When Should Business Owners Outsource CFO Services?

August is here and it is time for another blog. Many business owners are very good at what they do and are very busy doing it. Accounting and financial analysis is the last thing they have time to do. When is it time to bring in a CFO that can provide the expertise to give them that financial competitive advantage? I found this great article that answers that question. Give it  read.

When Should Entrepreneurs Outsource CFO Services? by Ravi Patel
 

   

Entrepreneurs start businesses with a new product or service idea and often have skills related to engineering, manufacturing/delivering, or marketing that product or service. Rarely do entrepreneurs commence businesses because of their financial expertise, unless they provide a financial service or product.

As the business idea is crystallized and the company starts growing, entrepreneurs definitely require financial and accounting services that are either developed in-house or outsourced. These functions in the young company are sometimes paid very little attention and are treated as a “bookkeeping” necessity. As the company grows, the operations portion (billing, collections, payables, payroll, etc.) of the accounting function becomes more defined and structured. A Controller is hired to supervise the accounting staff and prepare the monthly financial statements and handle compliance issues. The “CFO” functions are often performed by the CEO (used synonymously with entrepreneur in this article) as a full-time CFO is not deemed necessary or financially justified.      

In fact, CFO services are needed, though not necessarily full time, during the initial stages when a company is started. The need continues to increase with the growth of a company and ultimately a full time CFO is required. Outsourcing CFO Services until a full time CFO is hired is often the prudent course of action.     

As the entrepreneur explores the idea of starting a company, he/she has the product or service expertise but needs guidance on the financial strategy and modeling the business aspects of the potential opportunity. A CFO type advisor can guide the entrepreneur on setting up the proper business and financial structure initially so significant, expensive changes do not have to be made later on. The consultant can also assist the entrepreneur in formulating the appropriate financial organization and internal controls from the beginning. This should provide a template for building the finance function as the company grows.   

Once the entrepreneur starts generating revenues and decent cash flows, he/she starts thinking about raising funds to grow the business. A solid business plan is essential for such efforts, whether for equity or loan sourcing. Utilizing outsourced CFO services is ideal for assistance in preparing business plans and making professional presentations to funding sources. A CFO advisor can also provide useful funding contacts to the entrepreneur and help the CEO in building the finance and accounting organization, including hiring a Controller, to satisfy equity infusers or lenders.       With a stable company and years of acceptable growth, an outsourced CFO can supplement the Controller in an organization by providing the entrepreneur with independent reviews and assessments; special projects in areas of new product/service investments; business/financial analyses; or even help in troubleshooting areas of financial concern, such as business downturns. The entrepreneur benefits from the services of a CFO without having to invest in one and often expediting the performance of necessary tasks, without the need for the CEO or Controller detracting from their day to day responsibilities.     

Until such time that an entrepreneur hires a full-time CFO, an outsource CFO provides an independent, objective advisory relationship and sounding board to the CEO. Such a relationship is valuable to the entrepreneur as it allows him/her to utilize the experience and skills of the consultant for positive change and avoid making significant mistakes made by other growing companies. Even with a full-time CFO position in the organization, the outsourced CFO fulfills a need during transitions or vacancies. 

     The consultant who provides CFO outsource services becomes a useful ally and a stakeholder in improving the profitability, enhancing the value, and financial growth of the entrepreneur’s business■  

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