If you’re a business owner, you’ve probably discovered running a business is challenging!
- Most business owners we’ve met over the years feel like every day brings a new set of challenges to face and problems to solve.
- Most of the time they haven’t even had the time to fully solve the ones from the day before!
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These challenges come in many forms, including the following:
- You can’t find enough prospects interested in your product or service
- You have lots of sales, but you never have any money
- Your accountant says you owe taxes, but you didn’t take home any money
- You just finished a big job and don’t have anything to show for it
- You have a lot of sales calls, but prospects aren’t buying
- All the money you bring in keeps disappearing to pay bills from past jobs
- Prospects keep telling you they’re interested, but they don’t sign the contract
- You have to keep refunding new customers/clients because you couldn’t get the job done fast enough
- You can’t find the employees you need to fulfill on contracts/orders
- You feel like your expenses are higher than they should be, but you can’t find out how
- Your estimates for jobs are too low/too high
- You can’t seem to keep your customers/clients happy
- You need financial statements for a lender or to get a bond, but your financial information is a wreck
If you’ve experienced any of these problems, the good news is a CFO can help you! The acronym CFO, as you probably know, stands for Chief Financial Officer. Chances are you can see many of the issues you face are not actually financial issues, and you may be wondering how the problem could or should be addressed by a CFO.
What is the main role of CFO?
The answer to how non-financial problems can or should be addressed by a CFO rests in the fact your CFO is the person primarily responsible for the financial performance of your company. Every problem you face has an impact on the financial performance of your company.
If customers aren’t happy with your service delivery, for example, they leave the business and go elsewhere. If you can’t get enough employees to deliver on promises, you also lose customers and the income from them. Any prospect not signing a contract is lost revenue. Since any problem you face has an impact on your financial performance, a CFO as the person responsible for financial performance has a vested interest in helping you solve these problems.
That’s all well and good, but how can the financial guy help you solve a hiring problem or a customer satisfaction problem? The answer rests in data analysis. CFOs have a wealth of information at their fingertips, and a good CFO knows how to use your financial information to your advantage. And if they are really good, they know how to get beyond the financial information to get even better ways to help your company improve the bottom line. The best CFOs are not simply helping you read financial statements, cut costs, and raise prices. They are helping your marketing teams find better clients, your sales teams price better and close on more deals, and your delivery teams bring greater value to the clients. In short, the best CFOs are helping every aspect of your business, all through use of the data available to them.
Perhaps you’re a skeptic and don’t believe that’s possible? That’s fine. What do we know? We just do this for clients every day. Okay, now we’re getting a little too cheeky. But trust us when we say it can be done because we regularly do it. Perhaps this point can be highlighted by the fact a CFO sits near the top of the chain of command for nearly every fortune 500 company. They don’t get there simply by preparing financial information. They get there because of the influence they can make over every aspect of the business.
But now we have the problem of cost. Have you ever looked up the average salary of a CFO? If you have, you’ve undoubtedly noticed most areas of the United States pay on average around $350,000 to $400,000 for an in-house CFO! For many small businesses that’s an unreasonable expense! But the good news is you have another option. You can hire a CFO service to help you.
What do CFO services do?
The term CFO services typically refers to CFO service providers outside your company who bring you the value of a CFO without bringing you the cost. In this way small businesses are able to get the benefits they need at the budget they can afford. The most common functions CFO service providers are hired for include:
- Financial strategies and planning
- Short and long term forecasting
- Financial systems and strategy design
- Facilitating & interpreting financial reporting and presentation
- Overseeing the raising of capital
- Capital structure (debt to equity ratio)
- Interim CFO Services
- Cash Flow Analysis and Restructuring
- Making cost cuts
- Job costing
- Facilitating mergers and acquisitions
- HR oversight
CFO service providers can also help you put together strategies and key performance indicators for other areas of your business, including:
- Customer delivery
- Fixed assets and equipment
- Products and services
- Employee retention
- Net worth growth for owners
- Data integrity and security
Notice we don’t include bookkeeping or accounting in either of our lists. You actually want to avoid having as part of your CFO services your regular accounting and bookkeeping. It’s okay to have the same company perform both functions, but we recommend having them as a separate engagement if you do. You do not want to be paying CFO service prices for accounting and bookkeeping functions.
What do CFO services charge? How do you price a CFO service?
That brings us to the next question. What is the cost of hiring a CFO service provider? This is an excellent question, and it doesn’t have a simple answer. It really depends on what you hire them to do for you. We have seen prices range anywhere from as little as $1,000 per month to as much as $25,000 per month depending on the services offered. We’ve even heard rumors of one of our colleagues legitimately charging a client $50,000 per month in order to cover the needs of multiple complex businesses!
Those at the lower end of the spectrum were paying simply for one or two functions, while those at the higher end were typically having the same company do accounting and bookkeeping as well as multiple levels of CFO services. Most CFO service providers, however, are interested in being an asset to your company, not a cost. With that in mind, most do like we do and provide you a custom quote tailored to the specific needs of your company.
Here are five key factors impacting the cost you pay for a CFO service provider:
- Your business size – larger businesses naturally have more transactions, and they usually pay more accordingly.
- The complexity of your financial statements – more complex accounting requires more complex analysis, meaning you should expect higher costs if you have complex situations.
- Your industry – Grocery stores, real estate investors, and construction companies have different needs and complexities. The more complex your industry tends to be from a financial perspective, the more you should anticipate needing to pay.
- The services you select – you should not be paying CFO level costs for accounting and bookkeeping, but you should also not expect your CFO to do those for free. If you hire a CFO for more services, you should expect more costs.
- The CFO and the team – You should expect your CFO to have a team behind them, and you should expect different levels of experience. Your costs will be impacted by the experience and expertise of that CFO and the team behind them.
You should expect to pay a good amount for the services a CFO provides you, but you should also expect that the CFO services that are right for you will not be an unnecessary burden on your financial statements. Most service providers have a minimum retainer for which they will work, but pay attention to what your potential CFO is offering. Are they offering more than you need, or is it a great fit for you and your company?
Should you hire a CFO service provider?
With such a wide range of pricing, how can you tell if you’re ready to hire a CFO service provider? There are two excellent methods for figuring out this question, and we recommend a combination of the two.
The first is a general range of what revenues make sense for CFO services. We have worked with many businesses over the years. We’ve found most businesses are really ready for CFO services when they reach around $1,000,000 in annual revenues. Some industries are really good around $500,000, but most fit into the $1,000,000.
Don’t get us wrong! You should have your accounting and bookkeeping needs handled MUCH sooner than that. Having said that, there is a cost to benefit ratio to actually hiring a CFOservice provider, and most companies don’t get enough benefits to cover the costs at lower revenue levels.
The second method for determining if you are ready to hire a CFO service provider is an analysis of your needs. Ask yourself the following questions:
- Do you have time for the budgeting, forecasting, and financial analysis your company needs for growth?
- Are you making critical decisions based on instinct instead of financial data because you don’t have time to get the data?
- Do you have outside investors/lenders wanting better financial data?
- Is your business struggling to do as well as you think it should be?
- Are you getting the benefits from your financial data you feel you should?
- Do you trust your financial systems, policies, and procedures?
An honest analysis of these questions can help you decide if you’re ready for the CFO your company may need. And don’t forget to take into account the problems we outlined at the beginning of this article, or any others you’re facing.
The bottom line is to consider the value the CFO services can give you. Can they make you more money (through increasing revenues or decreasing time or costs) than what it would cost to hire them? If so, it’s probably time to pull the trigger and hire them.
How to pick the right CFO service provider
Let’s assume you’ve decided the time is right for hiring a CFO service provider. How do you pick the right one for you? There are three common terms used to describe CFO service providers: outsourced CFO services, fractional CFO services, and virtual CFO services. Understanding the difference between these types of CFO service providers can help you find the right company for you.
What are outsourced CFO services?
The term outsourced CFO is probably the broadest and most widely accepted term used for CFO service providers. This is a general term used to describe a financial leader for your company that is outside of your organization but provides the most advanced financial and accounting services for your company. As we mentioned earlier, the best CFOs go beyond financial and accounting services, and the same holds true for an outsourced CFO. The best outsourced CFOs are also providing you top-tier business and operational guidance as well as overseeing financial performance.
What is a fractional CFO?
A fractional CFO is a part time CFO for your company. Fractional CFOs are a subsection of outsourced CFO services. Fractional CFOs can be hired to provide the comprehensive functions of a CFO on a part-time basis, or they can be hired to perform subsections of the CFO function to supplement the needs of your company. If, for example, you are comfortable preparing the financial information for your company and using the data to grow your business, but you need help with security and controls procedures, a fractional CFO may be your best solution.
What is a virtual CFO?
Another subsection of outsourced CFO services would be the virtual CFO. This is a term used to refer to CFO services provided to you at a remote location. Most outsourced CFO services tend to fall into this category. There are providers that could actually provide you with a CFO at your office on a part-time basis, but these tend to be uncommon and unnecessary.
Virtual CFO services and fractional CFO services actually overlap significantly. Most CFO service providers you hire will actually fall into all three categories, meaning they have the luxury of choosing which term they want to use to describe their services. Most of the time small businesses will hire a part-time CFO service provider working remotely who is not a member of their team to provide small businesses with their CFO needs.
Top Qualities in A CFO:
For that reason you usually do not need to worry about which term your CFO service provider uses to describe themselves. Your focus should instead be on whether or not they can provide the level of service your company needs at the prices you can afford.
With that out of the way there are still some key metrics you should look for in selecting your CFO. Here are five top qualities you want your CFO to focus on:
- Quality and accuracy – you want your CFO to be able to provide quality and accurate work. Their information is useless if it isn’t something you can trust
- Timeliness – many CFOs are so focused on accuracy they neglect timeliness. Your information is only useful if it reaches you fast enough to be usable. Look for a CFO that can balance quality against timeliness, perhaps recognizing you don’t need to know where every penny went in order to have reliable data.
- Backbone – you need a CFO that is not afraid to deliver bad news and help you handle it. If your CFO is afraid to tell you sales are dropping or marketing is ineffective, they can’t help you save the business, let alone grow it, and they aren’t a good fit for you.
- Teachability/humility – Nobody knows everything, and you want a CFO that recognizes that. If they think they have all the answers already, chances are high they will never truly understand your business, even if they have a lot of experience in the industry. No two businesses are alike, after all. Your CFO can certainly have some pride and backbone, but make sure it’s tempered with a healthy dose of humility and teachability.
- Industry experience – This one is not a requirement. If you find a great CFO meeting the other four qualities, you can easily overlook this one knowing they’ll get up to speed quickly. Having said that, industry experience is always an advantage when selecting a CFO right for your business.
Let us help
Now that you’ve had a chance to review what we consider to be great information about CFO services, are you ready to move forward? If so, we’d love to be able to help. We love helping small business owners turn their financial data into a working orchestra designed to bring harmony into every part of their business. Our goal is to help you make your business more successful while helping your net worth grow.
Check out our website here, and let’s get on a call to see what your needs are and how we can help.