As a small to medium-size business owner, you wear many hats and may be responsible for everything from new product development, to operations, human resources, accounting, payroll, and the company’s finances. While it is certainly understandable that you want full control over what is happening in your company, it might not be in your best interest to be intimately involved in every area. This is especially true when it comes to the company’s finances. Unless you have a background in accounting, you might not be the best person to do this function.
According to the Small Business Administration (SBA), more than 50% of small businesses fail in the first five years. This is mostly due to incomplete or inaccurate financial statements, failure to pay attention to cash flow, lack of attention to accounts receivables and not paying close attention to the story behind the numbers. Business owners may unknowlingly put their company at risk by either running the financial side of their business themselves or by having it handled by someone in the company who isn’t thoroughly knowledgeable in accounting and tax. Even so, it might not be practical or viable to hire a Chief Financial Officer (CFO). Their salary can range from $125,000 to more than $200,000 per year plus bonuses, benefits, administrative and overhead costs.
A CFO is responsible for managing the financial activities of a company. The duties of a CFO typically include financial and tax planning, tracking cash flow, analyzing the company’s financial strengths and weaknesses and making recommendations to keep the company fiscally sound. A CFO will also assess the financial risks of certain transactions, make long and short-term investments, restructure debt and develop a strategic plan to keep the company on track to meet its financial goals. In addition, a CFO is responsible for managing the finance and accounting functions of an organization, developing internal controls, implementing accounting software and ensuring that the company’s tax returns and financial reports are accurate and completed in a timely manner.
As you can see, a CFO performs many functions that are vital to a company’s success. A CFO is highly trained and understands the meaning behind the numbers reported on financial statements, as well as the implications of those numbers. A business owner or employee in this capacity may not have the time or the skill set to analyze the numbers in the same way as a CFO.
Fortunately, the CFO function can be outsourced to an accounting firm or a company who specializes in this area. The benefits of hiring an outsourced CFO (also known as a virtual CFO) include having someone:
- With a high-level of expertise in finance, accounting, and tax on your team
- Available to you as a trusted advisor who will analyze the financial implications of any decision, provide guidance, and make recommendations
- Focused on the financial side of your business who has your best interests in mind
- That will provide financial statements that are accurate and completed monthly, quarterly and at year end
- To explain the meaning of the numbers reported on your financial statements so you can make good decisions
- That will keep you updated on accounting standards as well as changes in the tax laws, your business and sales tax nexus obligations and tax credits and deductions that may help save money on your taxes
- Who will develop strong internal controls to help protect your assets
- Who will work with bankers and other financial professionals to obtain the best terms for a loan or a line of credit
- Who will be a liaison with attorneys, insurance agents and vendors
- Who will allow you to focus on growing your business
An outsourced CFO can provide a lot of value to your business. To remain competitive, you must have a thorough understanding of what is going on, such as which product lines are profitable, what areas need to be improved to operate more efficiently, where you need to increase or cut back on production, and which customers are paying you on time. The numbers tell the story and your book should be written by someone with the knowledge and experience to get it right.