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Outsourcing CFO Services - Nov 3, 2008

Posted by: Michael Campian in Articles

Part-time CFO: A Concept Worth Considering
By Michael Campian

Companies without a CFO are at a competitive disadvantage. Many start-ups, small and mid-sized firms have sophisticated operations and complex cost and financial challenges like large companies, only on a smaller scale. They need the expertise of a senior financial executive, but not full-time, nor can they afford the cost of a full-time CFO.

All highly successful businesses have one factor in common; they require timely, accurate, and useful information. Are your internal Financial Statements error-free? Do you receive your Financials by the 10^th of the month? Are you confident that you do not have employee theft of cash, time, inventory, etc? If you are unsure of the answer to any of these questions, you need the assistance of a Chief Financial Officer.

Many companies get to a point in their business growth that requires the assistance of a high level financial professional but hiring a full-time CFO may not always make economic sense. Outsourcing this function is an alternative to hiring another full-time employee with all of the costs that go along with employment such as payroll taxes and benefits as well as the costs for a search for a qualified person. The benefits will far exceed the cost.

More time to spend with customers. Entrepreneurs don't enjoy spending time with accounting and HR functions. Competitive companies must spend 110% of their time with current and future customers. It's one of those "facts of life" - someone is spending time with your customer and prospects today. If it is not you, then it's your competition.

Better financial information for key decision making. Most closely held companies have erroneous financial statements. A business owner can't make key business decisions while relying on bad, inaccurate or incomplete data. How confident are you that your Bookkeeper/Controller understands modern accounting standards, and how to present core profitability information to help you make the right choices?

A theft deterrent. You would be shocked to see how many employees steal from employers. There is theft of money, inventory, customer lists, intellectual property and other company assets. A part-time CFO will not only establish tighter controls but their presence can help actively discourage dishonesty in company employees.

More money from the bank and from vendors. Bankers and vendors are more sophisticated than ever. They are looking for financial statements that look professional, that follow accepted accounting principles, and that easily highlight the company's key ratios. A part-time CFO can improve your company's external "image" and assist the owner with opening doors to banks and better vendor terms.

Better trained accounting staff. Turnover in accounting staff is high. A part-time CFO will mentor and train your accounting staff to do a better job by acquiring more knowledge of accounting procedures.

Better documentation and controls. Does your bookkeeper make tasks into a secret monthly ritual, being proud of being the only person who knows how to do something? Does that make you uncomfortable? A part-time CFO will establish proper controls and best practices, and help outsource high risk, low value tasks to protect your company.

Fewer cash flow surprises. Many smaller companies exist from month to month paying vendors on the "squeaky wheel" principal. This is simply a symptom of lack of planning. Difficult cash flow issues can be reduced by planning, cash flow management and securing the financing you need to grow.

No surprises on tax payments. A part-time CFO will work directly with your regular tax CPA to give them better financial information, so that you can better utilize your CPA's skills and advise.

When considering out-sourcing a CFO look for a professional with 20+ years of experience. In finding someone with this experience level it is highly unlikely that a problem or issue will come up that can't be resolved. Make sure the part-time CFO is supported by a national organization that has the resources to be able to give your part-time CFO the support they need.

A CFO is a proactive professional that has a pervasive knowledge of things important for you to run your company properly. They will have the ability to address HR issues, Sales and Marketing issues, and a host of things needed to help your company succeed.

Avoid signing contracts. Walk away from the situation if an organization is not confident and competent enough to perform these services with a hand-shake. Also, avoid any offer that might require your company to pay a return on profits. The money the company earns belongs to the owners, not to outside people.

Ask for a monthly "ceiling" for the fees quoted. The monthly fees should fit comfortably within your company's budget. There should never be any surprise on fees. Pay on a Form 1099 basis. Avoid paying any payroll taxes, health insurance, etc.

The advantages to hiring a part-time CFO include, (1) accurate and timely in-house financial statements, (2) the origination of solutions to your company's problems, (3) a sounding board for the owner's key decisions, and (4) you will begin to find more time spend in entrepreneurial activities.

Companies without CFO's gain significant competitive advantage and improve profitability by out-sourcing a CFO on an as-needed basis.

The above article appeared in the May 2008 issue of Focus on Small Business, a publication of the Small Business Association of Michigan