Running a business takes many skills sets, and business owners, eager to keep costs in check, try to do it all. From hiring decisions to compiling financial statements, owners spread themselves thin running from task to task. The upside? There’s no large salary tied to people holding specialized positions. The downside? Each task gets but a fraction of the time it deserves – and requires.
According to the Harvard Business Review, outsourcing is one of the most important management ideas and practices of the last 75 years. Companies using outsourcing cite innovation as their number one reason for bringing in a fresh perspective to key company functions. Business owners and executives say they derive these four benefits from outsourcing:
- Outsourcing allows companies to focus on what they do best – their own core competencies.
- Companies achieve greater efficiencies without adding people or technological resources.
- Outside expertise helps companies become more profitable, thereby increasing company or shareholder value.
- Outsourcing offers increased service levels within company functions.
One of the most critical functions in a company – especially one transitioning through one of the growth phases – is that of the financial officer. A Chief Financial Officer (CFO) typically focuses on how efficiently a business is operating. While some business owners view this function as a reporting function – one where the CFO merely is a score keeper of how well the business already has performed, that’s just where CFO duties begin.
A CFO takes the historical financial data (also known as financial statements and other typical recording reports), combines that information with operating practices, and analyzes areas where the company could – and should – make changes that affect profitability, productivity and efficiency. The CFO with top-notch business sense can dramatically impact a company’s bottom line.
Companies nearing the half million up to the $5 million revenue mark often find they can benefit from the services of a seasoned CFO, but can’t – or don’t want to – afford the $125,000+ these professionals typically demand for a salary. Some business owners, realizing that they do not have the resources to hire a full-time CFO, simply accept this and vow to grow their businesses so they can hire a CFO in the future. Smart business owners recognize that if they want to reap the benefits of an experienced, results-producing CFO, they must look for a more creative way to do it.
These smart entrepreneurs regularly make outsourcing work for them. They understand the importance of leveraging their money while obtaining critical tools for success. Many times, the cost savings accompanying qualified CFOs makes the decision that much easier.
Outsourced CFOs sell their time by the hour or on a monthly basis -four to eight hours a month, for example, at an agreed-upon fee. CFOs can isolate areas of concern that the business’s accountant wouldn’t (and possibly couldn’t) detect until tax time. Even the closest accounting advisor isn’t privy to day-to-day business practices.
CFOs can have a positive affect on the outcome of major business decisions. For instance, companies facing reorganizations or mergers need to have access to real numbers associated with these events. They also need to know how to leverage available resources with company debt. Skilled CFOs handle these issues regularly and can bring much-needed expertise to company owners and executives as they make short- and long-term decisions.
Other areas offer opportunities as well. Purchasing agreements sometimes can hurt the well-intentioned company manager. If a company makes larger purchases because of negotiated lower prices on products and the trade off is a shorter pay schedule, CFOs can isolate this scenario as the key reason why a company could constantly be in a cash crunch.
Finding a qualified CFO may be as far away as a phone call to your CPA or accountant who offers outsourcing as a credible service component for companies like yours. Today, some firms offer the services of experienced CFOs who have retired and now work as temporary workers – much like you would hire a secretary on an as needed basis. Whichever route you take, financial matters aren’t the only areas where an outsourced CFO can lend advice. CFOs can help your business in several critical areas including:
- choosing appropriate accounting software,
- deciding whether leasing or buying equipment is best,
- how to compensate company officers,
- how to handle company collections,
- how to handle cash flow and how to balance company debt with receivables, and
- how systems can be improved to improve productivity.
While hiring a CFO for a short amount of time may get you past a cash flow crunch, help secure a much-needed loan or initiate systems that increase productivity, experts agree that to get the most out of your investment, you should commit to your outsourced CFO arrangement for at least a year. An experienced CFO often can impact your business in less time than an average work day or approximately eight hours.
If you are a business owner currently functioning as CFO, think of all the things you can do with your leveraged time.
- Spend time with valued customers to ensure their continued business.
- Attract and win new business.
- Develop new products or services.
- Work on operational or financial projects to make your business more profitable or accelerate its progress toward your growth goals
Bottom line: the choice to outsource comes down to dollars and sense. When companies add a CFO’s salary to a benefits package complete with annual bonuses, the price tag is high. And, not all CFOs are equal- navigating the maze of available CFOs can leave you dazed and confused. Keep in mind that CFOs possessing business performance management knowledge add an extra dimension that positively affects other areas of your company, including productivity, operating efficiencies and internal systems.
It takes time to make the decision to outsource a critical management position. Aligning company growth goals with the operating budget, and comparing that to the benefits an outsourced CFO can bring to the picture, enables you to determine if outsourcing is right for your company. If you still aren’t sure, call your accounting business advisor to discuss the pros and cons of this type of arrangement.
Author: Mark Ferguson
Many small to mid-sized businesses run on the efforts of the business owner and its professional manager, the CEO. But the rate of change isn’t slowing and your day has timed out before half your questions are answered. So, when is the right time to introduce an outsourced CFO into your company? The answers to the questions an reveal the bright line:
1. Do I have time to focus clearly on the business drivers necessary for success? Am I spending too much time figuring out the books and not enough time managing the business? Twenty percent of your activities will drive 80% of the results. The first thing a short-term, outsourced CFO helps identify is the understanding of the fundamental principles of business. What are the truly key metrics or business drivers for my company? Sometimes this basic approach is just what the CEO needs to objectively view the business. CFOs relieve CEOs and operational managers from routine responsibilities so that they can play an expanded role in the strategic direction of their companies.
2. Do I have the information I need to make business decisions and can I trust it? Many CEOs simply do not have a high-level financial head in the organization so they manage by instinct, using a few key bits of information to proxy for all the rest. Usually, much more information is available that would lead to better informed business decisions.
3. Is my business adequately funded? Securing equity or debt financing requires financial expertise and representation. Since Sarbanes-Oxley, most venture capital firms and financial institutions alike insist the businesses they fund bring in experts to ensure their accounting is sound. These funding sources appreciate an expert, independent view informing projections and ensuring consistent financial presentations. And they look for continued financial executive involvement in the boardroom.
4. Am I missing strategic opportunities because of absent or weak financial leadership? Most companies are in high-change environments today which generate business challenges and opportunities at a faster rate than ever before. Sound financial processes and internal controls provide stability for existing operations and freedom to attack new opportunities as they present themselves. The CFO is uniquely positioned to evaluate new opportunities and gauge the companys readiness to take advantage of them.
5. Am I contemplating an entity-level transaction? Growth through acquisition or positioning your company for sale both beg for financial leadership to build and defend financial models, prove valuations, and guide negotiations.
Every business, no matter the size, can benefit from expert financial planning. However, it is uncommon for small business owners to also be financial planners. You might be very good at running your business, but unless you also have education and experience in finances, you need someone to perform your financial planning functions for you.
Perhaps you do have the experience and know-how to analyze your finances. However, where is your time best spent: crunching numbers or running your business? As a small business owner, your focus should be on running the business. Unless you have the ability to hire a full-time Chief Financial Officer (CFO), you might consider outsourcing your financial planning duties to a professional financial management company.
The best CFOs have spent years in school and the business world cultivating experience and knowledge in financial matters. They focus on examining numbers and searching for potential problems or opportunities so they can make recommendations to management to mitigate risks and achieve sustainable growth.
Searching for a Professional Financial Planning Company
When looking for a company to outsource your financial management duties to, hire one whose staff is knowledgeable and experienced in financial planning and accounting.
Each financial management company has its own procedures, but the general principles are the same. Generally, the first step when you outsource your financial planning to an external CFO is to provide all of your financial records so the company can get to know your business. By getting a feel for your company’s weaknesses, strengths and goals, your outsourced CFO can counsel you on your next steps to reach those goals.
You will probably need to provide financial documents that date back as far as five years. This will give your outsourced CFO a comprehensive view of the financial history of your company, including how your historical trends compare to other, similar companies in your industry.
The outsourced CFO can then perform hypothetical scenarios and forecasts to provide some control over your financial future. While no one knows exactly what will happen in the marketplace at any given time, if you plan for every foreseeable change, you will be in a much better position than if you just stumble blindly on.
Hypothetical scenarios are not just for risk management. They are also used to plan and maintain sustainable growth. By conducting these scenarios, your outsourced CFO can counsel you on when to take out a loan, change your pricing structure, expand your business or any of dozens of other actions that can help your company grow.
No matter what kind of business you run, your finances need careful attention to help you survive. For many small businesses, outsourcing their financial planning duties to an external CFO or professional financial management firm is a wise and practical way to achieve and maintain financial health.
Author: Jennifer Walker
Many people have heard the term CFO but aren’t quite sure as to what a CFO really does. CFO stands for “Chief Financial Officer” and this is the individual generally in charge of managing the financial aspects of a company. CFO’s may have degrees in finance, accounting or business management and may even have a MBA which makes their knowledge and services extremely valuable to both small and large businesses. A CFO has a very prominent position within a company and has a lot of input in regards to a company’s strategic planning. CFO’s usually have great leadership skills since he or she will often be managing individuals and even groups. The CFO frequently works closely with the CEO so it’s crucial that their personalities are compatible.
The Chief Financial Officer is in charge of the accounting department and generally manages the CPA and controller. A CFO’s duties might consist of forming a company’s annual budget, putting in place accounting and financial systems, presenting financial reports to upper management, analyzing financial data, building relationships with financing sources such as banks for funding services, identifying of equity for expansion or to provide liquidity for shareholders, assisting with exit planning and giving advice to the Chief Executive Officer.
It is very rare that a business starts out with a CFO on staff. Bookkeeping duties are usually handled by a secretary or administrative clerk in the beginning. Increased revenue for a business will often lead to a complicated financial situation. As a business expands and evolves, there may be financial questions and accounting issues which will require the expertise of a CFO. A CFO can also be of immense help when it comes to issues like IRS tax audits.
The majority of small businesses do not want to spend six figures on a CFO’s salary and will choose to utilize interim CFO services or an outsourced CFO instead. This allows small business owners and entrepreneurs to utilize the skills and services of an experienced financial executive on a part-time or hourly basis without having to shell out a hefty salary. Outsourcing this position to the right individual can really help a business increase it’s bottom line and become more successful.
A great CFO can affect a corporation’s profits and ultimate success in a big way. A good CFO can optimize your cash flow and accelerate your business’ growth. If you are looking to grow and expand your business then you might want to consider utilizing CFO services in order to give your company the upper hand in a competitive business world.
Written by Jacqueline Star
1. Why do I need an Outsourced CRS Financial Management Solutions?
Take our “Do you Need a CFO” Questionnaire and decide for yourself.
2. How would you fit in the organization?
It depends on the type of project:
(1) If this is a specific project or short term engagement (i.e. merger/acquisition/sale of a company or subsidiary, fulfillment of a specific analysis product, cash flow or financing project, etc.) then the CRS Financial Management Solutions Consultant will work with designated key team members with the direction and approval of the Business Owner or CEO until the project is completed.
(2) If this is a monthly Standard or Part-Time CFO Package Plan then CRS Financial Management Solutions Consultant will provide the appropriate level of accounting department oversight or management. Additionally we may also provide outsourced accounting services eliminating the internal accounting function for the client.
3. How often do I need a CRS Financial Management Solutions Consultant?
We provide both defined project engagements and ongoing monthly services depending upon the scope of the services required. Our CFO packages are typically for one year increments with a 30 day cancellation clause and our project engagements are typically three months in duration.
4. What do you offer that a temporary agency cannot?
The CRS Financial Management Solutions Consultant works within the determined project plan and timeline. This may result in scheduling requirements that do not have a consistent or predictable schedule. Much of the work is done off site at the consultants office with teleconference or on site appointments with specific client personnel as required. You can schedule your time directly with your designated Consultant and maintain the consistent relationship throughout the engagement. This will be hard to achieve with a temporary agency.
5. Should I be concerned that there is no physical corporate office?
No, like many companies today, our “virtual” work environment allows us to work from our respective home offices for both the consultant and the client’s representative or at the client’s site when required and feasible. Because our services are web based it is seldom feasible for the consultants to attend the client in their offices unless the client is in the same local area as the consultant. This “virtual” structure allows the CRS Financial Management Solutions Consultant to minimize overhead (rental space, utilities, furniture, etc.) and pass along our cost savings to our clients.
6. Will CRS Financial Management Solutions keep my company information protected?
Yes. We include a mutual NDA (Non-Disclosure Agreement), as part of our on-boarding process.
7. How is CRS Financial Management Solutions compensated?
Clients are billed on project or monthly retainer basis. Every agreement states a specified number of estimated hours covered and includes an hourly rate for hours exceeding the stated amount of hours covered by the monthly retainer. Payment is made in advance for defined products at the rate of 75% of the fee with the balance of 25% paid upon completion and delivery. Monthly retainers are paid in full on the 25th of the month for the succeeding month. All payments are made either through Pay Pal or preauthorized ACH debit. Start-up and “going concern” clients fund a deposit retainer in addition to the monthly retainer before any work is performed and the deposit retainer is maintained throughout the engagement and applied to the final month of service.
8. Do you charge for the initial consultation and what is accomplished?
No. The initial consultation is used to determine the scope of the engagement, determine the working relationship, and if the engagement is a win-win for both companies.
9. Do we sign a consulting agreement?
Yes. Once the client and CRS Financial Management Solutions are in agreement regarding the project goals and fees, a engagement agreement is drafted. The Client signs the agreement and sends it back to the CRS Financial Management Solutions Consultant for signature. A copy is sent to you for your records. After this is completed and payment as agreed is made, the CRS Financial Management Solutions will start working.
10. What system access do you require?
Most clients allow the CRS Financial Management Solutions to access the information through a web-based hosting company or through a Citrix connection. Other clients choose to establish a username for CRS Financial Management Solutions to access their accounting information. Both options allow CRS Financial Management Solutions immediate 24-hr access to quickly view information and correct issues. The CRS Financial Management Solutions Consultant, as with any permanent staff, should have system limitations in order to adhere to internal control procedures.
11. What can I expect during the first couple months?
The CRS Financial Management Solutions Consultant will be following the agreed-upon project guidelines. In addition, as the Consultant gets involved in the details of the company, other potential issues will probably be uncovered which may change the list of priorities. These issues that are uncovered will be addressed to the Business Owner or CEO for a resolution.
12. What happens if I end up requiring a full-time CFO or Controller in the future?
We work closely with the client and as the needs of the company change, we change as well. We can assist in interviewing the permanent CRS Financial Management Solutions and once hired have an orderly transition of duties until we are phased out. If the client still requires occasional advisory services or a sounding board for the CEO, we are happy to assist in this area as well.
A 20-year-old San Diego construction firm called because their cash reserves would not allow them to finance projects they had already won. They had an $800K contract, with a projected 20% ROI, if they could just hold on through the negative cash flow. Revenues two years ago were $3.5MM and now $1.25MM; profits crashed from $250K to -$300K. Their bank called in their maxed out $125K line of credit, and the owner paid that off with a home equity loan. Their business coach recommended for a year they bring in a CFO Business Financial Strategist. CRS reviewed their financials, prepared projections, and worked through several cash flow scenarios to determine when they would need new cash, and when they could pay it off. But, deep analysis of the financials revealed inaccuracies in expense reporting, which changed their gross profit from 40% to -20%. They had been funding a vacuum with borrowed money. Ultimately, the business owner turned down that big project and kept the cash in the bank.
How much do real solutions cost?
Client Investment: ……… $25,000
Client Return: …………… $200,000
Return on Investment: … 700%
A Southern California client of ours went to his bank for a working capital line of credit. The bank wanted to review their financials and projections. However, the financial statements showed negative assets, negative liabilities, and inconsistent operating margins, resulting from turnover in the accounting department staff.
The owner no longer knew the real financial status of his business. CRS Financial Management Solutions reviewed their balance sheet accounts for the prior year (since their last CPA review), reconciled various key accounts, made the appropriate adjustments to both the balance sheet and income statements, and prepared restated financials for the current year. Using consistent historical information and the business owner’s plans for the future, we also prepared projections for the coming year. Our client submitted the financial reports, was approved for the line of credit and is getting down to the business of growing his business.
How much do real solutions cost?
Client Investment: ……… $32,000
Client Return: …………… $200,000
Return on Investment: … 525%
A Southern California manufacturing client, with solid financials and little debt wanted to grow by acquiring a firm with a product they envisioned adding on to their primary product. Our client had all but agreed to an asset purchase and asked CRS to review the anticipated transaction. We reviewed the target company’s financials for the prior three years, prepared projections of the new combined operations, and compared to other similarly-sized companies in their industry. After a basic financial analysis, my team and I determined anything over 3x adjusted EBITDA was too much. My client was willing to pay substantially more. He pointed out they had the cash to do the deal, that I must have missed something and argued with me to pay nearly 50% more.
Logic ultimately won: our team created a series of scenarios to illustrate how much they would have to generate in revenue to cover the debt load. The deal eventually went through at the lower price we suggested, saving our client nearly $2M in what turned out to be a very difficult year.
How much do real solutions cost?
Client Investment: ……… $180,000
Client Return: …………… $1,998,000
Return on Investment: … 1010%