How to choose a virtual CFO in 2023

ny healthy business brings together key ingredients to create a powerful whole. One ingredient that cannot be left out is financial expertise.

A Chief Financial Officer (CFO) brings crucial insights and skills into a business. This is someone who does far more than whip up a spreadsheet and understands numbers. They understand the financial foundation of your operation, and bring expert assistance and management qualities to your team. Ultimately, their work helps to drive forward and underpin the business’s mission, vision, values and even culture.

A CFO is someone that is, at the heart of it, a keen problem solver. Of course, they are well versed in accounting functions, understand the fiscal health of the business and file regular reports. They know how to draw on raw data and interpret long and short term trends to aid in strategic decision making, and they know how to draw on the latest and greatest accounting software to automate and streamline processes, and realise better trend analysis and forecasting.

Sitting at the C-suite level, a CFO is the link between the financial side of the business and the rest of the leadership team, is able to communicate clearly and present noteworthy findings. They know what’s happening right now, and are looking to the future to help move the whole business forward.

A virtual CFO brings this functionality into your business as and when you need it, without the need for hiring a full time employee. With a virtual CFO you may be investing in a single person or have access to an entire firm. Either way, outsourcing this skill opens you up to being able to choose what specialist services you require, and move into a new chapter or phase of growth.

The what: Understanding the role and function of a virtual CFO

Known by various names, such as CFO-as-a-service, fractional or outsourced CFO, the term ‘virtual CFO’ describes different organisations or firms that offer the functionality of a CFO in a remote, outsourced setup. It’s a way to tap into financial expertise without the expensive overheads of a full time employee, or the difficulties of hiring someone with the required skill set.

The main job of an in-house CFO is to oversee financial planning, maintain and report on financial activities, and manage risk. A virtual CFO can do all of this and more and is able to drill down into specifics such as acquisitions, partner collaborations, gap analysis and accounting software. Increasingly popular with start-ups and small to medium businesses (SMBs), virtual CFOs can be taken on for everything from basic assistance - such as insights to improve profitability and cash flow management - right up to specialised strategic input.

One popular virtual CFO service for businesses struggling to grow is financial gap analysis. This takes you back to the beginning, offering a thorough exploration of your business’s finances, including a closer deep dive into risks and opportunities, with a clearer view on future-focused strategy. From here you can step into decision-making, looking at how to maximise resources for more sustainable success.

Cash flow is crucial. According to the Australian Government, micro businesses (40%) and other small businesses (45%) reported maintaining short-term cash flow or liquidity as the most common reason for seeking finance. The second most common response from micro and other small businesses was to ensure survival of business at 35% and 37% respectively. A virtual CFO can offer different approaches and tools to help plan and forecast with cash.

Meanwhile, business analysis and cost structuring helps to maximise revenue by identifying and focusing on low friction revenue streams, while also reducing expenses where possible.

On the forecasting and projections front, financial models, built and tailored to your organisation by your virtual CFO, help to clarify growth planning. As such, this turns into reporting, which can be shared with other C-suite members to ensure all key stakeholders are on board. Management reporting is a valuable service that ensures those who need it have access to clear dashboards with KPI information.

When it comes to profit and risk, a virtual CFO is able to offer advice and suggest tools that can help to maximise profit and ensure growing recurring dividends are built into standard operating procedures, while risk is effectively mitigated. Touching on external funding, post-investment financial management helps to manage stakeholder expectations while fundraising services break down jargon to ensure you know what you need to.

At the end of the month or period, accounting and audit support is needed. A virtual CFO can help to deal with auditors and offers additional capacity to meet deadlines, ensuring you don’t miss the mark.

Finally, a virtual CFO, as their name suggests, offers greater access to financial technology and automation tools for your organisation to keep operations running smoothly. Tools previously reserved for large corporations can now be accessed by SMEs.

In the Australia and New Zealand region, small businesses are in a phase of growth, with a recent IDC survey finding that 57% of A/NZ SMBs have moved through the pandemic-related crisis and out of survival mode. Cont...

These organisations have shifted into either growing and transforming their business or are now thriving in new modes of operation, IDC states. The survey also finds that IT spending is on the rise, as businesses look to digital technologies to assist in productivity and collaboration. In this instance, a virtual CFO becomes a guide to understanding the best technological support for you.

The why: The advantages of virtual CFO services

With today’s talent pool dramatically reduced and budgets tight, a virtual CFO is an obvious way to bring in expertise about a diverse range of financial topics and tools without having to bring on a full time employee. It’s cheaper as there’s no overtime or benefits, you can choose when and how you use their services, they have a depth of experience that comes with working with different companies, are professional and adaptable, and enable you to trial different offerings.

You may invest in a virtual CFO to help grow your business, to aid in rapid change, to improve or better understand cash flow, to adapt to audit adjustments or difficulties, or to simply help your business’s financial status to run more smoothly.

When it comes to growing your business, while you may have regular accounting transactions sorted, you may benefit from senior level financial advice and oversight. A virtual CFO can work with your management team, take into account your present and historic reporting, and work with you on a tailored growth plan.

Another top reason to bring on a virtual CFO is if your business is changing significantly or quickly. In this instance, understanding your financial setup is important. From here you can identify and measure key factors driving business performance, perhaps implement software tools for timely updates and forecasting, and understand the ins and outs of the steps you need to take to effectively move through this time of change.

Whether cash flow is getting tight due to broader economic factors, or you have an exciting new opportunity in the works, bringing on a virtual CFO can assist in better understanding and maximising cash flow. In addition, the virtual CFO can help in reporting and negotiating with potential lenders or investors to give you a cash injection should you need it.

In the instance of financial reporting difficulties, or your business’s backend not running smoothly, a virtual CFO can assist in revealing where the problems lie and help to resolve this. There may be a knowledge gap, the workload may be too high for your full time staff, or there may be deeper issues. An objective, highly skilled person can help to rebuild and refine your financial operations.

Across all of these individual services there are numerous benefits. A virtual CFO provides flexibility around time commitment, they have scalable expertise - meaning you can start basic and build up from there, they can offer greater perspective on your operations as a whole, and they bring a financial lens to your leadership and management team.

Over time you may find your virtual CFO helps in reducing risk through identifying and recommending strategies to mitigate poor practices, improving the understanding of when and how to spend money to grow the business, improving internal productivity as your in-house team is freed up from financial tasks, and reducing business costs through improved efficiencies and reduced expenses. You’ll also gain greater visibility over your business, with easy to understand and informative reports regularly available.

The how: What to look for in a virtual CFO

A top tier virtual CFO will act as a partner to your organisation, understanding your history, your goals, and the way you operate, helping to improve or drive forward your internal operations and strategy.

When it comes to finding the right virtual CFO for you, there are a few key factors to consider. Before committing to a long term plan it pays to do your research and make sure they align with your priorities and timeframes.

Right away, check that they have experience in working with businesses similar to yours as this will ensure they are coming into your business with existing expertise and knowledge base. Check that they have the appropriate availability for your needs and timelines, that they are flexible to your requirements, and that their rates are competitive.

The best virtual CFOs go beyond offering simple financial advice and baseline reporting to become a member of your team. Their assistance, backed by accounting professionals with a variety of experience, tune into your unique business needs. In addition to regular bookkeeping and forecasting, they are able to help with high-level strategy and can even step in to help define and refine business aims - both long and short term.

Another quality or differentiating factor of a top tier virtual CFO is their ability to tailor their offerings. They can take over all areas of financial services, or take on only what’s required. Say your business has been operating with the same tax accountant for years, your virtual CFO can leave that in their hands and take on other financial activities - such as forecasting and planning. They are also able to make adjustments as and when needed.

Other features to look out for is if they offer ownership of cash flow, both macro and micro, to minimise the risk of running out of funds. They can provide accurate, simple and timely reporting that highlights the company’s present and predicted financial future that can then be shared with stakeholders. They deliver actionable insight to aid other leaders and managers to make informed decisionsincluding analysing raw data to provide outcomes or conclusions that track back to original insights.

They are also able to assist the executive team on the likes of company strategy and execution development, gathering and analysing data to support strategies, and handling transformations within operations and technology. And they are able to optimise performance, including identifying areas of improvement, with the ability to build necessary systems, integrate them and drive development.

Finally, pricing is important. The majority of accounting firms charge hourly rates which can grow to high costs. Virtual CFOs often charge a flat fee with no locked contracts, only a notice period for cancellation of services. To add value they can provide access to financial reporting and accounting software that minimises manual tasks or double handline to reduce downtime and overheads, and optimise outcomes.

Virtual CFOs: The way of the future is here

While a virtual CFO may still sound futuristic to some, this is in fact a very real and very beneficial service for many businesses, particularly SMBs looking to level up, improve financial processes or meet challenges.

A quality virtual CFO service offers unmatched knowledge, skills and experience that can be directly relevant and tailored to your business’s needs and goals. They can be brought in for specific tasks, for instance to help during a growth phase, in funding and raising capital, to prepare for an audit, or to implement a new strategy, or they can be used for regular assistance throughout the year.

Your virtual CFO can offer greater insights and perspective over how your business operates on the financial side, your cash flow, and what you can change to meet your strategic aims. It helps to implement best of breed systems and tools, establishing best practices along the way, and it helps to define your short and long term financial strategy, backed by data and forecasting tools. Ultimately, a virtual CFO can bring peace of mind around your financial function and your big dreams.