Newsflash: A UAE start-up’s need for CFO Support
UAE government measures which have removed much of the red tape that previously hampered start-ups and which now allow 100 percent foreign ownership of companies have created an ideal incubator environment for start-ups and have led to it becoming a leading global start-up hub. This, combined with the recovery in the economy and the business sector in general, have resulted in a boom in the sector.
Dubai mainland alone issued 72,152 new business licences in 2021, a growth of 69 % compared to 2020. Amongst these and the tens of thousands of new companies registered in Dubai free zones and other emirates, it is unclear as to how many would fit a standard start-up definition of an “entrepreneur developing and validating a scalable business model” but it is likely to be many thousands. Not all of these will become ‘unicorns’ and one day be worth more than $1 billion, but it is an indicator of the UAE’s ambition in this sector that in the next decade it aims to be the home to twenty ‘unicorn’ start-ups.
Whether one day they will be one of these unicorns or not, the owners and boards of many of these start-ups will be grappling with the perennial question of how to access the high-level financial advice and support they need in their quest for growth without breaking the bank. CFOs with the right level of experience and technical knowledge are expensive, and often this expense simply cannot be justified at the early stages of a start-up when such experience is only intermittently required.
Yet, intermittent or not, in an increasingly complex, pressurised operating environment where stakeholders place heavy demands on owners and regulatory, reporting & compliance legislation is increasingly stringent and technical, the need is very real. The recently announced introduction of Corporate Income Tax (CIT) in the UAE will add significantly to this need.
Start-ups are increasingly finding the answer to this conundrum in a part-time Virtual CFO – vCFO for short. In such an arrangement, the start-up specifies the vCFO’s remit as well as the objectives and deliverables and only pays for the hours spent in achieving these.
So, how can a start-up assess its needs in this regard? A good starting point is in examining the hierarchy of tasks of a finance and accounting function. The level of sophistication of the skillset requirement ranges from basic and generic at the bottom of the hierarchical pyramid to advanced and very specific at the top.
The most basic tasks are the Transactional Accounting and Bookkeeping of a business which is a pre-requisite from day 1. For a start-up this typically involves a small number of transactions and a relatively unsophisticated accounting system – it could even be as basic as just recording the inflows and outflows from the bank account for a micro start-up. A CFO would typically add little value at this stage other than perhaps to periodically assess the adequacy of what was being done and to point out any risks of not doing more. A potentially attractive option at this stage, which allows the owners to focus on the core competencies they are looking to develop within the business, would be to outsource the accounting and bookkeeping to a specialist provider.
As the business grows further and the number and magnitude of transactions increases, it will be important to implement more robust Systems and Controls for statutory reporting and to develop Management Reporting so that the owners understand the performance of the business and its constituent parts. The introduction Corporate Income Tax (CIT) will make this step even more critical as financial statements will have to be reliable, accurate and detailed enough to produce the CIT computations and these may be subject to audit by the tax authorities. A vCFO may, for example, advise at this stage as to what is appropriate for the business’s circumstances at the time and periodically oversee the implementation. The business may wish to explore the benefits of hiring a part-time Finance Manager who specialises in these areas and whose cost would be less than that of a vCFO.
As the start-up grows still further and the complexity increases, the finance function will need to develop its role in Business Support in such areas as KPIs, forecasting, business modelling, variance analysis, decision support, risk management and tax planning. If at this stage it is judged that the cost of a full-time CFO is still not justified then the role for a vCFO could be more extensive, for example, advisor to the owners, ‘hands-on’ in development of templates and models, coaching of finance personnel and maintaining an oversight of the finance function.
At the top of the hierarchical structure is what could be termed Strategic Advice and Support, encompassing such tasks as the raising of capital, support in acquisitions and strategic decision making. During such initiatives the vCFO is likely to be working a considerable proportion of their time for the start-up over a defined period, co-ordinating and preparing much of the business case and presentational material.
Who we are?
Re/think is a boutique outsource and advisory company providing client-focused services in tax advisory, accounting, human resources, and business advisory.
We specialize in assisting clients with cost-effective, high-quality services and solutions.We create value by investing in highly qualified and motivated people and working closely with leading industry partners to provide our clients with a one-stop-shop for all their business support needs which is tailored to suit your individual requirements.
Neil Guthrie Director of CFO and Advisory Services