So you’ve heard of “virtual CFO services”. But you have absolutely no idea what this means, and if you even need it in your business.

Meanwhile, we just helped a client flip a $30,000 net operating loss into a $40,000 net operating profit within just 5-months through our virtual CFO services.

Now, our client is on track to gross their highest revenue and profit ever in a calendar year.

This client was extremely good at what she does, but she had a hard time making decisions around…

• office location and rent,
• hiring employees vs contractors,
• incentive plans for her employees, and
• deciding to keep certain expenses on her Profit & Loss

In no way, shape, or form, was she financially illiterate.

These were just extremely hard decisions that anyone would stress over. And as the sole owner of her company, she had to make these hard decisions all by herself.

So eventually, she hired our company for virtual CFO services, and we started adding value immediately.

Our CPAs came in and focused on her goals, specifically.

We wanted to know what she wanted to accomplish in her business. And what we needed to manage inside of her business to make her goals a reality.

As a business owner, she always focused on what everyone else wanted – her clients, vendors, and her employees.

Working with a virtual CFO was one of the first times she had someone to focus on what she wanted for herself and her company. And that led to astronomical results in her business.

Now, we want to help you do the same.

In this post, we’re going to answer the question of…

• What are virtual CFO services
• Who needs virtual CFO services?
• Why are virtual CFO services important

What are Virtual CFO Services?

Virtual CFO services are basically financial consulting services for businesses.

You’d partner with a consultant, which we’d call your CFO, and they’ll work with you to manage your business to hit your business objectives.

Now, the word “CFO” is incredibly important here. To fully understand why let’s look at the difference between a bookkeeper and a CFO.

A bookkeeper’s job responsibilities consist of preparing financial statements for you to review.

This includes data entry, revenue and expense categorization, and account reconciliations to ensure that the financial statements are correct.

Now, typically, this bookkeeper will deliver these reports for the business owner to interpret on their own.

This forces the business owner to interpret their financial statements on their own to understand the health of their business.

Inherently, most business owners are top-line or bottom-line focused. They want to see how much revenue they made, and how much profit.

However, true interpretation of their business financial health is typically removed from the picture.

For example, here are some common scenarios that are often missed:

• Do you have enough cash in your business to cover your expenses? And if so, how long would that cash last if revenue dropped?
• Your revenue looks good, but how much of that revenue consists of customers who actually paid? How long is it taking customers to pay you? And what impact will that have on your cash?
• What expenses were over-budget or under-budget? Or do you even know what your budget is for each period?
• What are the projected cash, revenues, expenses, and revenue for the next 12-months? And how does that compare to your industry?

We could go on and on here, but in short, unless you have a background in finance or accounting, it may be difficult to truly understand what’s going on in your business.

And that’s where virtual CFOs come in.

Virtual CFOs intercept those financial statements from your bookkeeper and make sense out of it before it reaches your desk.

They take historical financial data and dissect those into KPIs that provide a holistic view of what’s really happening in your business.

Then, they’ll sit at the same side of the table as you, and provide advice on what decisions you should take in order to reach your business goals.

So the reason why the word “CFO” is so important is because the primary goal of virtual CFO services is to help your business reach its strategic goals.

It’s less about accounting and more about what you want to see happen in your business.

Then, CFOs identify the key metrics correlated to your business goals, track those, and present your progression towards your goals.

All while aiding in the decision-making process to address critical issues that come up along the way.

With that said, let’s quickly discuss the benefits of virtual CFO services.

Virtual CFO Responsibilities

After understanding your goals, at a minimum, your Virtual CFO should be responsible for:

1. Creating Your Budget

Your business budget is the most fundamental component of managing your business finances correctly.

Without a budget, your business spending can spiral out of control to where you may not have enough cash to pay your employees, vendors, or even your taxes.

Your CFO should be able to take your business goals, and historical financial performance to present a financial budget that will help you reach your business goals and meet your financial obligations.

To learn more about this process, check out this post on small business budgeting.

2. Tracking Budget Variances

Simply having a budget means nothing if you do not follow it.

Your CFO should hold you accountable for your budget by providing a monthly variance analysis.

A variance analysis compares what you PLANNED to what ACTUALLY happened in your business.

Your CFO should provide this report to you so you can clearly identify what you’re overspending and/or underspending on.

That way, you can correct these items to ensure that you reach your business objectives.

For example, perhaps if you’re overspending on marketing, you may need to cut your marketing expenses down and prioritize them based on what’s bringing your business the most return.

Or, you may need to raise your marketing budget by decreasing expenses in another area to afford it.

3. Cash Management

Cash is the lifeline of any business.

And without cash, your business will not exist. Unfortunately, cash management is a little bit more complicated than what most people think.

For example, as your business grows, your business tax liability will also rise.

Because taxes aren’t paid immediately, we often see businesses start taking on more expenses than they should, or paying themselves too much out of the business.

Then when tax time comes and the IRS wants a big check, some businesses panic or get into trouble because they simply did not manage the cash in their business.

That’s just one example, but you also need to manage your cash to make sure you can stomach unexpected events that may arise in your business,.

This includes events such as an immediate decline in revenue or a steep economic downturn.

Your CFO will not only help you manage your cash but can also project your business cash flow needs to make sure you have enough cash on hand.

And this is to not only cover your expenses today but other major expense items that may come later down the road.

They can also help you keep a pulse on potential risks that may impact your cash flow.

For instance, if your customers stop paying you on time and creating strategies to expedite cash collection in your business.

And if worst comes to worst and you’re strapped for cash, your CFO can assist you in obtaining business financing like:

• business loans,
• line of credits, or
• grants

…to ensure you have enough cash in your business at all times.

To learn more about how to obtain business grants and loans, read this post on small business grants next.

4. Measuring KPIs

KPIs stand for Key Performance Indicators.

In short, behind every business goal lies key performance indicators that are correlated to those goals.

For example, if your goal is to increase your revenue, one way to accomplish this may be through improving your customer retention or satisfaction.

In this case, your customer retention would be the KPI to keep a pulse on.

You know if you can increase your customer retention, you will increase your business revenue.

A good CFO will take your business goals and find all of the KPIs that are critical to those goals.

And then use those KPIs to tell you the story of what’s going on in your business.

5. Strategic Decisions

If you stay in business long enough, you will eventually be faced with extremely difficult and stressful decisions to make.

And to make these decisions, it is best for you to have a strong financial partner to help you understand the financial implications of the decisions you make.

The whole purpose of the accounting function in your business is to use financial information to aid in the decision-making process.

If you do not fully understand the financial story of what’s going on in your business, you risk making ill-advised decisions.

As Warren Buffet famously says, accounting is the language of business.

In any business he invests in, he starts by reviewing their financial statements.

His financial acumen is the sole reason why Warren Buffet is one of the most successful businessmen of our generation.

Your virtual CFO allows you to access a strategic partner to lean on to ensure that you’re making strong decisions to grow and manage your business.

CFOs provide reassurance, peace of mind, and ultimately help you grow your business with sound financial judgment.

So that’s what a virtual CFO is and what a virtual CFO service consists of.

But who are “virtual CFO services” for? Like, at what point should a business consider hiring a virtual CFO?

Who Needs a Virtual CFO?

A virtual CFO is a good idea for any business that has a strong desire to grow, but lacks one of the following traits:

• Financial guidance in any area of their business
• Budgeting & accountability to their budget
• Interpreting their business KPIs and what that really means
• Managing their business cash-flow
• Making very hard decisions that will critically impact their business performance

If this sounds like you, then our full-service accounting firm would be more than happy to jump in and partner with your company to help you attack this.

We have a team of CFOs and CPAs that do this every day and can definitely assist you with this.

Takeaways

Today, we talked about:

What is a Virtual CFO?

A virtual CFO is simply a financial consultant in your business that focuses on helping you reach your strategic goals while mitigating risks around your budget and cash flow.

Who are virtual CFO services for?

Anyone who doesn’t have a strong background in accounting or finance likely needs virtual CFO services to help them manage the relationship of their KPIs in regards to their business performance.

What can virtual CFO services help you with?

Virtual CFO services will help you put a budget in place, measure actual performance against that budget.

They will also effectively manage your cash flow, track business KPIs, and help you make the tough decisions that come up in your business.

If you are now intrigued with the idea of getting the services of a virtual CFO, don’t hesitate to check out our CFO services here.

As we’ve mentioned earlier, LYFE Accounting is more than happy to help business owners like you achieve your goals through strategic financial guidance.