fbpx
August 16 - Interview

3 Reasons You Should Hire A Virtual CFO

A Virtual Chief Financial Officer… sounds fancy. Essentially, a VCFO does the role of your usual CFO, but as a contractor or third party outside of the business, performing the role when you need it throughout the month rather than on a full time basis. 

Just because you own a business, doesn’t necessarily make you a) a good business person (we often see this with clients who are very skilled at their profession, take healthcare for example) or b) suddenly great at finances. Very few small businesses have the need, or budget to hire a VCFO. A good accountant can plug many of these holes, however once you start growing and you need more support, a VCFO can be a smart and cost effective way to make sure you’re getting bigger sustainably, and making business decisions based on more than your gut (although don’t discount your gut… it knows things).  

What does a Virtual CFO do?

Lots of things! Mostly things that you probably want taken off your plate – added bonus. Here’s a few of the key areas that Virtual CFOs can offer support in:

Advice on all things finance, tax and accounting

As we mentioned above, being a business owner doesn’t mean you’re a numbers person. VCFOs can educate you on the important bits and make sure you’re across the areas you need to be in order to run a successful business. They’re there to answer questions and ensure that your finances are in order in both broad and detailed strokes. 

Strategy

Business strategy can be fun, creative and is always an important piece of the business success puzzle. Many business owners will find strategy to be a strength of theirs, however unless it’s a particular area of expertise, you’ll find that when you get to a certain size, overarching strategy decisions may feel overwhelming. Ensuring business and financial goals are aligned is an important role that a VCFO plays. They are a sounding board, an objective person to make sure your strategy makes sense and someone that will help direct the business well into the future.

Accountability

Having a strategy and goals in place is great, but we all know that sticking to those milestones and implementing change is a completely different story. A VCFO keeps you accountable – they check in to make sure you’re on track, meeting deadlines and putting the strategy into action. It can be motivation enough knowing that you’ve got a Virtual CFO who will check in regularly.

Financial reporting

This is where those numbers really get taken to the next level. A CFO is fluent in finance; they will often do dashboard reporting which involves looking at your actual performance versus your budget and goals, your balance sheet, cash flow and trends. You should be getting the numbers, and the explanation too – what do the figures actually tell you and what decisions should you now make as a result? Key metrics and KPIs can be focussed on, often according to strategy or the area the CFO deems to be a priority at that particular time.

Risk Management

With business comes risk. With debt, comes risk. With employing a team, comes risk. There’s risk everywhere and you can’t escape it in business, but you can certainly manage it and make sure you aren’t biting off more than you can chew. The numbers are really important here. What can you afford, compared to what you wish you can afford? Before any big decision like hiring or making a large equipment purchase, your VCFO will be able to guide you through the process, assess the risk involved and be a key decision maker. THere job is to protect your business and help it prosper. Being able to take the emotion out of it as an objective party is particularly beneficial here.

Increase profitability 

If a Virtual CFO isn’t helping the business make money, are they really a VCFO? Of course this comes with plenty of disclaimers such as – what state is the business in when are they engaged? However a key goal for any VCFO is to increase the profitability of your business. More often than not, this will come down to cash flow management, internal processes and of course, your strategy and business plan. If these factors are humming along nicely (your Virtual CFO will get you there), then the money should start flowing in as a result.

Reduce costs

Where are you spending where you don’t need to be? Are you being taken for a ride by either a client or a supplier? These questions can be really hard to answer, particularly when a relationship is involved. After becoming fluent in your businesses finances, a VCFO can ascertain where money can be saved to make you more efficient and less wasteful in both the day-to-day operations and over the financial year as a whole.

What are the benefits of a Virtual CFO?

Depending on your industry, financial situation, existing knowledge and business structure, you’ll get different benefits out of engaging a VCFO. It’s safe to say that no matter where you sit on the diverse business spectrum, everyone will enjoy the cost efficiency, the shoulder to lean on and the advice on-tap that a VCFO offers.

Virtual CFO’s are cost efficient

You’re looking at about $250k to employ a CFO in house on a full time contract… and that’s before benefits. Unless you’re a big business (and sometimes even then), a full time CFO is just not necessary. VCFOs fill that gap for businesses who need the capability but lack the resources to hire someone in-house. Their knowledge is just as strong, and their cost is significantly lower.

Virtual CFO’s offer the expertise of a business person

One of the reasons that a CFO warrants such a high salary is that they’re often business unicorns: numbers are their strong suit, yes, but comprehending, analysing, and then relaying that into strategy is a rare skill. VCFO’s are business people, not just numbers people. That combination is killer and it’s easy to see how recruiting someone with this skillset is invaluable to your business growth and success (and your sanity). 

Virtual CFOs offer objective advice on tap

Pulling yourself out of the business and being able to make decisions with your head rather than your heart is next to impossible as a business owner. Or, maybe you do have that ability but your natural bias still clouds judgement (it happens to the best of it and admitting that is a strength). A VCFO is someone to rely on for business advice, a shoulder to lean on through particularly stressful periods, and a voice of reason when decision making is tough, or when stakeholders can’t agree on something. 

You get a team for the price of one Virtual CFO

Virtual CFO’s are good… but even they don’t know it all. A VCFO often comes with a team behind them (like us). It means that advice is backed by people who are experts in their particular lane – just like it works in our accounting services. We have a crypto specialist, we have people who love strategy and planning, and those that get their kicks out of immersing themselves in the data. A VCFO and their team is one of the reasons that going down this path makes so much more sense than spending more money, on one CFO. 

Cloud technology and WFH means that the need for in-house CFO is… gone

Obviously this is a sweeping statement and not true for *everyone*. But, for small to medium businesses, it certainly rings true for nearly all of you. It’s pretty hard to argue that the need to work at desks, in an office 5 days a week holds any clout now. So again we ask… why hire a CFO when you can hire a VCFO? You and your team will barely notice the difference in today’s working world. We’re all zooming/slacking/teams-ing/trello-ing anyway.

How do you know when you’re ready to hire a Virtual CFO?

In theory, every business can hire and benefit from a VCFO. But as any good accountant will tell you… don’t spend the money until it makes financial sense to do so. Here are some key tells that should alert you to the fact that engaging a VCFO ASAP would be a smart business move.

You’re experiencing exponential growth

Growing too fast is a classic reason for businesses to fail. It’s often a chicken before the egg scenario: do we hire now, to keep up with demand we *think* is coming (and risk having wages we can’t afford to pay), or do we wait to hire so that risk is minimised, and then pull the trigger too late, losing clients along the way because work standards slip. A VCFO helps you navigate the big decisions such as these ones, but will also be well versed in business growth; how to manage growth and how to put strategies and processes into place to ensure it’s sustainable.

The numbers are getting away from you due to lack of time and/or know-how

Not everyone likes numbers, and that’s absolutely fine! Ask us to come up with an epic marketing campaign and we’d fail miserably. We all have our strengths – let’s stick to them. Finances are often something managed in house in the start up phase of a business, simply because every coin has to be counted carefully. When you reach a certain size, or your business becomes established and your balance sheet is looking healthier, outsourcing the finances to someone who lives and breathes numbers can often save you more money than what it costs to engage that person. As most business owners will have experienced, letting the numbers get away from you can mean a spiral that you really want to avoid going down.

You plan on selling your business in the next couple of years

Planning to grow and planning to sell are two *very* different things. If your business is a means to an end (making money) or if you can feel yourself losing the passion, or perhaps experiencing a priority shift, then selling your business may be on your horizon. Preparing a business for sale means a strategic shift. For example, if you’re a professional service business that offers both once-off and ongoing monthly services, then the money is in those ongoing contracts that have already been signed for the next ‘x’ amount of months. The focus pre-sell would then be to get as many of those packages signed as possible. You also want to show efficiency in processes, have everything documented and get your profit looking really healthy. Essentially, you want the business to look as attractive to a potential buyer as possible, and doing that by yourself is hard!

The Future Advisory Virtual CFO Service

Offering a Virtual CFO service has us even more excited than usual. This stuff is what gets us going, what makes us excited for a meeting and raring to get stuck into your Xero files. The first port of call when a client is interested in engaging us as their Virtual CFO is a planning workshop, so that we can better understand the business. It allows us to identify what needs to happen and why, as well as a glorified ‘to-do’ list that covers actions and who is accountable for making them happen. Here’s what we cover:

  • Understand the core purpose and aspirations of your business
  • Setting both long and short term business goals
  • A SWOT analysis, including a review of your SWOT conducted by each participant prior to the session
  • Strategies identification to achieve those goals
  • Design an action and management plan
  • Preparation of an annual budget and forecast for the current and next financial year
  • Analysis of your profit margins
  • Budget and cashflow forecasting discussions

After the workshop, you will receive…

  • A report summarising your vision, purpose, goals and key strategies as identified during the workshop
  • Budget and forecast for the financial year
  • A post-workshop follow up meeting to confirm actions
  • An action plan for implementation of strategies including due dates and responsible persons

Whew, it’s a lot! Once the workshop is complete and you have the above deliverables in your hands, it’s time to look at the month-to-month inclusions of what it means to have a Future Advisory VCFO. Here’s a taste of what your package could look like:

  • Monthly Spotlight reporting (dashboards reporting) which includes a management report with written analysis of performance, key metrics / KPI’s to focus on each month
  • Monthly management of accounts including profit and loss, cash, accounts payable and receivable
  • Industry benchmarking (If applicable)
  • Monthly 1-2 hour face-to-face or video meeting and review of forward cashflows, actual results vs budgets results
  • The meeting agenda includes:
    • Review Prior Period Results
    • Compare results to budget
    • Review KPI’s
    • What went well – List 3 things in the business working well that is helping to achieve desired results
    • What could have been better – List 3 things that made it difficult to achieve KPI’s/goals and results
    • Review next month targets – are they still realistic
  • Additional 2 hours of ad hoc queries and work during the month, on top of report preparation and above items
  • Your VCFO is also responsible for reviewing the work of the accounting firm you engage (it doesn’t have to be us) and ensuring you have another set of eyes on it

If you stuck with us this far… we reckon you might be interested in a Virtual CFO 😉 Get in touch to chat through what it could mean for your business.