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■  

New Blog – Outsourced CFO’s are Smart for Business

Happy 4th of July!

I was looking for some ideas to post on my blog and came across this great article

from Mark Ferguson on Ezinearticles.com. It is a great article about why outsourcing

is good for business and the benefit of Outsourcing a Chief Financial Officer.

Give it a read.

Running a business takes many skills sets, and business owners, eager to keep costs in check, try to do it all. From hiring decisions to compiling financial statements, owners spread themselves thin running from task to task. The upside? There’s no large salary tied to people holding specialized positions. The downside? Each task gets but a fraction of the time it deserves – and requires.

According to the Harvard Business Review, outsourcing is one of the most important management ideas and practices of the last 75 years. Companies using outsourcing cite innovation as their number one reason for bringing in a fresh perspective to key company functions. Business owners and executives say they derive these four benefits from outsourcing:

1. Outsourcing allows companies to focus on what they do best – their own core competencies.

2. Companies achieve greater efficiencies without adding people or technological resources.

3. Outside expertise helps companies become more profitable, thereby increasing company or shareholder value.

4. Outsourcing offers increased service levels within company functions.

One of the most critical functions in a company – especially one transitioning through one of the growth phases – is that of the financial officer. A Chief Financial Officer (CFO) typically focuses on how efficiently a business is operating. While some business owners view this function as a reporting function – one where the CFO merely is a score keeper of how well the business already has performed, that’s just where CFO duties begin.

A CFO takes the historical financial data (also known as financial statements and other typical recording reports), combines that information with operating practices, and analyzes areas where the company could – and should – make changes that affect profitability, productivity and efficiency. The CFO with top-notch business sense can dramatically impact a company’s bottom line.

Companies nearing the half million up to the $5 million revenue mark often find they can benefit from the services of a seasoned CFO, but can’t – or don’t want to – afford the $125,000+ these professionals typically demand for a salary. Some business owners, realizing that they do not have the resources to hire a full-time CFO, simply accept this and vow to grow their businesses so they can hire a CFO in the future. Smart business owners recognize that if they want to reap the benefits of an experienced, results-producing CFO, they must look for a more creative way to do it.

These smart entrepreneurs regularly make outsourcing work for them. They understand the importance of leveraging their money while obtaining critical tools for success. Many times, the cost savings accompanying qualified CFOs makes the decision that much easier.

Outsourced CFOs sell their time by the hour or on a monthly basis -four to eight hours a month, for example, at an agreed-upon fee. CFOs can isolate areas of concern that the business’s accountant wouldn’t (and possibly couldn’t) detect until tax time. Even the closest accounting advisor isn’t privy to day-to-day business practices.

CFOs can have a positive affect on the outcome of major business decisions. For instance, companies facing reorganizations or mergers need to have access to real numbers associated with these events. They also need to know how to leverage available resources with company debt. Skilled CFOs handle these issues regularly and can bring much-needed expertise to company owners and executives as they make short- and long-term decisions.

Other areas offer opportunities as well. Purchasing agreements sometimes can hurt the well-intentioned company manager. If a company makes larger purchases because of negotiated lower prices on products and the trade off is a shorter pay schedule, CFOs can isolate this scenario as the key reason why a company could constantly be in a cash crunch.

Finding a qualified CFO may be as far away as a phone call to your CPA or accountant who offers outsourcing as a credible service component for companies like yours. Today, some firms offer the services of experienced CFOs who have retired and now work as temporary workers – much like you would hire a secretary on an as needed basis. Whichever route you take, financial matters aren’t the only areas where an outsourced CFO can lend advice. CFOs can help your business in several critical areas including:

· choosing appropriate accounting software,

· deciding whether leasing or buying equipment is best,

· how to compensate company officers,

· how to handle company collections,

· how to handle cash flow and how to balance company debt with receivables, and

· how systems can be improved to improve productivity.

While hiring a CFO for a short amount of time may get you past a cash flow crunch, help secure a much-needed loan or initiate systems that increase productivity, experts agree that to get the most out of your investment, you should commit to your outsourced CFO arrangement for at least a year. An experienced CFO often can impact your business in less time than an average work day or approximately eight hours.

If you are a business owner currently functioning as CFO, think of all the things you can do with your leveraged time.

· Spend time with valued customers to ensure their continued business.

· Attract and win new business.

· Develop new products or services.

· Work on operational or financial projects to make your business more profitable or accelerate its progress toward your growth goals

Bottom line: the choice to outsource comes down to dollars and sense. When companies add a CFO’s salary to a benefits package complete with annual bonuses, the price tag is high. And, not all CFOs are equal- navigating the maze of available CFOs can leave you dazed and confused. Keep in mind that CFOs possessing business performance management knowledge add an extra dimension that positively affects other areas of your company, including productivity, operating efficiencies and internal systems.

It takes time to make the decision to outsource a critical management position. Aligning company growth goals with the operating budget, and comparing that to the benefits an outsourced CFO can bring to the picture, enables you to determine if outsourcing is right for your company. If you still aren’t sure, call your accounting business advisor to discuss the pros and cons of this type of arrangement.

(CFO On Call UA-38359200-1)