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How can virtual CFO services be a solution for your company or startup?

Posted by Neha De

August 5, 2021    |     4-minute read (1073 words)

More than half of the early-stage businesses shut down within the first three years of operation, says research from The Telegraph. While there are several reasons why this may happen, one of the most notable is the inability of startup owners to have a handle on the financial side of their enterprise.

Now, one might argue that hiring a CFO would take care of that problem, but the truth is, for most startups, bringing in an experienced, full-time CFO simply isn’t financially feasible. As per data from salary.com, the average salary for a full-time CFO in the U.S. is $395,004 (as of July 28, 2021) — the range typically falls between $300,676 and $502,063 — depending on important factors such as education, certifications, experience and other additional skills. 

This is where the role of a virtual CFO comes in. A virtual CFO is a financial expert (or a company) that business owners can bring on board as a consultant for their company, and who is available as a part-time resource based on their requirements. They deliver financial strategy services, help make big strategic decisions and work within a set budget.

A virtual CFO can offer several services, such as operational optimizations within an organization; raising capital; systems analysis and design; fixing cash flow issues; implementing more efficient processes and systems; developing pricing strategies; and preparing for growth. 

This gives businesses access to experience as well as top-level strategy, but without the associated costs. And one of the few good things that came out of the COVD-19 pandemic is that it proved that there are thousands of jobs that could be performed virtually, CFO being one of them. In fact, according to studies by the U.S. Bureau of Labor Statistics, 37% of jobs can be performed entirely at home.

What a virtual CFO can do for a business
Here are some of the top services a virtual CFO can provide a company: 

  1. Save time and money: The advantages of hiring a virtual CFO always begin with cost. On one hand, the cost of finding and recruiting a full-time, in-house CFO can be daunting, especially for a startup or small- or medium-sized business owner. On the other hand, a virtual CFO can be hired as per requirement.

    With a virtual CFO, entrepreneurs can leverage the knowledge, skill and experience of a full-time CFO with the reduced cost of having a full-time CFO on staff. As the virtual CFO helps their business grow, they can then scale up their involvement with their business as needed.

    A virtual CFO also allows business owners to save time by providing the financial oversight of processes they were handling internally, including processing paying bills, payroll, budgeting and handling financial paperwork, among other tasks. 
  1. Offer seasoned, strategic insights: Balanced, long-term growth necessitates a sound business model that takes into consideration factors such as industry outlook; internal and external resources; customer demographics and behavior; a detailed financial plan; as well as competitive positioning. It’s not enough to look at previous year’s data and come up with a plan for the current year — the current speed of business demands that essential metrics are assessed continually and acted upon promptly.

    Tyler Sloat, CFO at Zuora, says the CFO must have a clear understanding of what influences change, what the key business drivers are and the business metrics. The evolution of the traditional financial planning and analysis (FP&A) group within the CFO’s function into more of a financial data and analysis (FD&A) group further enables the CFO to help steer other functions based on financial benchmarks deeper within each function. The availability of data and the capability to analyze that data with accuracy and speed allows for much more granular action items. The CFO must be able to understand those takeaways and then train the executive staff to help them make the right decisions to move your business forward.

    A virtual CFO can put in place various accounting and reporting systems to ensure business units have full visibility into the core metrics required to make those decisions quickly and efficiently. Some such systems are:
  • 360-degree view of accounting data: This lets the CFO view real-time procurement, invoicing and cash flow simultaneously.
  • Improve controls: Processes that include financial oversight and audit tracking to reduce financial errors and ensure the accuracy of all accounting data.
  • Financial planning: Data from different operational components of the organization provide business cases for cash management, borrowing, equity raises, restructuring and so on.
  • Real-time compliance: Enterprise resource planning (ERP) reporting provides an investigative platform that helps ensure tax compliance and remediate issues.
  1. Financial management and forecasting: A virtual CFO can oversee the accounting and financial functions for a business by providing regular financial reporting and guidance, developing internal accounting controls and ensuring there are proper checks and balances in all accounting issues. Firms with dynamic business models benefit the most from financial forecasting and projections. A CFO can develop rolling forecast tables and financial statements that project up to 12 months out so that resources can be allocated to meet future goals.
  1. Cash flow management: A virtual CFO can help prepare cash flow statements that include stockholder equity, long-term assets, net income and liabilities, among others. And through regular assessment of cash flow statements, they also help develop cash improvement programs.A virtual CFO can also attend business meetings with investors and lenders to raise capital for growth.
  1. Scale the business: When a startup owner is looking to scale, a virtual CFO can put them in the right direction and come up with a healthy action plan. They can support the expansion plans by performing financial forecasts and financial risk assessments, ensuring that the financial infrastructure is up to the mark, helping obtain financing and applying for loans, determining the most cost-efficient tax structure and applying for multi-state registrations, if applicable. 
  1. Tackle financial challenges: Å virtual CFO can help set things straight when a company is struggling financially. They can help remedy the following challenges: high business overhead; inability to raise capital; poor cash flow and profitability; high client churn; and debt management and loan repayment; among other challenges.
Takeaway: A virtual CFO can help businesses overcome a number of impediments to business growth through various key responsibilities that are tailored to their specific needs. And the best part is that they can do this without compromising their business’ bottom line. 

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