CFO SERVICES have emerged as an important category of professional services designed for startups and SMEs to improve their profitability and get them ready for scalability. Here’s how.
CFO Services: What Is It and Who Needs It?
CFO services are professional services delivered by experienced CFO and financial professionals to organizations looking to address key financial challenges, achieve broader business objectives, and realize higher ROI on their financial investments. CFO services are an efficient, cost-effective way of obtaining high-level financial expertise for a specific goal or a time period. Often used interchangeably with virtual CFO services or vCFO services, the scope of services offered by CFO services firms are broad and can be tailored to meet specific business needs. CFO services allow organizations and business leaders to tap into a rich talent pool of former enterprise CFOs and finance professionals to leverage their expertise in financial leadership, advisory, strategy, planning and supervisory skills.
CFO services are ideal for small to mid-sized enterprises and startups who may need financial expertise but do not have massive budgets to hire full-time in-house CFOs. CFO partners (leased from CFO services firms) bring the same level of competence and expertise as full-time CFOs but can be hired at a fraction of the cost associated with a full-time CFO. For instance, hiring a full-time CFO today can cost anywhere between Rs. 50,00,000 – Rs. 1,50,00,000 annually for mid-sized enterprises, however, availing the services of a CFO partner can be up to 75 percent cheaper!
Let’s look at some of the services CFO partners offer.
Over the past few decades there has been a dramatic shift in the business landscape. Technological disruption, increasing operating costs, and tighter regulatory oversight have transformed how organizations conduct business. This change in the landscape becomes evident if you look at the S&P 500 index; The lifespan of the world’s most successful companies has never been shorter. In 1965, the average S&P 500 company had a tenure of 33 years. By 1990 it came down to 20 years. The average lifespan of companies in the S&P 50. This is estimated to shrink to 14 years by 2026. So, why are company lifespans on the decline?Well, one reason is that there simply are more companies today. To thrive in an environment marked by intense competition, increasing complexity, and disruption, business leaders must focus on creating real value for customers, shareholders, and the societies they serve.
While large enterprises have dedicated teams for specific business functions, smaller organizations and startups have common resources performing multiple functions. For functions that need deep expertise like finance and strategic leadership, juggling multiple roles for inhouse resources becomes a difficult task. Additionally, performing multiple tasks takes away time from what is really critical – building a sustainable business in a tough market. So, how can business leaders and organizations balance the need for strategic acumen in finance, ensure budgetary compliance, all while focusing on core business operations?
The answer is simple, you ‘rent’ leadership instead of ‘buying.’
Let’s look at how CFOs can propel your growth profitably through their services:
1. Strategic Financial Planning: For fast growing organizations planning can often get side tracked for more pressing operational issues. However, strategic financial planning is essential for organizations to determine how it will achieve both short-term and long-term business objectives. CFO partners work with you to create a strategic financial roadmap and help you set up long term revenue and profitability goals. They also help you evaluate how your operations will impact the overall financial position of your organizationin the present and the future. CFO partners can also act as catalysts in the strategic planning and goal setting process. A CFO partner will help you identify financial benchmarks for the operational side of the business while setting broader business goals that are achievable.
2. Budgeting and Forecasting: Budgeting and forecastingare an integral part of running your business and a CFO partner can help you develop and implement an annual operating plan (AOP) or Budget that guides your growth, helps you prioritize, track progress, and create a comprehensive projection of all estimated income and expenses based on forecasted sales revenue during a financial year. A sound financial plan would typically include a breakdown of components such as budget development, resource costs, working capital management, payroll and benefits, succession planning, and tax planning. CFO partners also reviews the historical data, past performance, segments the business both in terms of revenue and headcount, sets targets and helps you identify performance metrics, implement measurement system, review performance and report.CFO partners will also oversee the management and maintenance of your budget to ensure that your business is on the right track financially and optimize costs to reach profitability faster.
5 Questions You Need to Ask Before Engaging a CFO services Firm
If you are considering hiring a vCFO, here are five key factors to look for in your CFO services partner:
6 Ways CFO Services Can Help SMEs Thrive
Taking your fledgling startup or SME to the next level of growth requires the right talent and the right skillsets. And financial operations are no different. You need more than an accountant. You need a strategic partner who understands your industry, your business, and your long-term goals. As your business expands, you or your executive team simply cannot invest your bandwidth dealing with pressing financial issues or formulating comprehensive strategies and plans. And that’s exactly where CFO services and CFO partners can create lasting value.
3. Fundraising and Cashflow Forecasting:CFO partners work with you to manage your business’ liquidity, avoid funding issues, and manage your working capital better. You can choose between half or full year reporting visibility forforecasting and build comprehensive cash flow models. Your CFO services provider can also create interest and debt reduction plans, short and long-term liquidity plans.
Fundraising and cashflow forecasting are also crucial for non-profit organizations because they must remain profitable to drive social impact. While, conventional wisdom suggests that non-profits are not in business to make profits, however, they must be able to make a profit to create social impact and remain operational. CFO partners work with your non-profit organization to build cash flow models and raise funds (through events, donations, etc.) to predict future positions of your business based on key variables affecting your cash in and cash out positions.
4. Profitability Analysis: The foundation of entrepreneurship is built on profit. While the bottom line is a great indicator of general business health, it is also crucial to know how specific business units are contributing to the overall business growth. A CFO partner can help you determine how profitable a specific business unit is within an organization. For instance, if you’re running a SaaS-based product company, it’s important to understand the kind of ROI you’re getting from your product development team. Alternatively, if you offer multiple SaaS products, you need to know what a particular product line contributes to your business. CFO partners use analytical modelling to help you make the most favorable decision to drive business unit profitability.
5. Financial Analysis and Business Modelling:CFO services can help you create financial and business models to help you predict the impact of a future event or decision on the company bottom line. It’s a key decision-making tool to future-proof your organization from external variables like policy changes, market disruption, validate the profitability of a new proposed business unit, or perform a break-even analysis.
As a new startup, breaking even can be an elusive goal. Especially if you are a SaaS company or a service aggregator. The competition is fierce and customer acquisition can take months, if not years. A CFO partner can help you analyze how long it’ll take you to break-even and what options will get you there faster. This helps you get clarity on the pricing strategy for our product or service, key marketing considerations, and future investment decisions.
6. Mergers and Acquisitions: In the competitive business landscape today, organizations are under more pressure than ever to deliver better, lasting results for stakeholders. CFO partners bring the investor mindset, helping you look at opportunities to buy, sell, partner, fund, and fix your business to add and preserve value. They conduct strategic assessments of your business, perform due-diligence, suggest operational improvements, and identify internal capabilities. These are all crucial steps to ensure a successful M&A journey.
CFO partners are instrumental to driving company-wide financial transformation. They also assist with performance management, enable digital finance and accounting,contract life cycle management, sales process and pipeline management, and can offer strategic direction for changes in ownership structures.
So, do you plan on engaging a CFO services firm for your company? Let’s look at some of the factors you must keep in mind before hiring a vCFO.
No matter what stage your business is at today, engaging the services of a vCFO is a great starting point. Just make sure you understand what your business’ key financial challenges are and areas of improvement that your CFO partner will work on. Also, measuring the impact of your CFO partner on your business will help you rationalize the ROI. Remember, what doesn’t get measured, doesn’t get managed. Work with your CFO partner to identify key metrics and set timebound goals to define what success will look like.
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1. Do They Have the Requisite Experience?Does your CFO services partner have sufficient experience and expertise in your industry vertical? When screening firms, look at the number of years they have been in business and ask about their experiences with clients in your industry.
2. How Invested will They Be in your Success?
Reviews, referrals, and ratings are all a good indicator of a firm’s reputation. Client testimonials and client industries are a great way to ascertain a firm’s past track record of success.
3. What type of reporting can you expect?
Ask your prospective CFO services firm about the types of reports you can expect. Standard reports like sales reports/dashboards, budget reports, cash flow reports, breakeven reports, and labour summary reports are essential.
4. Can they provide custom plans/scope for your company?
One of the most compelling reasons to engage vCFOs is the added flexibility that you get as a business owner. While comparing CFO services firms, ensure that you get to choose the scope of work that will help your business. Their pricing model should address key financial concerns of your business. Also, flexibility in pricing plans is a big plus!
5. How safe is doing business with them?
A CFO services firm will be working closely on confidential information, so, be sure to ask questions about how your data will be handled or if there are any safeguards against data theft.
Choosing a CFO services firm is one of the most important decisions you’ll be making as a business owner, so it is crucial that you pick the right partner for your business. You can learn more about what we offer here.