Small to medium-sized business owners are understandably focused on growth. Seeing your business grow is exciting, and success is often measured in how top-line revenue increases every year. Growth is a sign that customers appreciate what you are offering and that your hard work and self-reliance have paid off. But growth can be hard without adequate planning and strategy. These are traits a virtual CFO can offer your business.
What many owners don’t consider is how growth will affect the financial health of their businesses. It can be tempting to get wrapped up in the excitement of a new client or signing another franchisee. Often, owners forget to fully understand the impact these changes might have.
Despite COVID concerns, business owners are more focused than ever on growth. With competition at an all-time high, business owners need to create advantages for themselves to help ensure their competitiveness.
Put simply, most business owners are not financial experts. Forecasting how these kinds of changes will be felt financially isn’t something they are equipped to do. Instead, they should consider hiring a part-time or virtual chief financial officer (CFO). In this article, we will look at the role of the modern CFO in guiding a company’s growth. We will also discuss in more detail specific times when owners should consider turning to a CFO for help.
The Role of the Modern CFO
If you aren’t an expert, it can be difficult to understand the exact roles of certain financial professionals. Many business owners see accountants as number crunchers and their experience with accounting is limited to keeping track of transactions. The role of a CFO is in particular mysterious. Most smaller businesses don’t have the need for an on-staff CFO or the means to hire one.
In short, the modern CFO is the leader of a business’ financial strategy. Other accounting professionals keep tabs on expenses or generate reports about a businesses’ financial health. A CFO interprets these kinds of data and plans a strategy based on them. It would be a CFO’s responsibility, for instance, to come up with a strategy for fundraising, or for how to reposition a business within its market. Think of a CFO as a pilot that creates and then carries out a financial flight plan for your business. They consider all of the appropriate variables and then tune the instruments to follow a path toward a safe landing.
When to Consider Hiring a Virtual CFO
Traditional guidelines dictate that a business should hire an in-house CFO when they reach a certain level of revenue. Whatever this number is, most small businesses are simply not at that level. They don’t have the resources to pay a full-time CFO or the financial need for one.
Even businesses that make around $1 million dollars in annual revenue, though, can benefit from financial guidance. Outsourcing the services of a part-time or virtual CFO is a smart move for your business if you have reached that level. Below are a few specific scenarios that may apply to you.
You are Undertaking Expansion or Planning for Growth
Maybe you are a brick-and-mortar store looking to open a new location or a larger business evaluating a merger. Or, potentially you are just looking to grow. A significant expansion is one of the most beneficial times to hire a CFO. You will want to know that the changes you have planned will be profitable and sustainable. A CFO is an expert in forecasting a business’ financial situation.
Expansion will almost certainly mean more regulations to comply with, a new set of operating procedures, and new, unforeseen costs. A professional CFO will help analyze this data and determine whether or not an expansion is forecast to be profitable — and can provide guidance on the next best step forward.
You Plan on Raising Funds
If you have decided that outside investment is the next big step for your business, a CFO is a must-hire. Most small business owners are experts at creating a product or streamlining customer experiences, but they aren’t financial professionals. When investors are deciding whether or not to commit money to a business, they want to see a plan for growth that is based on sound financial understanding. If you can’t easily answer questions about how changing industry trends will affect your cash flow projections, you may come off to investors as unprepared or shortsighted. That doesn’t mean that you aren’t a skilled business owner. Complex financial topics require a certain level of understanding. Accounting professionals are trained to understand and have experience with these situations.
Hiring a virtual or part-time CFO will make your business much more attractive to investors. A CFO will be able to answer questions about how you plan to spend any promised funds. In addition, they will be able to back up your claims with financial reports and data. In short, a CFO will show potential investors that you have planned carefully for how to spend their money.
Investment deals are also legally complex and may need to adhere to certain regulations. You should consult with a virtual CFO to ensure that you follow all relevant regulations before committing to an investment partnership.
You Want to Develop a Long-Term Plan and Strategy
Apart from any specific event, developing a general, long-term financial plan is a job for a CFO. You may want to understand how the changing demographics of your market will affect your balance sheet in the next 5 years. Or you may want to know whether your budget will be sustainable over a certain time period.
Planning for growth without consulting with a financial professional is like flying blind. Consulting with a CFO for just a few hours a week can help you develop a map to future financial success. This way, you aren’t basing your next move on a hunch, or simply hoping that your model is still profitable in 10 years time. A CFO will be able to show you if your current payroll will be unsustainable over the next few years, and then offer advice on how to remedy the situation.
What is a Virtual CFO?
Most small to medium-sized companies do not have the resources or need for a full-time CFO. On-staff accounting professionals can demand 6 figure salaries. In addition, businesses may not even have 40 hours of accounting work that needs to be done every week.
A virtual CFO is a perfect compromise between hiring a full-time professional and running your business with no financial guidance. Virtual CFOs work remotely with your business on a part-time, contractual schedule. You can hire a virtual CFO for just 10 hours a month, for example, at a rate that won’t break the bank. The kind of financial guidance even a short consultation with a skilled CFO can offer your business is invaluable, and a virtual CFO is an ideal option for most smaller businesses.
Other Articles You Might Like
Looking for a couple of more articles similar to this you might like? Want to learn more about KPIs for your small business? Check these out:
6 Signs You Need An Accountant
Why Your Small Business Needs Some CFOing
So Much Confusion About Strategy
Krieger Analytics – The Small Business Virtual CFO
Krieger Analytics specializes in outsourcing accounting services for small businesses, from bookkeeping to virtual CFO consultations. Our background in entrapuernship and finance means we know what running a business entails. We want to meet your accounting needs without burdening you with the costs of a full-time accounting staff. We understand your position as a small business owner, because we have experience running businesses ourselves.
Have questions about anything discussed in this article, or interested in what valuable insights a CFO have for your business? Conversations are free, so don’t hesitate to reach out at [email protected]. Let us explain how our services could be the right fit for you.