Articles and White Papers
Excerpt from May 2008 issue of the Small Business Association of Michigan's Focus on Small Business magazine.
By Michael Campian
Companies without a Chief Financial Officer 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 typically afford the cost of a full-time CFO. You might not realize it - but a CFO for your small business might not be impossible. 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 15th 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.
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 of a search for a qualified person. The benefits of outsourcing an employee at this level will far exceed the cost.
Advantages of Adding an Outsourced CFO
More time to spend with customers - Entrepreneurs don't enjoy spending time with accounting and HR functions. Competitive companies must spend 110 percent 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 can present core profitability information to help you make the right choices?
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.
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 and hopefully reduce turnover.
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 him better financial information, so that you can better utilize your CPA’s skills and advice.
Some Things to Consider
When adding an outsourced CFO, look for a professional with 10+ 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 organization that has the resources to be able to give your part-time CFO the support they need.
A CFO is a proactive professional who 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, and a host of things needed to help your company succeed.
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.
Companies without CFOs gain significant competitive advantage and improve profitability by outsourcing a CFO on an as-needed basis.
© Small Business Association of Michigan 2008.
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