Most businesses don’t employ a Chief Financial Officer – but most businesses would greatly benefit from having access to the skills of a CFO. So why don’t more business owners employ one? Simple. Too costly. It’s a pity because a CFO can add a great deal to the successfulness of a business and really help a business owner achieve their goals.
So what’s the solution? An outsourced CFO. Get the skills at a fraction of the cost of a full-time employee.
What are the benefits of using CFO skills?
There are lots of benefits. Here are several of them.
Experience. A quality CFO has been there and done that. They have rubbed shoulders with all types of business owners, financiers, professional advisers, investors and so forth. They have a developed network of contacts that can help. Nothing phases them because they have seen it before. They know the path to tread. They know how to get things done.
Management reporting that makes a difference. Sick of getting reports that don’t tell you what you need to know? Do you suspect that the reports are inaccurate or not telling the whole story? A CFO gets into the “guts” of a business and really knows what I refer to as “the mathematics” of the enterprise. A CFO knows that getting good information to the decision makers is the most important system in the business. Without accurate and timely information the organisation is rudderless and can, and usually does, finish up nowhere and anywhere.
Finds the real problems and tells it like it is. Why is a business not achieving the goals of the owners? The CFO’s core skill is to find that out through improvements to the information system and by (tactfully) challenging the paradigms and thinking of the people in management.
Helps set the strategic direction. Perhaps the most bewildering thing I experience in business is how many owners and managers of commercial undertakings simply live life from one day to the next. There is no overall purpose for the enterprise. If you don’t know your overall purpose, how do you know whether a decision is a good one or not? You can’t make good decisions in a vacuum.
A “strategic direction” is just a fancy term for knowing where you are headed; although it is a good deal more than a concept that floats around in your mind. The strategy is written down. The management lives and breathes it. It is referred to frequently. It is backed up by sophisticated financial projections and a researched methodology. A CFO is a critical link in formulating the strategy and keeping everyone in the organisation focused on it.
Gets the capital structure right. Manages the working capital. The money! Again, handling it, predicting it and managing it is often very poorly done in owner operated businesses. And it doesn’t have to be this way! The CFO will calculate the amount of capital that a business needs and then, if there is a shortfall, go and get the money the business needs. If there is an excess of capital the CFO will either suggest an investment or have it returned to the owners. So much anxiety, pain and frustration can be avoided by appointing a person whose skill it is to handle money effectively.
Manages the bank and suppliers of capital. Those who supply capital to the business (banks, business angels, investors etc.) want a return on their money and want to know that it is secure. Too often business owners try to “wing it” with these people by relating positive and upbeat stories of what has been happening in the business and its potential. Guess what? Suppliers of capital aren’t swayed by this too much and don’t want to (only) hear positive stories. They need hard facts and figures presented in a way that they can understand and that they can show to others in their organisations. This is a core skill of a CFO.
Gets the internal control right. Good systems with effective internal controls are very important to the management of cash. Fraud in a business is often perpetrated by the “trusted” employee that has worked in the business for years. This is because the person who has worked for years with you knows the systems and sometimes perverts the systems for their own benefit. A CFO knows what constitutes good internal controls and keeps everyone honest.
Helps get the succession planning done. This can be a very “touchy” subject for owner operators, their families and their senior employees. One day the key owners must sell down – either by choice or otherwise. Unplanned ownership succession can be very destructive for a business and sometimes fatal. A skilful CFO can guide all the parties through this process and produce the information needed by all parties.
Assesses opportunities and risks. Conducts due diligence. You might be considering an acquisition. An experienced CFO knows what to do. They know how to evaluate the opportunity, conduct the due diligence, conduct negotiations and engage professional advisers to help with the process. They can review contracts and understand the tax issues involved.
A good understanding of information technology. Although maybe not an IT “guru”, a CFO will have a solid understanding of information technology and its benefits, costs and pitfalls. They can bridge the gap between the “technical speak” of IT professionals and your understanding of what you need. The CFO will normally have a strong personal knowledge of a range of software products and what they can achieve.
Understands the taxation impact of what is happening. Again, although maybe not a tax “guru”, most CFO’s will have working knowledge of the tax implications of the transactions your business is entering into. However, some CFOs (like me) have very strong tax skills because it is something they have taken an interest in.
Manage costs. Each line item in the profit and loss account needs to be examined closely for savings. This, of course, can come through a number of ways. The CFO sets the budget and watches it like a hawk while being on the look-out for further ways to cut costs without impeding the strategic direction.
Frees up the time of the CEO or business owner giving less stress and more productivity. This will be music to the ears of owners and managers. Organisations that don’t have their own CFO usually have an owner or manager doing a lot of things that are not very productive for the organisation. The CEO gets involved with a number of money and systems related tasks that they are not skilled to undertake. And worse, the CEO doesn’t get time to do the things that can really add significant value to their business such as investigating new markets, motivating employees, making contact with significant customers and engaging in strategic thinking and actions.
You raise your credibility. Can you imagine any significant organisation that does not have a CFO? Of course not. You can give your enterprise enhanced credibility with a whole range of external and internal people by appointing a CFO when people are not expecting you to have one. Imagine introducing your CFO to bankers, investors and major suppliers. Imagine the positive reaction from your employees if they know you are taking seriously the financial management and strategy of your business.
Project manages the change process with diplomacy and effectiveness. A CFO will have good project management and leadership skills. Big tasks needs planning and the buy-in of a number of people. Projects are what stand between the organisation and the attainment of its goals, so the leadership and effectiveness of the projects is vital to the achievement of the strategic direction.
Close and confidential confidant. Owning a business can be a lonely place. You have all the problems and sometimes no one that you can discuss these issues with in an open and non-judgemental way. A CFO is the prime candidate to fulfill this role for a CEO or business owner.
The catalyst for change. A catalyst is a chemical term. It is something that is added to a chemical reaction to speed it up or start it. The appointment of an outsourced CFO can be just what you need to kick-start the changes you want to bring to your organisation. This is because they come with credibility, authority and experience. The CFO comes with a unique skill set that puts “rubber on the road”.
Is a CFO different to a “normal” accountant?
Absolutely. Very often a CFO does have an accounting background but the skills the CFO brings to the table are far beyond the “bean counting” and compliance role of most accountants. Normal accountants count the beans. A CFO helps you to make more beans.
A fraction of the cost.
I started this article by stating that most businesses don’t have a CFO because the owner of the business cannot justify the cost or $150,000+ for a full time CFO. The outsourced CFO, effectively working on a part-time basis, is the solution. You can gain a lot of the benefits of a full time employee for a fraction of the cost.
Wishing you easier business.
John Jeffreys
Do you need CFO help? Call me on (03) 9229 3802 or send an email by clicking here.
Would you like to know my skills, experience and service standards? Click here.