How do I affordably hire a Virtual CFO?

A Virtual CFO can help your business in so many ways. With more financial understanding than a business advisor, and more business knowledge than an accountant, an outsourced CFO gives a small business access to expertise usually only available to large corporations. Even if you are sold on the potential value of outsourcing a CFO, you may baulk at the cost. This guide will help you navigate the hiring of a Virtual CFO in order to ensure you pay only for what you need.

The key is keeping the scope of your outsourced CFO’s activities efficient in order to ensure that it is affordable. The first step is measuring your current financial need and gaps in your business expertise. Who do you already engage to do your financial work? Most small businesses have an accountant or bookkeeper they turn to once or twice a year to manage their taxes. Others have an in-house number cruncher. Have you closely examined the gaps in their capabilities? For example, they might be experts at managing your books but are unable to prepare regular P&L statements and then interpret them in line with forecasting and budgeting plans. These gaps are often highly specific, and thus are likely to be missed because small businesses compensate for them by vague glossing. You may have people trying to interpret tax statements and P&L figures who have no real training or extensive experience in doing so – hence, you are relying only on educated guesswork, rather than accurate financial assumptions. This is particularly the case since many accountants are not business managers; they have a highly specific skill-set usually focused on tax compliance, which does not prepare them for business or financial strategizing.

Once you have determined the specific areas where you need to sharpen your business and financial advice, you can then outline specific goals for your CFO outsourcing. These goals should be measurable rather than general in order to make sure you keep the costs down when the CFO charges you. Do you need a monthly P&L or a weekly financial report? For any given goal, at what point will you and your current financial team hand over the task to the outsourced CFO? In some cases, your accountant can partner with the Virtual CFO while in others you may see the benefit in not adding to your accountant’s workload. The Virtual CFO has the ability to hire their own accounting and bookkeeping staff and access numerous resources, so it is important that you set goals where you provide the CFO with the resources you already have.

Your goal setting also touches on your ambition. The value of CFO outsourcing is that you can limit the scope and this in turn limits the costs, but limits may tarnish the depth and breadth of your business vision. The greater your vision, the greater the need. Understanding this will help you have the right expectations of CFO outsourcing. Perhaps you only need to determine if you have a realistic financial understanding of your business after years of less-than-precise budgeting and forecasting. You want to know if you will run out of money, but do not have any specific plans to grow. Or perhaps you have benchmarks to grow year by year, in which case you may need a Virtual CFO to help you draw up your vision from the start, measure the accuracy of your benchmarks for growth, and then regularly monitor your plans and deliver accurate financials.

Whether your scope is large or small, there is the bottom line to consider. How much do you actually have to spend on a Virtual CFO? Once you see how great an impact a CFO-level financial advisor can have on your business, you will want to free up as much funds as are feasibly possible – as long as you now have a specific scope and set of goals so these costs don’t blow out. How does this balance with the benefits of gaining an advisor to help in gaining more funds, such as through grants like the EMDG? In line with this way of thinking is the consideration of your current advisor costs. How much are you paying to your finance people right now? Maybe the first task of your Virtual CFO is determining if you can find more money to pay him or her.

Many outsourced CFOs offer services in packages. The commodified service model allows you to get a sense of how much you will be spending month-by-month, but business advice and financial analysis is not like mobile data on your phone. You are asking for expert advice that will teach you things about your business that you do not already know. This means there is a good chance that even when you set the outsourced CFO specific tasks and arrange for regular monthly meetings, unexpected issues will come up and some tasks will take longer than planned. Hence costs will blow out with time. How do you avoid this? The best approach is to invest more time in initial meetings with your Virtual CFO to accurately lay out and define his or her scope and your business needs and limits. This is especially the case when you hire a CFO package as a commodified service. This initial investment can save you on costs blowing out, but in the end you always need to measure the costs of CFO outsourcing with the ROI of having a CFO-level expert guide and measure your business and its future.

Calibre Business Advisory invests more time than most firms into finding solutions for our clients. Contact our business advisors and tax accountants to discover new options for your business in Australia and beyond.

Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.