Is a Virtual CFO your Company’s Solution?

The term “Virtual CFO” is becoming more and more something we hear on a regular basis. Since COVID-19 hit the world, startups and corporates were forced to find solutions to run leaner than ever before. Most companies were under pressure that forced management’s hand to make cuts to staff and outsource where possible, and this has led to a trend of hiring virtual CFO services over the more traditional in-house full-time CFO.

You, your board and investors are probably asking some questions like:

  • How do we run on as little executive overhead as possible without missing out on making the right decisions?
  • What services do virtual CFOs offer and what will we need to find elsewhere?
  • How does working with a virtual CFO actually happen? 
  • How often will they be available? 
  • How will they deliver reports?
  • How much do part-time CFOs cost in 2021?

What to expect from a CFO always?

  • To identify and manage the accounting team to produce reliable data and interpret the results, providing insight to help steer the ship toward your stated goals. The result is that you know exactly where, when, and how to focus your team and inform your stakeholders.
  • Providing a much-needed sounding board, coach, or guide. Look for a seasoned veteran who you can trust, not merely someone to fill a role. In the end, you’ll have a team member who knows your business and can help hold you accountable as you work to reach clearly-defined goals.
  • Positioning the finance function as a competitive advantage. An experienced CFO can help you cut waste, deploy cash efficiently, and find opportunities for greater production or expansion. With their help, you can be in a position to step ahead of the other organizations in your niche.

What is a virtual CFO?

  • It’s a way for small businesses to get CFO support that they wouldn’t have been able to afford previously.
  • Small businesses that hire a Virtual CFO get access to an experienced financial professional at a fraction of the cost of a full-time CFO. The services will differ from firm to firm, but usually a Virtual CFO will:
  • Handle all the duties of a traditional CFO, but work remotely and on a part-time basis.
  • Monitor the financial health and well-being of the business, usually with cloud technology.
  • Offer financial insight and guidance on all company decisions and issues.
  • Provide back-office functions such as managing accounts ledgers, depending on the client and their needs.
  • Identify key metrics and map out reporting to monitor
  • Interpret financial results on a regular basis
  • Manage annual budgeting process, development of annual strategy
  • Cash management & planning
  • Strategic planning

Virtual CFO services usually include:

  • Fundraising
    • Virtual CFOs may create the financial story and can do some light pitching, but don’t expect them to spend six months on planes pitching VCs or banks all over the country.
  • Manage finance-related IT systems –
    • Don’t expect the virtual CFO to manage IT staff, company network, internet access, security, or CRM/ERP systems.
  • Participate in board meetings –
    • Virtual CFOs may prep and coach the CEO and can be requested for a presence in meetings.
  • Assistance with vision casting and strategic goal creation
  • Financial planning, which could include:
    • Cash flow management and forecasting
    • Scenario modeling
    • Opportunity analysis and budgeting
  • Financial statement preparation, reporting, and evaluation
  • Financial risk management, which might involve:
    • Cost-benefit mapping
    • Contingency planning
  • Cost management, including:
    • Productivity and talent assessments and recommendations
    • Supply chain reviews and insights
    • Capital-investment analysis and due diligence
  • Opportunity identification
  • Funding evaluation and administration
  • Debt reduction or management
  • Organizational transformation

Virtual CFO services usually don’t include:

Keep in mind that some virtual CFO services group CFO-level insights with bookkeeping and controller services, essentially delivering an outsourced finance department. If your provider offers CFO services as a stand-alone option, remember that you will not be receiving:

  • Shouldering burden of all things legal
  • Managing HR/Admin (benefits, insurance, hiring/firing of non-finance staff)
  • Daily, in-person participation with executive management team
  • One-stop for all investor relations
  • Optimized workflow 
  • Transaction entry & classification (recall the adage: garbage-in, garbage-out)
  • Accounts receivable
  • Accounts payable
  • Payroll
  • Bank account reconciliation
  • CPA support for year-end tax and audit
  • Financial control implementation and oversight

Advantages for small businesses

Having access to a Virtual CFO can be a big benefit for a small business. Most of them can’t afford an experienced, knowledgeable CFO on a full-time basis and may never consider hiring one.

That’s a problem, because many small businesses fail within the first three years. Reasons include failure to set themselves apart from the competition, and an inability to find a profitable business model. With an accounting professional acting as their Virtual CFO, they could keep their financial goals and realities clearly in sight.

A Virtual CFO is an affordable alternative to hiring a full-time CFO and can make a big difference to a small business, by:

  • Creating budgets and forecasts.
  • Pinpointing problem spending by highlighting trends in the market.
  • Validating or discouraging business decisions with financial well-being in mind.
  • These are abilities that the vast majority of business owners don’t possess – but they often need them in order to succeed.

Does My Business Need a Virtual CFO?

Now that you understand what a virtual CFO is and what some of the benefits of hiring one are, the next question you’re naturally asking yourself is, is it the right solution for me? Well, the first thing to know is that a virtual CFO is not a good solution for all businesses. Some businesses simply don’t yet need high-level strategic advice. Another scenario where a virtual CFO may not offer value is when a company’s finances are not yet in order. If that’s your situation, take care of that first by engaging an outsourced accountant to organize your accounts and give you a clear and stable understanding of your financials.

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