Your Part Time CFO Top Priorities For Your Small Business
A Chief Financial Officer (CFO) is responsible for the monitoring and management of a company’s financial performance. The specific duties of a CFO varies from company to company. It is their job to learn and understand your business so they can bring a financial strategy to the table.
A part time CFO works on a part time basis, which makes their services a lot more affordable. Their goals and priorities are similar to a full time CFO.
Hiring a part time CFO offers you the same knowledge and value of hiring an in-house full-time CFO minus the cost of one. This is why more and more companies are making the decision to hire part time.
The priorities of a part time CFO center around one key concept: timely information for decision making. It not only important for your CFO to generate balance sheets and income statements but to turn these statements into valuable tools to make decisions.
Generally, CFOs set goals and objectives, relating to the financial strategy of your company. If you decide to hire a part time CFO, here are the top 6 priorities you can expect them to focus on.
Learn and Understand You and Your Business
A part time CFO will want to learn what’s concerning you the most. What is keeping you up at night?
Your part time CFO will ask you some basic questions regarding your company’s finances and also request to review your financial statements. The most common financial statements requested are the balance sheet, income statement, and statement of cash flows. For a 360 view, a part time CFO will request prior period statements and information too.
From your initial conversations, your CFO will gain an understanding of how you record transactions but they will need additional insight into the why.
What differentiates a good CFO from a great one is trust being built into the relationship. A great part time CFO will take the time to not only get to know your business but you as well. They’ll want to know more about the problems you’re having within the business and how he or she can solve them for you. They will also want to learn more about your company’s culture. Some part time CFOs will take the time to visit your place of business and get a hands-on taste of what your business is about.
Together with examining your financial statements, learning your business and issues you are experiencing, this creates a solid foundation between you and your part time CFO.
A part time CFO needs financial information regularly to develop strategies to grow your business. You need financial information to make decisions. Some decisions need to be made quicker than others and financial information needs to be accessible in order to make the best decision.
A part time CFO will prioritize improving your financial reporting process. He or she will work with your bookkeeper to ensure the preparation of financial statements are correct and timely.
A CFO’s primary role is to make sure the financial records are right. Once the books have been confirmed as correct, your CFO will make sure that financial statements are prepared and distributed to management on a regular basis. Without accurate, regular financial statements, it is impossible for anyone to reasonably justify a business move. Simply basing decisions on your bank balances or “gut instinct” is not wise. For long-term sustainability, it is wise to base decisions on what’s provided on financial statements.
Improve Your Margins
Your margins are what determines how much profit your business earns and ultimately what can be reinvested to grow. It is the amount of revenue that exceeds costs. Your part time CFO will first have to determine your break-even point to help improve your margins.
Break-even point determines the amount in sales dollars or units needed to cover your company’s expenses. Break-even point is important because it gives you insight into your true costs of doing business and if you’re pricing correctly.
Depending on your industry, your part time CFO will conduct one of two types of breakeven analysis.
Breakeven in units tells you how many products you have to sell to reach a zero dollar profit. It is calculated using the following formula:
Breakeven in Units = Fixed Costs / (Sales Price – Variable Costs)
It is important to note that break-even analysis should be applied to each product or service you sell. The reason is that each product or service has its own set of variable costs. Variable costs are specific to the product or service you sell so it is best to conduct this analysis between product/service lines.
Another type of breakeven analysis is breakeven in sales dollars. Breakeven in sales tells you how much sales you need to earn to cover all of your costs. It is calculated using the following formula:
Breakeven in Sales = Fixed Costs / Contribution Margin
Contribution margin is the percentage of sales not consumed by variable cost. An experienced CFO will know to conduct this type of analysis to arrive at breakeven in sales.
So why is break even so important when it comes to improving your margins?
The breakeven point is important because it determines if your current prices are adequate to cover all of the costs to produce your products or services.
Although, products/services produced do not impact fixed costs, the higher the fixed costs, the higher the breakeven point. Meaning you would need to charge higher selling prices.
Pricing should not be left up to chance. Pricing should be a calculated, intentional process that utilizes breakeven analysis. Breakeven helps owners and managers with pricing products and services. It provides a starting point when deciding on prices and setting sales goals.
A part time CFO will perform this analysis early on to see if you are pricing your products and services correctly. From there, they can decipher if your costs can be reduced or if there is an opportunity for another product/service offering that would improve your profitability and overall margins.
A CFO’s job is to develop a growth strategy which is deeply rooted in the financial strategies of your company.
A CFO is in charge of the financial strategy of your business which is ultimately the vehicle for growth.
While it’s important for your part time CFO to improve on your current margins, they also prioritize increasing sales and growing your company. A CFO will prepare multiple sales forecasts for your company. They can also prepare projections and budgets too.
With forecasts, projections, and budgets, you can learn your business’ cycle and better plan for the ups and the downs.
A part time CFO develops financial strategies based on your company’s strengths and competitive advantages. He or she knows which areas of your business are most profitable and helps you leverage these areas for greater growth.
On the flip side, your part time CFO will have an understanding of your weaknesses. Sometimes it is necessary to have an objective third-party pinpoint areas of weakness or products/services that are not profitable. A part time CFO is the external point of view that offers you internal solutions to your problems. They can help you see where certain products or services need to be eliminated or if resources should be invested in those areas.
A part time CFO will also help you understand opportunities in your industry. They will answer questions like, “Is there market growth in your industry? Are there a few competitors?”
Threats are risk factors. These risks have the power of interfering with your business’ success. A CFO would identify these threats and help develop a strategy against them. Threats cannot be directly eliminated but the impact of them can be minimized with planning.
Learn more about how understanding these factors can help your business grow in our blog, Why Your Small Business Needs CFO Services Today.
The market always has some level of uncertainty. Even with the best projections, forecasting, and planning, a wrench can be thrown in at any time and knock your business off track. That’s why it’s a CFO’s priority to ensure your business remains flexible to changes.
It is so critical for companies to know how to adapt to the ever-changing market. In order to have financial flexibility, a part time CFO needs to work closely with management to understand all of your company’s financial variables.
Progressive CFOs are working closely with their clients to implement accounting systems that generate relevant financial information virtually automatically and error free. In most instances automating the accounting process is the only option when dealing with high volume data.
CFOs know there is little value in spending too much time on routine accounting tasks, especially when there is technology to make that process more streamlined.
Timely financial information is the foundation for making strategic, smart business decisions.
Automated financial information ensures that decision-makers are given the data they need in time and error-free to make a strategic or tactical decision. For example, you may have an accounting system that produces regular financial statements every 3 months. But if you had an interim business decision to make, it wouldn’t be useful to use an income statement from 2 or 3 months ago. A lot could have changed in that time. Instead, it’s better to automate this process so it can occur at least monthly.
Automation makes the process of report generation, record keeping, and data entry easier. Which makes the job of the CFO and yourself easier.
More and more companies are utilizing the skill set of a CFO in their business. Business owners are realizing that they need more than just a bookkeeper or tax preparer. They need the experience and expertise of a CFO.
Most business owners would love to hire an in-house, full-time CFO to lead the financial strategic vision of their company. Unfortunately, that is not in the budget for most. But many can fit in a part time CFO which offers very similar value.
If you find that your business is growing out of control, or need help developing a strategic financial plan, consider hiring a part time CFO at LYFE Accounting. Contact us today!