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While doing their articles at Baker Tilly Greenwoods, Louw Barnardt and Dana Pretorius became aware of the huge demand for high-level bookkeeping and financial advice for small and medium-sized enterprises (SMEs).
Towards the end of 2013, instead of settling for cosy chartered accounting jobs, the two, later joined by Jacques le Grange, started their own financial services business, Outsourced CFO.
“We identified poor financial planning and management as the biggest reasons why the majority of start-ups did not survive past their first few years of operation,” says Barnardt.
Outsourced CFO was started with a small loan borrowed against a flat Barnardt owned in Bellville.
Overheads were kept low, with the founders drawing below market-related salaries for years.
They also made use of a shared office space.
After 18 months, they had almost run out of money, and agreed to “strongly consider doing something else if things did not improve within the next month”.
And then, they had their first lucky break – a contract with Microsoft to offer mentoring services to 80 start-ups on its BizSpark programme.
The contract was extended for a second round and paved the way for Outsourced CFO to also help companies in one of Investec’s business incubator programmes focused on fundraising.
“Our biggest initial challenge was to convince entrepreneurs that we as newly qualified twenty-somethings could add value to their businesses.”
The BizSpark programme gave them an opportunity to prove themselves. But they also gained valuable experience and created a niche in the technology and innovations start-up and scale-up space.
“About 80% of our clients today operate in this field,” Barnardt says.
Outsourced CFO has since won various awards and has been listed as one of Fast Company’s Most Innovative Companies in SA in 2017.
Barnardt also won Emerging Entrepreneur of the Year in the Sanlam/Business Partners Entrepreneur of the Year Awards in 2018.
The company provides full-time financial services to about 80 local and international companies, and another 200 companies on a more casual basis.
They’ve helped clients tap into about R500m in seed and growth funding.
The product
Outsourced CFO wanted to offer SMEs the type of service that large corporates with full-time financial officers have access to.
After two years, these services were refined and structured into three packages based on the time spent on a job in combination with the depth of feedback.
The Performance package is the most basic with time spent on the job capped at eight hours per month.
Outsourced CFO helps these clients build strong internal financial structures, including payroll services, accounting and management reporting and company tax services.
On the Growth package, time is capped at 16 hours per month, and includes financial advice to improve cash flow and margins.
Companies on the Eminence package have access to 32 hours worth of financial services per month, along with increased guidance to improve and build their businesses, based on business analysis and profit engineering, financial modelling and forecasting and venture fundraising services.
Technology is one of Outsourced CFO’s greatest enablers, as it allows the company to remotely link with the financial records of client companies.
It also accelerates processes, by, for example, automatically linking bank transactions to books.
Sustainable growth
Barnardt identifies the juggling of growth with cash flow as one of their biggest challenges over the past few years, since Outsourced CFO has been growing by over 87% each year for the past four years.
“You need to employ people to accommodate growth… without this having a negative impact on your cash flow.
We went from 13 to 27 employees over the past year, so there was a time when we had a new recruit every three weeks.
It took a lot of time and effort to ensure these new recruits were up for the job and shared our work ethic,” he says.
They don’t use freelancers since employees specialise in specific fields with specific clients.
Brand awareness is built through business articles published online or in print and videos presented by either Le Grange, Barnardt or Pretorius.
“We generate our own content with the primary focus on business tips for emerging companies and scale-up businesses.
We have employed PR companies and Google Analytics to help us get going, but have followed up the leads generated through this engagement ourselves,” Barnardt says.
Start-up struggles
Barnardt identifies cash flow management as one of the biggest obstacles to the success of new start-ups: “New start-ups often neglect the admin and finance side of the business, focusing all their efforts on making sales and growing the company.
As the business gets bigger and more complex, keeping an eye on cash flow becomes harder.
“It is, however, much easier to make a plan if you see you are going to run out of money in six months’ time than when you see you only have money left for another week’s wages.”
Selling shares too early, in an attempt to generate start-up capital, is another mistake. Future investors get scared when the shares of the founders become so small that they no longer have a vested interest in the success of the company, he explains.
Getting the right partners is another challenge. Barnardt advises aspiring entrepreneurs to get a mentor and read as much as they can about starting your own business.
“People obviously make mistakes and you learn from these, but it is cheaper to learn from others’ mistakes.”
This article originally appeared in the 7 February edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
