Does Your Business Need Virtual CFO Services?

Running a business is a lot of work and very time consuming, especially when you're a small business owner. It can be hard to keep operations moving, manage a marketing strategy, make plans to meet sales goals, and so on. Keeping track of your business finances can feel like just another ball to juggle. That’s where hiring a virtual CFO (also known as a virtual Chief Financial Officer, outsourced CFO, fractional CFO, or a VCFO) can help.

How Can the Virtual CFO Role Help Your Business?

The answer is…many different ways. Overall, a virtual CFO will help you have financial peace-of-mind and create a game plan to grow and scale your business. Let’s dive into the different ways a virtual CFO can make this happen.

Provide you with a qualified team of accountants to help you maximize profits, minimize taxes, improve cash flow, and build personal wealth.

To look out for the financial health of your business, a VCFO will use financial statements, financial forecasts, financial and non-financial KPIs, along with a few other metrics to determine ways your business can maximize profits. This may involve finding areas to cut costs or increase the efficiency of delivering your product or service.

A virtual CFO will also use these metrics to plan for your taxes and improve your cash flow. Your cash position impacts all facets of your business. It determines whether you have the resources to pay your employees, hire for a position you desperately need filled, purchase equipment, launch new service lines, etc. A financial professional experienced in forecasting can help you understand your cash position and determine what business decisions you can make short and long-term to achieve business goals. Rather than give you financial advice, your virtual CFO is a consultant that empowers you to establish realistic objective and make data-based decisions to get your business on the right path.
Measure your business’ key performance indicators by providing a weekly performance report.

Your VCFO will use your financial data to create weekly performance reports and measure outcomes against key performance indicators you set together. Analyzing metrics regularly against KPIs will help you and your financial advisor determine if your business is on track to meeting business goals such as target revenues, target profits, client acquisitions, etc.
Provide monthly cash flow projections that projects a rolling 12 months.

We mentioned forecasts above, but let’s get a little bit more specific on what a forecast is and why a virtual CFO will prepare forecasts for you. There are two types of forecasts: short-term and long-term. A short-term forecast will tell you what your cash position looks like now and in the very near future. This helps you understand immediate actions you need to take like holding off on paying a bill for a week or call that client that hasn’t paid their invoice, yet.

A long-term forecast shows you your cash position over the next year or two, helping you plan for the future. Long-term forecasts are better suited for deciding whether it’s in the budget to hire a marketing director, for example. And, if you don’t have the cash to do that currently, you can use a forecast to make plans to do so next year.

Your forecast can also be used to scenario plan. A scenario plan puts your “what-if” statements into practice and see what would happen to your cash position if you make a certain decision or if an outside force like a recession were to impact your business. From here, you can work with your financial professional to make contingency plans to ensure the financial health of your business.

This is the type of strategic planning virtual CFOs have become known for, although many CPA firms still provide only a traditional, historical focused approach to accounting.
Provide a “profit and loss” analysis on a monthly basis that compares your business’ performance to that of your industry.

A good CFO knows numbers. A great CFO knows your industry’s numbers. Our VCFOs are extensively knowledgeable in several industries, including law, cannabis, creative agencies, and transportation and logistics.

This means virtual CFOs offer insights specific to your business case and can compare your metrics to averages in your space.
Review your banking relationships on a regular basis so that you are prepared when the need for financing arises.

A virtual CFO can manage your bank relationships and make sure that you are in a good position to seek financing when the time arises. For example, we often suggest to our clients that they have a line of credit equal to their cash reserve that is ready for emergencies when and if they arrive.

Virtual CFOs will help you determine how much your line of credit should be and help you get the best terms possible: a lender wants to see clean financials that follow the accrual basis, to feel comfortable giving you a high credit limit at a competitive interest rate.

Beyond the virtual CFO services listed above, here are a few of the other financial services a VCFO typically offers:

revenue recognition
scheduled financial meetings
financial statements
month-end close
cash flow management
financial analysis and financial reporting
company-wide KPIs
incentive plans (phantom stock, esops and variable pay)
performance by project
team member performance evaluations
department performance evaluations
customized department reports

Hiring a Virtual CFO vs. a Traditional CFO, CPA Firm, or Bookkeeper

It might be a challenge to determine whether you, as a business owner, should hire an in-house CFO or an outsourced CFO. We have guideposts to help you decide:

If your business is under $2 million in annual revenue, you would benefit from a bookkeeper or a traditional CPA firm. If your business is over that $2 million mark but you don’t yet have the funds to hire a full-time CFO in-house, we’d recommend a virtual CFO. Virtual CFO services come at a fraction of the cost of a full-time employee while still offering the same job accounting services and responsibilities as a traditional CFO.

To find out more about how a virtual CFO can benefit your financial strategy, book a free consultation with one of our virtual CFOs.