Is your business ready to hire a chief financial officer?
According to Investopedia, the median annual salary for a CFO in the United States $371,548. That base salary is more than eight times higher than the average American worker. When you factor in bonuses and other benefits, the medium compensation totals $519,692.
Most small businesses don’t have an extra $500k laying around to pay a new employee. That’s why most smaller companies don’t have a designated CFO.
In fact, just 25% of businesses with less than 25 employees have a CFO. That number jumps to 46% and 64% for companies with 26-50 employees and 51-100 employees, respectively.
With all of this in mind, interim CFO services are growing in popularity. This is an appealing and cost-effective alternative, especially for small businesses.
But what exactly does an outsourced CFO do? I hear this question all the time.
The role of a CFO changes based on the needs of a company. Depending on the type of business you have and who you hire, the services will vary. But with that said, I’ve identified the most common services offered by interim CFOs.
You can use this list as a resource to determine if outsourcing a CFO is right for your business.
1. Financial Strategizing
Right now, you probably have other designated roles in your accounting department. That’s one of the reasons why I see people hesitate on bringing in a CFO.
But you bookkeeper, accountant, and controller will only be able to maintain your current financial records. While keeping the books accurate and organized is crucial, that alone won’t bring your business to the next level.
A CFO will focus more on a company’s long-term financial strategy. They will help you plan and execute a winning formula for financial growth.
2. Forecasting
The reason why CFOs can help you build a winning strategy is because they are experts at forecasting. Think of your financial forecast like a roadmap to reach your goals. These roadmaps include:
- Short-term forecasting
- Long-term forecasting
CFOs are highly knowledgeable on the industries that they work in. So, they will look at the current landscape of a company, and compare that to the industry trends. By predicting the future capabilities of a business and the industry as a whole, a CFO can create accurate financial forecasts.
3. Budget Management
61% of small businesses failed to create a budget in 2018. 74% of companies with ten employees or less did not have a budget last year.
These percentages are far too high. You can’t expect to be successful without a proper budget.
CFOs are experienced with creating detailed budgets based on a company’s projected financials. This is crucial for day-to-day business operations.
Then they’ll measure the budget against the actual expenditures to make sure everything is on track. That way any adjustments can be made in the short-term and long-term, if necessary. This is an important point. Don’t forget to measure actuals against budget or your expenses may outpace your revenue without you even realizing it!
4. Analyzing Financial Reports
As I said before, a CFO won’t come in and start preparing your balance sheets and income statements. Your controller will still generate those reports.
However, your part-time CFO will interpret your records to see where your business currently stands, and where it’s going to be down the road.
CFOs are trained to understand trends over time. This gives you a chance to pivot and change your strategy if need be. A bookkeeper doesn’t have this type of skill set to offer.
5. Capital Structure
All businesses need capital to operate. But raising funds doesn’t always come easy, and this can become an extremely stressful time for small business owners.
An outsourced CFO can alleviate some of the headaches involved with this process. First, they can help you figure out the type of financing that you need. They can also make sure that all your financial documents are prepared and presentable for lenders or investors.
People will be more willing to give your company money if you have all this information in order.
Plus, it’s also common for CFOs to have connections to investors and financiers. They can potentially put you in contact with people who are eager to invest in small businesses and liaise during the process.
6. Cash Flow Management
Cash flow is a major concern for businesses.
In fact, research shows that 61% of small businesses worldwide have cash flow problems. 32% of owners struggle paying themselves, employees, vendors, and paying back loans because of cash issues. Roughly 7 out of 10 small business owners say they have been unable to sleep at night due to cash flow concerns.
An interim CFO will be able to analyze your cash flow reports. Based on their analysis, they’ll help you come up with a plan to ensure that you’re not operating at a pace that will cause you run out of money.
CFOs can help you determine which expenses are necessary and required for growth. They’ll also make cost cuts to unneeded expenditures.
7. Acquisitions and Mergers
This might not apply to all of you right now, but it might be something you’re faced with in the future.
A CFO can aid during the sale of your business, as well as merge with another company. They’ll help prepare all the necessary financial documents and analysis.
8. Specialty Services
Some CFOs have extensive experience with certain types of businesses and industries. These are the outsourced CFOs that you should be looking for.
As an interim CFO, they have worked with potentially dozens of companies in the same industry. This gives them added insight that a CFO wouldn’t get working at just one company for most of their career.
For example, here at Navitance we specialize in nonprofits, startups and companies in financial distress.
9. Audit Preparedness and Representation
Do you have a nonprofit entity that’s required to undergo an annual accounting audit? Or maybe you’re a for-profit entity with investors that are asking for audited financial statements.
Regardless of your unique situation, CFOs help prepare the company beforehand and represent the company during an audit.
This not only ensures the books accurately reflect the company’s financial condition, but also helps ease the burden on the company and their accounting department during the audit process.
Conclusion
CFOs can bring immense value to businesses of all sizes, in every industry. But not every company can afford to hire a full-time CFO.
An interim CFO is a cost-effective solution for offering all the great benefits of a CFO at a fraction of the cost. Further, a trained and experienced CFO can pay for itself by implementing the right strategies for your business.
Working with an outsourced CFO, you’ll gain the advantages of these common services listed above. If you’re ready to improve your accounting department and put your business in position for financial growth, we can provide you with an interim CFO from Navitance.
