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Handing Off Finance

Small and midsize companies finally benefit from finance process outsourcing.

One-Two Punch

One of the drivers of this growthsourcing trend is the combined BPO/ASP capability that companies such as LOR are offering. Some observers point to this one-two combination as particularly beneficial for companies that cringe at investing in large, powerful accounting programs as well as at the demands of staffing up and running a finance department. And nowhere is this paired offering more attractive than in the dot-com start-up world.

Randy Schwed, controller of Epoch Partners, a prerevenue dot-com financial-services start-up based in San Francisco, points to this as a key factor in his decision to outsource his financial processes. “We’re developing a lot of proprietary applications that are core to our business model,” Schwed says. “We’d rather have [IT personnel] doing that than working on financial systems, which are boring and don’t make the company any money.”

He feels the same way about creating a new finance staff. Epoch is an online investment bank created by Charles Schwab and financed by Schwab competitors Ameritrade Holding Corp., TD Waterhouse Group Inc., and venture capital firms Kleiner Perkins Caufield & Byers, Benchmark Capital, and Trident Capital. The company’s Web site will allow online access to initial public offerings for the brokerages’ combined client base of roughly 6 million.

Once launched (scheduled for June 9), Schwed expects a growth curve that looks like a hockey stick. Considering the tight job market in San Francisco, he believes he won’t be able to staff up fast enough to keep pace with the company’s growth. Then there is the issue of just where he would put the new finance staffers, given that it’s still easier to get venture capital than office space in the hot Bay Area realty market. “We wanted to get up and running quickly, we needed to be able to scale quickly, and we didn’t have the resources to build everything in house,” says Schwed.

Epoch now outsources the finance department to LeapSource, a Tempe, Arizona-based financial BP outsourcer that was founded by former Arthur Andersen partner Christine Kirk. Epoch signed on the firm in April to handle an assortment of functions, including A/P and A/R, T&E reimbursements, fixed assets, document imaging and record keeping, bank and balance sheet reconciliation, transactional accounting, and financial statements. Epoch’s financial applications are hosted through a separately negotiated deal with Corio Inc., an ASP based in San Carlos, California, which is a strategic partner of LeapSource. Both LeapSource and Epoch will have access to all financial data via a Web-enabled interface.

The contract will be billed on a fixed monthly cost (Epoch would not reveal the fee amount), a factor that was crucial to Schwed. “Because we’re a start-up, I wanted to keep our costs predictable for the next six months or so,” he adds. “At some point, we’ll renegotiate so we have a metric-based fee that’s appropriate for our business.”

Not surprisingly, even financial software firms are getting into the BPO/ASP game. Longtime financial software maker FlexiInternational Software Inc., based in Shelton, Connecticut, is now providing both ASP (using its financial software) and financial BPO services to small and midsize businesses through its Financial Management Services Inc. division, according to Stefan R. Bothe, chairman and CEO of FlexiInternational. “A company’s ability to turn on a dime and take advantage of opportunities can mean the difference between success and failure,” says Bothe. “To be competitive, businesses need instantaneous, reliable access to financial information. In accounting and financial documentation, forward-looking small and midsize companies now see that BPO is the wave of the future.”

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