Growing your company’s revenue is a beautiful thing. There’s no feeling quite like the one that comes with hitting a financial goal that’s long been on your horizon. But reaching new revenue levels also comes with growing pains.
If you’ve hit that point, your business needs a financial executive. But at this stage it’s also highly unlikely you can afford to hire a full-time CFO.
You’re probably wondering, then: What is a virtual CFO? What can their expertise do for me? And, most importantly, does my business need an outsourced CFO?
Read on to learn about the services a virtual CFO provides and the benefits of engaging one, and how to decide whether outsourced CFO services are a good fit for your business.
Just as the role’s title suggests, a virtual CFO is an operational and financial expert who performs the services of a chief financial officer. But instead of delivering those services in person, as a full-time employee, the virtual CFO works remotely, on a contractual, part-time schedule.
Until recently, a CFO’s strategic advice wasn’t even an option for most small businesses, because financial executives wanted in-house, permanent roles. And, for their part, small and medium-sized businesses have hesitated to fulfill the seat because it’s been difficult to know when a scaling organization is ready for such a commitment.
Thankfully, though, things are changing: small-business owners are finally able to prioritize this service.
One reason today’s business leaders upgrade from transactional accounting services to a CFO’s advisory offerings is simple: Executives have more data at their disposal than ever before. Plus, new technologies are automating more and more traditional accounting work (and they’re doing the job with greater accuracy). This frees up accountants to extract insights from the data and apply their expertise to more operational advice — all based on real-time financial and business intelligence.
Now, leaders can focus on what to do with all the rich data their accountant (and their accounting software) provides. And that’s exactly where a CFO can provide the most value.
In fact, a recent McKinsey study revealed that the CFO is generating more and more value in strategic and operational ways than ever before:
Source: McKinsey Global Survey
Again, this all sounds great to most growing businesses. Only one stopper remains: a corporate CFO is prohibitively expensive.
In-house CFO’s are executives who outrank directors and managers. Unsurprisingly, their compensation reflects their executive status. Sadly, because they can’t afford the salary, too many businesses forgo the benefits of a CFO.
Thankfully, outsourcing a virtual CFO solves for the high expense.
With outsourcing, growing companies harness the expertise of highly skilled professionals at a fraction of the cost of attracting and retaining a full-time executive. The virtual CFO provides their expertise to a number of clients, splitting their time among them. It’s a win-win for both sides.
Unlike a transactional CPA or controller, help from a virtual CFO goes beyond tactical advice and involves high-level, strategic guidance.
• Cost management, including:
A virtual CFO’s scope of work typically depends on the organization’s size, industry, and unique financial needs. The CFOs are usually paid by the hour or via a flat monthly rate.
There are many benefits to hiring a virtual CFO to help manage your growing company’s financial posture.
Perhaps the biggest benefit of a virtual CFO is the ability to access this level of expertise without paying the typical cost of an in-house CFO.
According to September 2020 data from salary.com, the average salary for a chief financial officer in the United States is around $385,000.
If you’re an entrepreneur, that number might make your eyes bug out. Pair it with other essentials, like benefits and bonuses, and you’re looking at a hefty price tag to hire a full-time, in-house CFO. Again, salary.com shows an example of a real-life CFO, whose total compensation exceeds $450,000 per year.
Source: Salary.com
Hiring a virtual CFO allows you to control costs by getting only the services you need, when you need them, without having to roll benefits and other terms of employment into the equation.
Then, your virtual CFO will become your best resource for cutting costs within your business. Often, virtual CFOs find enough cost-cutting opportunities to more than make up for the investment you make in their services.
An e-commerce apparel company financial needs are very different from, say, a pharmaceutical R&D lab. The reports, processes, and forecasts that these two businesses need are very unique.
A virtual CFO service can customize the skills and scope of work necessary to fit the company at hand, without charging you for anything that’s not needed. These services can also be shifted as your business grows and changes.
Your needs at the $1 million revenue mark will be different from your needs at the $10 million mark, and so on. A virtual CFO can help you navigate through different growth phases from a financial perspective.
A good virtual CFO also recognizes that they are, most likely, a temporary solution. A virtual CFO who does the job well will become redundant as the company grows into a position to hire an in-house CFO. A virtual CFO can help transition your company from an outsourced CFO position to one that’s in-house, when the time comes.
Deep industry knowledge, diverse financial expertise
Most virtual CFOs specialize in one industry while working with a handful of different clients across various sectors. This enables them to demonstrate a deep, relevant understanding of your business while still drawing from the lessons learned in widely varied scenarios.
A virtual CFO sees countless different financial situations and resolves a number of diverse financial conundrums. Chances are, whatever your unique situation, your virtual CFO will have seen it—or something similar—before and will be able to advise you accordingly.
This characteristic also translates to affordable rates for each of the CFO’s customers. As a client, you’ll benefit from this diverse pool of experience and expertise while enjoying your virtual CFO’s deep, hyper-relevant competency.
Now that you understand what a virtual CFO is and what some of the benefits of hiring one are, the next question you’re naturally asking yourself is, is it the right solution for me?
Well, the first thing to know is that a virtual CFO is not a good solution for all businesses. Some businesses simply don’t yet need high-level strategic advice. Another scenario where a virtual CFO may not offer value is when a company’s finances are not yet in order. If that’s your situation, take care of that first by engaging an outsourced accountant to organize your accounts and give you a clear and stable understanding of your financials.
Once you’re confident about your financial statements and accounting practices, you may be ready to hire your own CFO. Look for some of these common indications that it’s a good time to consider hiring a virtual CFO for your business.
When it’s just you working in your basement at midnight, your finances are probably simple.
They get more complex as you add more equipment, employees, suppliers, vendors, contracts, and other components to the business. If your growth has complicated things to the point that a bookkeeper alone doesn’t feel like a sufficient financial solution, it might be time to hire a virtual CFO.
Growing quickly is a good thing — until, suddenly, it’s not. Rapid growth can put your financials into a tailspin, especially if you’re not prepared. A virtual CFO can help you navigate periods of accelerated growth and situate the best systems for the next phase of your business. To do this, the CFO typically doubles up on their handling of potential risks while simultaneously keeping a finger on the pulse of resources and cash flow to manage the influx of revenue.
Now more than ever, business leaders are observing one another. They see that economic destabilization can crush one business, while another one uses volatility like rocket fuel. A virtual CFO shows you how to do both — find low-hanging fruit in an untapped market while bolstering the protective measures that allow for agility in times of economic trouble.
Nearly all companies go through unfavorable periods. It’s a part of doing business. The key is to understand why they’re happening so you can take the necessary steps to right the financial ship.
If you’re struggling to maintain or grow profitability, and you don’t know why, a virtual CFO may be the right person to add to your team.
At Ignite Spot, we’re all about informed decision-making. We walk you through the progression of increasingly reliable, robust accounting practices — from organizing your bookkeeping process and ledger transactions all the way to advising your mergers.
Each step you and your Ignite Spot CFO take together gives you more and more financial insights into every aspect of your business’s money-making engine. You may need better visibility into corporate spending as GlobalEd did. Or you may need to know exactly where to cut costs to survive a global health event, as Kaka’ako Kasuals did.
Your scenario may be so unique it has no precedent, and only specific financial clarity can help. The good news is that our virtual CFO team’s main priority is to give you that visibility so you can make sound business decisions.
If your foggy understanding of your business’s financials inhibits your ability to make decisions, working with a virtual CFO may be a good idea.
To take the first step in exploring a virtual CFO relationship, schedule your free virtual CFO consultation with Ignite Spot today.
Eddy Hood
