Why Your Business Needs CFO Services?
Entrepreneurs naturally wear many different hats in their business. However, it is impossible to be an expert at everything, which is why many of them hire or outsource accounting services like CFO services.
Bookkeeping and tax services offer a wide array of value to a business owner. Not only do outsourcing these tasks save you time and the headache but have the potential to save you thousands of dollars.
But who do you seek when you want to develop a strategy to grow your business? Or want to project earnings for the upcoming period? The answer is a virtual CFO or outsourced CFO services.
An average bookkeeper or tax preparer are not equipped with the knowledge to provide you with the advice you need to grow your business. This is where a Chief Financial Officer or CFO comes into play.
Though most small businesses would love to have a CFO on their team, not all businesses can afford to hire one. The average salary of a CFO is over $300,000. However, there is a way of gaining access to CFO knowledge without paying the large price tag: outsourced CFO services.
But who exactly needs a virtual CFO or CFO services? Why does your business need CFO services? Keep reading to find out.
Business Growth
In today’s highly competitive market, it is critical to stay in front of your competitors by operating with growth in mind. This means keeping up with your customer wants and preferences and delivering products and/or services that meet those needs.
One of the roles of a CFO is to provide financial data regarding competition. This can be in the form of industry comparisons or reports outlining your company’s results with that of your industry. This gives you intelligent information on what you’re competitors are doing. Thus, allowing you to make strategic decisions to grow your company.
CFOs not only help with gathering competitor data, they develop strategies to reach your company’s objective. Whether you want to increase profits by 3% or decrease spending, you can rest easy knowing your CFO will develop a roadmap to get you there.
A CFO is also there to manage your expectations and advise you if a certain objective is realistic or not. Mind you, a CFO is not there to discourage you but instead act as your trusted advisor and reveal information to you that you wouldn’t otherwise see.
Forecasting and Budgeting
Forecasting and budgeting are extremely important for business success. Your CFO will work with you to build a financial forecast and budget. You might be thinking, “What is the difference between forecasting and budgeting?” This is a legitimate question because they are often times confused. Read our blog on Year-End Activities That Every Small Business Owner Should Know to learn more in-depth about the difference.
On a high level, budgeting is a financial planning tool used to set goals for revenues and expenses for a certain period. You set budgets with the expectation of adhering to them.
Forecasting is a financial planning tool that predicts the amount of revenue and expenses you will actually achieve. Budgeting is a plan of what you want to achieve, while forecasting lays out a plan of where you’ll actually end up. Both a budget and forecast should be reviewed, monitored, and adjusted periodically.
Strength, Weakness, Opportunity & Threat (SWOT) Analysis
CFOs not only assess the revenues, expenses and other financial measures of your company, they provide non-financial value as well.
They analyze your company’s internal and external factors that are its strengths, weaknesses, opportunities, and threats, together known as SWOT analysis.
SWOT analysis provides you with insight from all views into your business. Strengths and weaknesses are the internal factors and opportunities and threats are the external factors.
The strengths of your company are not always readily apparent. What resources do you have that your competitors don’t? What do you do better than everyone else? These are some commonly answered questions that help identify your strengths.
Weakness is the second internal factor that makes up SWOT analysis. Weaknesses represent your competitive disadvantages. These are the elements of your company that needs improvement. Does your business have limited resources? What do your competitors see as a weakness? You need to strengthen these areas to remain competitive with your best competitor.
Opportunities are apart of your business’ external environment that represents attractive factors it can thrive in. Is there market growth in your industry? Are there few competitors? Opportunities are an open door your business can walk through to grow even more.
Lastly, threats are external factors that put your business at risk for decline or failure. Examples are changes in the law, emerging technology or competitors. Who are your competitors? What changes in the market could place your business at risk? Although there is no way to control threats, it is important to develop a strategy to protect against them.
SWOT analysis is important because it helps with developing strategy and helps you understand your business better. A CFO would have a very detailed understanding and knowledge of your business and therefore would provide the best SWOT analysis.
More Time To Spend On Your Core Business
When you are spending hours thinking through the financial complexities of your business, you naturally have less time to spend on the actual operational activities that are critical to your ongoing success. Not only that, but you lack the knowledge to efficiently go about accomplishing those tasks.
Outsourcing your CFO activities takes a lot of responsibility off of your plate and into the plate of your CFO. No longer would you have to spend your time financial planning, managing cash flow, calculating break even, or solving other financial issues. You can make the most out of your time by focusing on the core activities that will ultimately grow your business.
When you partner with an outsourced CFO, you can be assured that your financial operations are taken care of which will give you the peace of mind and time to cater to the other facets of your business.
Enhanced Business Strategy
We learned that a CFO does more than analyzing the financial aspect of your business, but also the non-financial aspects through SWOT analysis. There is more non-financial value a virtual CFO brings and that is through business strategy development.
A great virtual CFO brings more than their accounting and financial knowledge to the table, but instead their comprehensive business knowledge. With their knowledge and experience in business and with your company, a CFO is able to work with you in developing a complete business strategy that covers all relevant elements of your business.
They can help you with choosing the right entity type, designing streamlined product/service processes, corporate governance, among other things. An outsourced, virtual CFO is more than your accountant, but your trusted business partner that is fully vested in the success of your business.
Objective Perspective
As a business owner, you wear many different hats, all at the same time. You work extensively with the ins and outs of your business. With that in mind, your business opinions would not be as objective as a third party CFO.
A virtual CFO is an outside third party that provides you with objective advice on your company’s financial and business position. Having a separate pair of eyes look at your financial operations will give you the clarity you need to make sound business decisions.
An outsourced CFO not only provides unbiased insight into your business but also in your business practices. In other words, your CFO acts as a control in your financial system.
How? Because they can implement processes and procedures that reduce the risk of fraud within your company. For example, if you have an in-house bookkeeper who handles all of your company’s financial transactions, they probably have multiple windows of opportunity to commit fraud or theft. However, with a CFO in the mix, there is another person to “check” the bookkeeper’s work and “balance” the work being accomplished.
Who Needs CFO Services?
Now you see why a business might bring on a virtual CFO, but what kinds of companies can benefit the most from CFO services? Who needs CFO services? At what point should a company take the step in hiring a CFO? The answer varies from company to company, however, there are some key indicators that signify your business may need a CFO.
Size Of Your Business
There is not a specific revenue benchmark that exists that determines whether or not you need CFO services. It all depends on the complexity and volume of transactions you incur every year. For example, a company that does $10 million in revenue every year may not be ready for a CFO, whereas a company that does $1 million in revenue is. How? The company with $10 million in revenues could be selling a $100,000 product that results in 100 sales per year. Whereas, the $1 million revenue company could be selling 500,000 of $2 products. There is a clear distinction here with where each company is in their life cycle.
Growth
How fast is your company growing? Using our same example, if the company with $1 million in revenue has been doubling every year, there’s a pretty good chance they will continue to grow. With continued business growth, companies have more money to manage and more complex strategies to consider.
Not only that, but a larger company means expanding operations and possibly raising capital to sustain growth. With added growth, there is also greater risk associated.
A CFO addresses all of these issues associated with a growing business. They make sure your business has enough capital to fund operations. A virtual CFO is equipped with the know how to deal with the growing pains of a business.
Timeliness Of Financial Information
All financial information should be prepared in a timely fashion for key decision makers in order for them to make the best possible decisions when it matters most.
Information should be flowing at the rate decision makers make decisions.
Data from the financial statements, cash flow, and other financial information should be routinely and accurately presented. If you find that you are constantly behind on preparing your monthly financial statements or never feel confident making a business decision because you have no data to back it, it might be time you hire an outsourced CFO.
An outsourced CFO is responsible for analyzing, interpreting and providing your company’s financials. That is contingent on financial information being readily and easily accessible. A CFO ensures the proper preparation of financial information for stakeholders of the company.
Do You Need A CFO?
No matter what stage you are at in your business, considering to hire a CFO is a great strategy.
The facts are, unless you are a CPA, or highly experienced in accounting and finance, it is best for you and your business to consider hiring a CFO.
All companies will not have the resources to hire an in-house CFO because of the high salary and benefits it demands. A more feasible, affordable solution is to hire an outsourced virtual CFO. This way you don’t incur the costs associated with hiring an employee but still get the benefits of having a CFO. With virtual CFO services, you are able to “employ” a competent and experienced CFO on a part-time or per project basis, saving you thousands.
Ready to see what virtual CFO services can do for you? Consider trying the CFO services LYFE Accounting offers. No longer would you have to worry about the complexities of your financial operations. Contact us today!