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An Introduction
Starting and keeping a small business afloat is no small task. In most cases, you may lack experience in the financial and strategic processes involved in running a business. This can have you thinking you need a large accounting department to run things smoothly, but that’s not the case. This is where virtual or outsourced CFOs come in.
Now, what exactly does a CFO do for small businesses?
Each Accounting and Finance department has tasks that are carried out either weekly or daily. This includes things like billing customers, collecting payments from customers, paying vendors, and running payroll. All these activities flow into bookkeeping.
1. Bookkeeping
At Krieger, bookkeeping is our month-end process where we compile and reconcile all the information we need to do our reporting. There are three main types of reports we compile – income statements, balance sheets, and cash flow. The most important one is the cash flow, which often gets ignored by business owners.
2. Compiling reports and cash flow statements
At Krieger Analytics, we’ve made the cash flow statement easily understandable for business owners. This statement allows them to make actionable adjustments to their business. Key performance indicators (KPIs) are equally important. They are basically bite-sized data chunks that enable you to see what’s going on throughout your organization.
You should have seven to ten KPIs that you’re tracking on a month-to-month basis. KPIs go beyond just accounting. They cover other things going on throughout the organization. So, they look at marketing, sales, and operations and tie that into the financial impact they’re having on your business. Once the report is done, we can then do forecasting.
3. Forecasting
At Krieger, we do two different types of forecasts for our clients. The first is a 12-month rolling forecast and the second is a 90-day cash flow. We look at three months to see what cash flow looks like each week. As we identify issues, we can immediately make the necessary adjustments. This way, we don’t get surprises that call for immediate adjustments.
Not all adjustments are negative. If we project huge cash balances 90 days from now, we can start making adjustments to either invest in people, invest in more technology, or take more distributions as an owner.
4. Strategy
Virtual CFOs also cover strategy. At Krieger Analytics, the first thing we do when we work with business owners is to talk about alignment. In small businesses, people have their hands in a lot of different pots. For instance, the sales team might also do a bit of operations and an operations team might do a bit of accounting. We want to silo those a bit more so that people know exactly what their responsibilities are. Once we do that, we come up with an executive team and then set goals.
We set long-term (3-5 years), medium-term (1 year), and short-term (90 days) goals. As the goal term gets shortened, our goals also become more refined. Coming up with those goals allows us to also see issues that are stopping us from accomplishing our goals over the next 90 days.
We write up all the identified issues. Now, we’re not going to solve all issues today or even in the next 90 days. However, we’re going to identify the biggest ones. We start working on those issues so we can solve them within the next 90 days to ensure that we reach our goals.
5. Ensuring follow-through
The reason most businesses fail despite having refined goals and innovative strategies is a lack of follow-through. Often, owners can’t tell you what goals they set six months ago. In most cases, nobody’s actively working towards pursuing those goals. And so, we have a process for follow-through where we make sure that the organization is actively tracking their accomplishments and success in achieving their goals.
As virtual CFOs, reporting, forecasting, and strategy are the three main areas where lead for your Accounting and Finance Department. When we lead those areas, we see more profit and less chaos. We see owners that are able to work ON their business and not IN their business as much as they are.
Virtual CFO costs
Prices for outsourced CFOs range from as little as $1,000, all the way up to $10,000. At Krieger Analytics, we keep it pretty simple. We know our processes and what we’re doing with small business owners. Our cost is between $1,600 and $1,800 per month.
If you want to outsource your entire accounting department, it’s typically an additional $500 to $1,000 per month. This would bring the total cost to $2,300 per month, which amounts to an annual cost of $27,400. You may think that’s a hefty amount, but it’s quite low in the grand scheme of things.
The annual salary for a bookkeeper in the Denver Metro area is typically between $30,000 and $45,000. A CFO typically earns between $150,000 to $250,000. So, $27,000 is a measly fee compared to the alternative costs.
As a business owner, I would recommend outsourcing your entire accounting department. Our results at Krieger Analytics speak for themselves. We believe that working with us will increase your bottom line by $27,000. Our goal is to increase revenue, increase profit, and decrease chaos within your business.
A Month in Our Process
At Krieger Analytics, we start with the onboarding process. This is typically a three- to four-week process where we meet with your management team to determine strategy, set reporting and KPIs, and build out our forecast. That includes a 12-month forecast and a 90-day cash forecast. This is the foundation for everything we’re going to do on a monthly basis.
Once we get into our monthly cycle, the first 10 days are typically spent with a month-end close. That includes closing books, reporting, and forecasting. The good news is that there’s not much you have to do during this time. Sure, we’ll have some questions, but we take care of everything.
In the middle of the month, we have a two-hour meeting where we talk about reporting, the most updated forecast, and what cash flow looks like for the next 90 and 30 days. We also review our strategy. Every month, we review our quarterly tasks, how we’re progressing on those, and what we need to get done in the next month.
On the 25th, we have a 15-minute standard call with your management team, just to check base on how we are going on our monthly goals and quarterly objectives. During the year, we have a couple of other meetings. We have three-hour meetings every quarter to set new quarterly objectives with our strategy. We also have two other yearly meetings, a tax planning meeting, and a forecasting meeting.
The forecasting meeting is once a year. We like to dig in with your management team in the forecast to make sure our assumptions are consistent with what the business is operating with today.
I hope this has helped you better understand the roles and benefits of a virtual CFO for your small business. If this is something you’d like to discuss a bit more, then you can contact us for a consultation. We hope to talk to you soon!
Quick disclaimer: One of the things we don’t do is tax. That means we don’t do accounts payable, invoice your customers, collect cash, or do payroll.