An outsourced CFO can provide awesome value & financial insights to a growing business without the price tag of a full-time employee.
For a growing business to properly manage company finances, hiring a Chief Financial Officer makes perfect sense. The budgets of start-ups and SMEs however, mean a full-time appointment of $120,000+ p.a. (accompanied with recruitment fees) is often out of reach.
Enter the outsourced CFO.
Available on a recurring but part-time basis, having the expertise of an outsourced CFO means can you navigate around key items on the company calendar such as month-end reporting, raising capital and pass audit procedures. Whilst not on-site, the CFO packs a lot of value for businesses wanting to scale & grow the right way.
CFOs look behind the numbers and make sure business owners understand their financial information so informed decisions can be made. Outsourced CFOs can even sit in on planning and management meetings so as be across all relevant aspects of your business.
So what should your CFO be looking after?
- The CFO is responsible for the financial governance of a business with responsibility for the main financial matters. The core functions of a CFO are;
- Financial performance reporting – from initial transaction capture and recording to management reporting. This is essential for reporting to the board, investors and outside stakeholders such as financiers and industry bodies.
- Planning, budgeting and forecasting business performance – giving key directives to people in your business as to what to spend (or not) on regular operations and what targets they need to hit in their KPIs.
- Statutory reporting of the financials – to help keep your accounts in accordance with relevant statutory, regulatory legal and practice requirements (i.e. GAAP).
- Managing tax affairs – including income tax, transaction taxes (such as GST and Sales Tax), Capital Gains Tax, Employment taxes (Fringe Benefits tax, Superannuation, PAYG) and Government Duties (Stamp Duty, Customs Duty etc.).
- Managing transactional finance systems – such as the accounting software and the General Ledger, revenue capture such as Point of Sale, expense capture, Payroll, Accounts Receivable and Accounts Payable.
- Cashflow management – Managing and forecasting cashflow to ensure the business can meet its cash needs immediately and into the future.
- Capital management – Managing and forecasting the capital position and cap table, recommending and supporting new capital raising endeavours.
There are also several non-core functions which are sometimes included as part of the CFO’s responsibilities;
- Company Secretarial – managing statutory, regulatory and legal requirements particularly with ASIC.
- Strategic Planning – planning longer term high-level business strategy & distilling objectives from the CEO into financial terms.
The role of the CFO is critical to the healthy growth and success of a business. A failure in any of the functions of a CFO can have serious implications including unwanted attention from stakeholders and government.
What is an outsourced CFO?
- An outsourced CFO service is essentially hiring the CFO function on a permanent part-time or contractual basis. The cost and level of service varies according to the needs of the business, but the overall objective is to monitor the financial health of the business. An outsourced CFO service will usually include;
- Regular management reporting (monthly or quarterly) with commentary around the performance
- Projections of cash flow based on expected activity
- Management of income and transaction taxes (i.e. GST) & the various lodgement required for tax compliance
- Budgeting and forecasting performance and cashflow
- Oversight of bookkeeping and the General Ledger, which may include the treatment of more unusual key transactions
- Guidance and analysis of business decisions and proposed strategies
- Assistance and support for strategic planning
- Face-to-face meetings with management and attendance at Board meetings (if requested)
- Outsourced CFO services can also be “ramped-up” to provide financial expertise for specific activities and projects such as;
- Changes in the capital structure such as capital raising or changes in shareholders
- Preparing financial models which can be used for pricing strategy or investor materials
- Merger and acquisition activity
- Debt raising or loan negotiations
- Preparing for grants and tax incentives (such as the R&D Tax Incentive)
The role of technology
The emergence of outsourced CFO services is at least partly attributable to the rapid development of cloud accounting platforms such as Xero, MYOB and Quickbooks. These platforms facilitate remote access to real-time accounting data, sharing of data and ongoing communication which are all requisites for an outsourced CFO.
Cloud accounting platforms are increasingly automating old school accounting functions like bank reconciliations, issuing invoices and raising journal entries. With these more mundane tasks being automated and the transparency of accounting data improving, business owners are turning to virtual CFOs for higher level of financial insight and guidance.
Cloud accounting platforms are also being integrated with operational business systems such as point-of-sale or inventory management, furthering the opportunity to gain deeper insights into the business.
The advantages of outsourcing the CFO function
Better Cost to Benefit ratio
Outsourced CFO services are highly cost-effective compared to the all-in cost of a permanent employee. Salary packages for a local permanent CFO can be a minimum of $120,000. This cost can be prohibitive and compares to an outsourced CFO service which can cost as little as $200 per month.
Access to skills and experience
The CFO function is broad and challenging, and as a result requires highly skilled and experienced resources. Appropriate resources are scarce and can be difficult to source and attract, particularly in smaller businesses such as startups. The training component is also difficult to maintain internally, whereas an outsourced CFO is likely to already have these in place.
A Wider Perspective
In-house managers may have limited experience outside the business or industry. An outsourced CFO can bring a diversity of experience and an independent outlook to a business.
Flexibility to ramp up as needed
Outsourced CFO services can be ramped up or down to meet the needs of the business and often have limited “lock-in” or notice periods.
Access to wider resources
As part of a larger professional firm (usually an accounting firm) an outsourced CFO gives access to a wider professional community if specialist skills are needed.
There are of course extra considerations associated with an outsourced CFO service & outsourcing in general.
Might not be considered a part of the team
An outsourced CFO can be thought of as an outsider or consultant, rather than a part of the business. This has the potential to cause friction, which in turn reduces their effectiveness and ability to contribute.
Not exposed to the daily operation
Not being exposed to the day-to-day operations of a business may mean that some efficiencies & perspective a CFO might bring could be left out.
Often broad business experience
An outsourced CFO may not have the deep industry, market or customer knowledge that permanent resources do. This can be overcome in part by selecting an outsourced CFO with experience in an aligned industry and market (for instance, a CFO with capital raising experience in the tech industry).
What to look for in an Outsourced CFO
They should communicate like a boss
The nature of an outsourced CFO service requires that effective communication skills are paramount. Outsourced CFOs should be clear, open, direct and influential. If engaged for some time, expect them to represent your business to government, investors and even lead new initiatives internally.
Creativity and strategic thinking
A CFO should be more than a good bookkeeper or technician behind the scenes – they should be able to actively contribute to strategy and commercial decision making. Often they will be asked to make a decision on situations where there are several competing factors, without a clear winning option available.
Have relevant industry and market knowledge
Where possible look for related industry, market or product knowledge. While CFO skills are transferable, specific relevant knowledge is advantageous and allows the CFO to ramp up more quickly. This is particularly true for complex environments such as manufacturing or fintech environments.
An outsourced CFO must be technically literate and competent in a number of areas – cloud accounting platforms and business intelligence add-ons, communications and office tools alongside task & project management. The fast moving pace of technology requires constant vigilance to technological trends to keep up to date & maximise every opportunity.
Professional associations & network
An outsourced CFO should be affiliated with a high-quality professional services firm. This helps ensure access to technical materials, updates and specialised resources (to assist with specific projects) as needed. They will also generally have a better network to draw talent & wisdom from.
A Case Study
- A substantial business providing B2B SaaS engaged our outsourced CFO service to establish a professional finance function. The initial engagement review highlighted a number of issues;
- A lack of cash flow forecasting and pressure on free cash flow
- A lack of meaningful management reporting
- No budget or forecasting in place
- Numerous legal entities with an uncertain purpose
- Numerous debt facilities and loans in place
- A captable & corporate secretarial aspects which were largely out of date
- Standalone (non-cloud) accounting software
- An outsourced CFO service was initiated with regular responsibilities coupled with agreed project objectives. Over the first 3 months;
- 12-month cashflow forecasting was implemented – initially in Excel due to shortcomings in the existing accounting platform. As a result of a number of remedial actions, the forecast showed a return to cash flow positive performance after 4 months
- Native management reporting was implemented in the short term
- A 12-month budget was agreed and implemented
- A review of the legal and operating structure (taking into account business efficiency, income tax and capital gains tax) was undertaken – several entities were discontinued and merged as a result and a head company formed to house investments in several operating subsidiaries
- High cost credit cards and debt lines were closed. Remaining bank loans were amalgamated into a working capital line and the term extended with the principal banker.
Over the medium-term accounting was migrated to the Xero accounting platform (as at 1st July to coincide with a new financial year). A business intelligence add-on called Fathom was also implemented to facilitate high quality, insightful performance reporting to the founders.
On an ongoing basis, as the outsourced CFO, we are responsible for producing monthly management accounts and performance reports with analysis and commentary, maintaining and updating cashflow reporting and forecasting and overseeing operational financial functions undertaken by team including reconciliations, payables, receivables, payroll and expenditures.
The Fullstack CFO Approach
We manage the finance function for many complex, high velocity businesses. Our VCFOs are committed to balancing technical expertise with high commercial acumen, and aim to lead results in your business at an efficient pace. We commence engagements with financial modelling around the goals you want to achieve and set in place sensible budgets & KPIs to guide performance. We also are leaders at improving working capital through an affinity with government grants & leading many innovative businesses through the capital raise process.
Our mix of expertise and energy means we play an important role in any executive team we partner with.
CFO Services help you prepare for the various stages of your company’s growth, whilst minimising the various risk areas along the way. If you need help with outsourced CFO services and would like to know more on how we can better assist your business, reach out to the seasoned team at Fullstack whom can assist with a straightforward application.