a query on a Wednesday, there are 5 days before someone can answer it.
- It (can be) more intuitive. I have put “can be” for this, because I am sure there are some staff out there who are genuinely trying their best to automate things. Go digital with everything and get insights for their boss at the touch of a button. However, I am willing to bet they are the exception rather than the rule. A lot of staff will be too afraid of new systems and processes; they fear their role being made redundant if they improve automation and digitalisation of the company finances too much. In contrast an accountancy firm will agree a set fee with the client based on the complexity of the business. On the size, how many transactions and employees they have and so forth. Their fee isn’t (or shouldn’t be) based on how long it takes them to do the job. So they have no need to keep their client in the digital dark age for their finances. This brings about innovation and change for the better, for the finance function and therefore the business as a whole.
- It’s (usually) cheaper. Again this one comes with a caveat. It will depend on how ethically the business is paying it’s existing staff. As well as the size and complexities of the business. We aren’t cheap by any means, and I won’t work with clients who are just trying to find the cheapest accountancy firm out there. For good reason, they often cause the most problems. However if a company is paying for a few different staff for different parts of the finance function and is paying them the going rate for those roles. When you add holiday and sick pay into the mix, and the prospect of having to recruit a temp to do the work, having a set fixed fee can often come out cheaper.
So if you are a forward thinking business owner with a growing business and are wondering how to structure your finance function. Give the idea of a virtual finance department a think over and how it might work for your business. To learn more contact us today.