One of the most significant challenges to face small and medium enterprises (SMEs), especially those proliferating, is knowing when to rent expert help. As business owners, we’re told both to manage costs and to urge use instead of trying to be an expert altogether things – two seemingly contradictory bits of advice!
One area of experience often overlooked by SMEs is within the area of strategic financial management. As small businesses grow, their needs tend to outgrow what their accountant or bookkeeper offers, and their success and ongoing growth will likely be constrained by not having access to the proper level of financial advice.
The problem is, the business will often only realize that the tipping point has been reached long after the event. This Forbes interview suggests the tipping point could be when the knowledge needed to support decision-making within the business isn’t available. But really, it’s going to depend upon a variety of other factors, including the size, growth, and complexity of the business well.
A CFO may be a Chief treasurer. Typically in larger corporates, she is going to sit at the highest of the finance and administration hierarchy and report on to the CEO. In many cases, the CFO will absorb responsibility for HR and IT, mainly if the corporate isn’t large enough to appoint executives in those functions – though this is often less typical if the business is heavily hooked into its IT systems or its people.
When to rent a CFO
Companies are usually advised to appoint a CFO for the primary time once they are experiencing a rapid climb. Usually, with quick promotion comes complexity and risk, and an experienced CFO will make sure the company successfully navigates its way through solid growth. However, the matter with this view is that many SMEs will never get to experience what a rapid climb seems like because they’re stuck in their way of seeing the world: a specific market they’re in, a specific solution or product they’re selling, a particular category of client they serve. Without the insights of a CFO, they’ll not identify the lost opportunities related to maintaining unprofitable customers, processes, or products.
Here’s a stimulating blog from Janine Popick (CEO of VerticalResponse), which offers some valuable insights from an SME owner on what you get from a CFO, and the way, with hindsight, she may need to be done things differently.
One solution tons of SMEs are turning to is that the outsourced CFO. This outsourcing trend is, in fact, not unique to corporate financial management. Outsourcing sites abound; a number of the higher known ones include guru.com, odesk.com, freelancer. Com, fiverr.com, expert360.com. These are establishing a lean replacement model of running a business, with business owners coming to understand the worth of trusted, expert help that’s easily accessible and well-priced – and with no long-term commitment.
While the outsourced CFO is undoubtedly getting to cost more per hour than the standard freelancer, it is vital to look at this as an investment within the business instead of a price. Indeed, some consultants will accept to be paid on a contingency basis, meaning you simply pay them an agreed proportion of any increase in revenue or profit.
Given the financial outlay, though, some consideration must tend by the business owner to how best to leverage this resource.
SMEs can gain on-going access to the experience and expertise of a CFO for as little as $1,000 per month, or maybe engage a CFO to figure on a specific project, for instance, to advise on an investment opportunity, or to assist prepare the business for a purchase when the owners are retiring.
What does a CFO do?
First, it is vital not to confuse a CFO, an accountant, and a bookkeeper.
A bookkeeper (which incidentally is that the only word within English with three consecutive double letters – a fact of the day!) is that the traditional ‘beancounter’ who processes paperwork and entries within the ledger using accounting software. In smaller businesses, they often report back to the business owner and can usually prepare information for the outsourced tax accountant to use.
As the business grows, it’s commonplace for it to rent an accountant (though this role is often outsourced to a firm). An accountant should typically be qualified, which suggests they need to pass an accounting qualification and are registered with a body like CPA or CA in Australia. This is often important because it provides you with some indication that they’re properly qualified and professional and are bound by a code of ethics – in any case, you’ll be trusting them together with your money. The accountant will typically oversee the bookkeeper. They’re going to be liable for preparing financial reports, both for external compliance (statutory reporting) and for internal use by the business’ management (management information). They’ll also affect tax.
While the accountant focuses on ensuring you remain compliant with accounting standards and tax obligations, the CFO goes one step further. they’re going to often prove pivotal within the following areas:
– Establishing policies, controls, and systems, so as to manage risk and make sure the business growth is sustainable.
– Thinking outside the box and more commercially than an accountant might. For instance, they will not just ensure you’re paying your tax as it’s due, but they’re going to provide all options are explored to minimize tax. Instead of simply ensuring your assets are collected promptly, they’re going to identify your most and least profitable customers and make sure the business’ resources are appropriately focussed.
– Advising on productivity, efficiency, process improvement, and business improvement.
– Readying a business purchasable or investment.
– Providing strategic advice and ensuring proper alignment between strategy, controls, measurement tools, and management reporting.
– Ensuring you are using the foremost appropriate sort of finance for your business (debtor finance, bank debt, operating cash flow, angel investment, VC, etc.).
– Supporting decision-making by ensuring systems exist that provide the key decision-makers (directors) with timely and accurate information – enabling them to form the proper decisions for the business. In SMEs, and even it’s fair to mention in most of the larger companies I’ve worked with, the planning of what management information is required is usually driven by the prevailing systems and processes (and so constrained by what’s available) instead of the opposite way around because it should be. Procedures are most frequently implemented with attention on the automation of a specific operational task (issuing a packing slip, tracking inventory, sending out a customer notification, etc.), but little or no thought is given to the reporting requirements. This suggests system consultants will often get to be brought in at a later date to develop data analytics and reporting solutions.
So really, while the main target of the accountant is to keep things ticking along, the CFO is more like a business partner who will question how things are currently working across the business and make sure you are being given appropriate decision-making information and support. With some outsourced CFOs offering to figure on a contingency basis, where they only get paid if they really improve rock bottom line, you ought to really be thinking carefully about whether your business can afford to not engage one!