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How a Virtual CFO Can Benefit a Rapidly Growing Company

by Michael Burdick, on Mar 12, 2019

 

virtual CFO

 

New companies tend to start from just a few people. This means one person is likely doing all the bookkeeping, maintaining relationships with suppliers, and managing cash flows to pay the bills.

However, one person cannot do this for growing companies very long, as the number of tasks rapidly expands beyond the capacity of a single person. Growth brings its own set of challenges, and some companies may be in need of a dedicated finance team and even a Chief Financial Officer (CFO). Smaller companies tend to believe they cannot afford a CFO, but is that really true? Not so much with “virtual CFOs” involved.

Financial Growing Pains

There are myriad financial problems a growing company can face. One of the most pressing issues is cash flow mismatching, which can occur when a company’s growth outstrips its capacity. As new orders flood in, if the company is undersupplied, it may run into customer service and quality issues. On the other hand, overextending lines of credit and supplier generosity will lead to strained relationships on the other side of the business. Furthermore, companies may need to rapidly increase staff to keep up with anticipated demand or upgrade to a larger office, but the money has not yet landed in the coffers. And all those overtime hours for current employees will add up to potentially unexpected payroll costs.

At some point, companies might have trouble deciding whether they should raise more capital via venture funding, cut costs somewhere else, or sell assets, if any exist. Unfortunately for many rapid-growth companies today, the latter option isn’t really an option at all, because the only assets are intellectual. Bringing in (additional) investors will change the power dynamics, but companies that are very lean will have few other financing options.

Once money is received or there is enough cash for new projects and expanding into new markets, growing companies might struggle with deciding which projects to undertake and which markets to enter. They need to answer questions regarding expected returns on competing projects and whether they can feasibly enter new geographic markets.

A final issue beyond capacity and cash flow is hiring the right people at the right time. This is a commonly cited issue for entrepreneurs, and indeed companies need to ensure their personnel are well-equipped to the task at hand. Haphazardly growing these teams will likely lead to intrateam personal and cultural conflicts.

A CFO can help guide growing companies on all of these issues by making decisions on when, how, and from whom to receive financing, determining the best projects through FP&A, and bringing on board the most qualified and relevant finance personnel while maintaining a coherent culture. CFOs can even help with the implementation of finance IT systems.

Why Have a CFO at all?

One question a growing business might ask is why employ a CFO at all. Even part-time CFOs, including the financial benefits, might seem like overkill and unnecessary. But most businesses will eventually need a CFO to direct the finance department of a company, which, when large enough, will include its own accounts payable, accounts receivable, FP&A, payroll, and project management teams. Patchwork hiring and organizing of these teams will only lead to inefficiencies and conflict in the future, reducing returns for investors and the company itself—and investors are going to push for more return in any way they can. In fact, a company seeking funds may need to have a CFO-backed business plan before investors even consider handing over cash.

But even companies not seeking funding may find CFOs vital to their growth. Finance operations, especially forecasting and planning, are complex issues that require oversight from a technical and legal standpoint. Without oversight and direction, growth, an already trying period, can become overwhelmingly difficult. Ensuring a consistent strategy and outlook during the entire expansion period is critical to success, and CFOs are key components in that consistency

Virtual CFOs

A common misconception of hiring a CFO is that outside C-suite employees are out of reach for most SMEs. The misconception is well-founded: Glassdoor gives the job title an average income of nearly $160,000 per year, with the low-end at $86,000. Adding another employee at this salary often is out of reach for SMEs, and just at the average, this could be enough to cover salaries of four lower level employees.

That is where a virtual CFO can be beneficial. The gig economy is alive and well these days, and even a traditional full-time C-suite position like CFO is available for outsourced work. Of course, these freelance CFOs still demand higher rates than other outsourced financial personnel, but SMEs won’t have to hire them for the full year, greatly reducing expenses. Depending on the amount of work, the virtual CFO might not even charge for full days during their time at the hiring company.

Is a Virtual CFO for you?

If your company is growing rapidly and you expect to need investor financing in the near future, a CFO might be indispensable in obtaining that financing. If you need to develop an in-house finance IT system, a CFO will be extremely productive in the planning and transition. If you plan to take on any major financial transactions, like a merger or acquisition, a part-time CFO could help ensure everything will run smoothly and delegate tasks and issues to the right people at the right time to avoid missteps.

The flexibility inherent in hiring freelancers exists for virtual CFOs, too, so whether you need someone to help evaluate a single major project, need medium term strategic finance development assistance, or simply want to test out how much a CFO can help drive growth, hiring a virtual CFO is an excellent option to consider.

Where can you find a virtual CFO?

One place to find them is the same platforms where you can find other freelancers. However, these platforms are generally not designed with a single industry in mind, and thus their vetting procedures are largely confined to reviews and past work experience on the platform. Other sources, like Paro, assist in connecting the freelancers with the hiring companies, meaning the hiring company does not waste time finding the perfect fit.To find the right CFO, the hiring company needs to compare past work experience with the task at hand. The scope, the scale, and the cultural fit are all important aspects. Open communication is essential, too, especially if the CFO will not be physically visiting the premise or meeting the others involved. Lack of communication kills projects and whole companies.

Virtual CFOs are a great resource for SMEs who have tight budgets but are rapidly expanding and are in need of strategic financial planning. Even large corporations could benefit from virtual CFOs in times of transition or when the current CFO is simply overwhelmed with too much work.