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VIRTUAL CFOS: Why They are Becoming The Norm for Businesses

If you’re in the hot-seat, do you rely on intuition and gut-feel too often?

It may well work out in most cases, but what about when you need greater certainty in the financial outcome?

Let’s say you have to make decisions like:
✅ Adding a new salesperson should help us sell more, but will the extra profit cover all the additional costs?
✅ Should we invest in that new piece of equipment? What is the cost recovery rate i.e. will it improve profitability?
✅ What are the most important elements of your operation to focus on and shift to improve our overall profit result?

A Virtual CFO can help you make those decisions by providing the analysis and making recommendations.

Your bookkeeper or accountant may give you monthly totals, keep your invoices going out and provide profit and loss accounts, but can they help you make the BIG business building decisions?

Virtual CFOs are becoming more the norm for businesses for this reason. The cost of a part-time Virtual CFO pales into insignificance compared to the positive financial results they achieve that far exceed their cost.

Here is what you need to know about Virtual CFOs (VCFO). How the Virtual works in practice, the Value Proposition – Measurable and Immeasurables and how you can take control and get the best value for your VCFO.

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As more people get comfortable online, it makes sense then that more services can be provided online.

Imagine a world where almost every service can be provided without the parties ever meeting each other physically? We’re not there yet, but with the exception of a number of trades or person to person services, the time will come where it’s the norm for us to work with one another online, screen to screen, or via augmented reality, but seldom or never, shake a hand. The shaking will be done virtually, screen to screen and not face to face.

Software that is used on one computer only, is being replaced by online software that can be used or accessed by a team of people and that makes it possible for whole teams in different locations, to collaborate online with access to the same data.

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Internet speeds are mostly, bearable to good these days and so it’s a cinch to work remotely and online. And think of the time saving. The awful downtime in traffic to meet personally. We shouldn’t have to fight to get to the office or a meeting, when most of us can be much more productive, from a home office, depending on the business of course.

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A good Virtual CFO can handle the complete management of your numbers, the tough financial jobs, the analysis that you may not be able to do in-house, the reporting and recommendations for further business development and … be a good sounding board … and available when you need them … and not on your payroll when you don’t.

So, as a business owner, why and how does this all matter to you I hear you say?

Well, what if you could have a truly top-flight CFO work with you virtually and in person as needed….who pays for themselves….and even better, contributes three to ten times their cost in direct and measurable improvements!!!!!

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The virtual way means mostly online, as agreed between you and the provider.  Typically it could be as follows: 

▶ Meetings – Even a first meeting and certainly those that come later, can beonline. Since the COVID19 crisis, online meetings have accelerated to become common-place. Zoom has boomed! Online meetings save heaps of travel and downtime. 

▶ Other Communications – typically via phone, Zoom, Skype or messaging (visual always has more impact than phone).  

▶ Accounting Systems – Most systems today are online and hence can beaccessed by the business employees and your VCFO. Again most systems connect with your bank and allow you to see your current bank balance in real-time.  

▶ Bookkeeping connection – This is the heart of your accounting system ofcourse and if other systems, such as stock control and time management and job management connect to it, then you reduce considerably double entries and with it cut down on errors and omissions. 

▶ The ‘Not Knowing’ cost – What is the cost of not being absolutely sure ofyour numbers and the feasibility of parts of the business without a high level expert to help? 

In practice a VCFO can be part-time, on-call and as-you-need it … and if you take advantage of online tools, your business will gain efficiency and your costs will be less.

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Most businesses will have an internal accounts or data entry person. Someone to handle the invoicing and collections, enter the data, do the bank recs and produce reports from the accounting system. 

Similarly most will have a tax accountant, who handles the tax and compliance side for, how many, 50 or so clients, but are often too busy to get out of the office and help a client create a proper management accounting and financial control environment. 

Most businesses would say an accountant is an accountant right? And all good Virtual CFOs have an accounting background. But forgetting speciality accountants such as forensic accountants, there are two types: 

Tax Accountants: Those who have mainly worked in an accounting practice andlearned tax law and compliance requirements and …

Management Accountants: Those who started their careers in business, havelearned from an early age to find cost savings and develop processes to improve profit and cash-flow. Big companies generally make big profits, because they have trained CFOs who focus on profit improvement and cost reduction.

It’s the people who have been trained at the big end of town, but now prefer to freelance as a VCFO, who have a number of smaller clients that you should be seeking. 

Our advice is don’t confuse the two. Whilst the first accountant may hang up a shingle which proclaims ‘Business Advice’ and can do useful cash flow projections, frankly, if they have never worked for a business other than a tax practice, they are highly unlikely to have the training and intuitive knowledge that saves and makes you money! 

Such advisors will end up costing you money for little return, not making or saving it!

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We maintain that a good VCFO should create you more in improved profit, cash-flow and savings, than they will cost and we will get to how that can work shortly.

A good VCFO is someone you can call on anytime for help and advice. Whenever you need to make a decision that costs money, that needs an investment of any kind, or where there is a proposed return on investment, where you may have relied on ‘gut-feel’ which can be hit or miss, the smart business person in you says, you need someone to quickly do a feasibility to help you decide if the decision is a good one. 

There are three main immeasurable reasons why you will grow faster and benefit from a VCFO and six main measurable benefits.

The 3 business immeasurables 

1. A bouncer – A smart financial brain to bounce your ideas off. A right-handperson that’s NOT on your payroll – but available when you need them. 

2. On-call 24/7 – Because you’re always in business management anddevelopment mode, it’s nice to call an expert when you need it, if not actually 24/7 then at least time out of business hours, to help you mind-settle any material aspect of the business.

3. A ‘feaso’ expert – Though this is partly measurable, it’s the vital area offeasibility. You may want to bounce an idea off the expert: 

  • “Should we do this?” 
  • “What about employing another person?” 
  • “How much more should they have to earn to make employing them worthwhile?”
  • “What if we buy that machinery or take on that facility, or take over that business, how much is the real return on investment?” 

The 6 business measurables 

  1. First fix – Immediate advice and an opinion to help with your most pressingissues. There is always one part of your businesses which vexes more than any other and it’s always smart to address that as a starting point. 
  2. Profit, cash-flow and growth improvement – Time then to look at all theprofit and cash flow processes to see where savings in dollars and time can be made. Ask your VCFO about the Seven Key Numbers of your business. One small percentage saving in two or three of these numbers can make a big improvement to the bottom line. (And pay for the VCFO many times over!) 
  3. Management reporting and planning – Time to get management reportsthat you can understand and manage by. Accountants tend by nature to print reports that make sense to them, that maybe all ‘goobledegook’ to you. Time to demand graphical reports where you can easily see performance KPIs, trends, declines and improvements.
  4. Streamlining/Systemising – Automation and streamlining for modernbusiness owners is a must. At any time you will want to see the status of each part of the business and today, there is no excuse for not having in place, low cost online systems that talk to each other help your team avoid double entry and minimise error.
  5. Bankers, Lenders, Stakeholders – You may have to raise funds or havealready done so and find yourself spending valuable hours compiling plans or reports. This should be bread and butter to a good VCFO who can take responsibility for the financial and reporting challenges to free you to get on with the business building side. 
  6. Business value enhancement and exit planning – Business value is usuallycalculated on a multiple of profit, usually varying from 2 to 6 times the profit before interest and tax. A good VCFO will work with you and set a timeline to maximise the business fundamentals and market value at an agreed time in the future.

For a general summary of help a Virtual CFO normally provides.

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A good VCFO will review your business and almost certainly make some immediate recommendations, but it’s better for YOU to take control from day one.

You would have a fairly intuitive notion of what you want done, so once you’ve decided to engage a VCFO, here are just seven suggestions to maximise their value to you … so you can get a return on your investment.

1. ‘Deep-Dive’ into your Numbers – So important … yes ask them to fix theimmediate irritating pressing issues that concern you most … but as part of that, get them to do a ‘fixed-fee’ analysis of your numbers. It’ll come back to bite you, if you make decisions on old numbers that are wrong. Make sure anything you do from your starting point, is based on the accurate assumptions.

2. Costing & Pricing – Get them to give a preliminary review of the costingand pricing of your products or services and prepare a summary of recommendations for consideration at a next meeting.

3. Strategic Direction – If you have a fair idea of where and how you want togrow the business, but need to flesh out the ideas into a serious plan. Ask your VCFO to undertake a Strategic Planning Session with you and your senior team. This will most likely start with a SWOT Analysis.

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4. Seven Key Numbers – The quickest way to get profit and cash-flowimprovements is to review the Seven Key Numbers. A good VCFO will know exactly how to calculate these and with you, can flex them and agree where the greatest savings and improvements can be made.

5. Operations and Finance. It is usually the case your day to day operations andfinance can be streamlined to save costs and improve margins. If funding and capital raising is a requirement, a good CFO will develop the documents, navigate the funding requirements and set in place pay down requirements according to income. 

6. Systems. Your VCFO will help you set up online systems to maximiseefficiency and keep costs down. The main advantages of online systems are: 

  • Most are relatively low cost, pay by the month subscription services. 
  • You and others you nominate, e.g. your VCFO can have access to your systems 24/7 from any location. 
  • There are no upgrades to do, like you had with boxed software, the provider upgrades and improves the system online, so you don’t need to subscribe to quarterly system upgrades. 
  • There are no back-ups to do. Because it’s online all backups are done by the provider with most providers having massive data storage centres. 
  • You can view your system’s data and reports via a smartphone or tablet. 
  • Your accounting system is connected to the bank in real time. No more waiting for bank statements. 
  • You can check sales, bank balances from anywhere. Also you can check who owes you money in real time, so say you are at a customer’s and they owe money, you can see that immediately and collect at the same time. 
  • Modern online accounting systems will link to other systems such as stock control and job management. 

7. People. It’s likely a good VCFO will be able to help with your HR managementeither by helping to systemise your HR process and/or suggest the best and most cost effective options.

Each of these areas could provide considerable opportunities to improve cash flow profit and make savings.

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You can see from the last section how a VCFO can increase profits and save money in the points above.

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Insist on a ‘VALUE-BASED’ VCFO arrangement. That is, insist that your VCFO must prove to you how they can provide value in return.

The best way to do this is to avoid the VCFOs that want to charge you an hourly rate. Hourly rates are what your tax accountant charges you and you know how painful that can be.

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We recommend a FIXED MONTHLY FEE because:

This provides you with certainty. Set a fee that seems fair to both you and them to start and agree that in 30 or 60 days time, to review the fee and adjust it up or down to suit.

But that is just part of it. Typically most businesses without a CFO, will give their Tax Accountant responsibility for their internal accounting, from numbers prepared by an internal bookkeeper. The accountant may even re-key the numbers into their own system to ensure accuracy and for easier lodgement to the tax authority.

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With a good VCFO, you will be presenting your tax accountant with an accurate and fully reconciled set of accounts, so the Tax Accountant’s fees should be a lot less (than they are currently).

When you add this savings to the other savings, engaging a VCFO should save you a lot of money … NOT add to your costs!

 In Summary: Your Virtual CFO will be ‘hands on’ and …

  1. They will take the numbers and financial responsibility off your shoulders, leaving you free to focus on making more money.
  2. They will keep a close eye (via cloud based systems) on progress and report to you each week, fortnight and/or month with explanation and discussion on progress towards targets. If targets are not being met, your Virtual CFO will investigate the reason and help to resolve any issues.
  3. They can act as a ‘sounding board’ for you to discuss your short and long term goals and ‘ad hoc’ opportunities that arise, feasibility of taking them on and details to ensure they provide a good return on investment with your resources.
  4. They should manage discussions and meetings with potential lenders and/ or investors for business growth funding. They will help you put the very best ‘business case’ forward to ensure you get the right funding to suit your business needs.
  5. They should guide you through the process of reporting to lenders/investors, participate in board meetings, prepare and present financial reports and answer questions from stakeholders.
  6. They should constantly present to you ideas for business improvement – not just financially related, but anything that helps your business to grow and improve. They will refer you to others who can assist in such areas as Marketing, Sales, HR, Operations, Customer Service etc.
  7. If your Virtual CFO is part of a CFO services group you will receive a much wider range of ideas and advice, because they aren’t operating as a ‘one person band’ who struggles to find time to keep up to date with innovation.
  8. They should stick with you through all stages of the business journey i.e. from stabilising your current situation, to growth, right through to business exit/ sale when you’re at that stage.
  9. They will ideally quote you a fixed fee for their involvement in project implementation. Such fees will be far outweighed by the improvements gained from their involvement.

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