CFO Services for Small Business: Do You Need Them?

CFO. You may have traditionally thought this executive-level role reserved for only larger businesses. But now that your business is growing, you are considering whether you need a new financial...

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CFO. You may have traditionally thought this executive-level role reserved for only larger businesses.

But now that your business is growing, you are considering whether you need a new financial role in your organization – one that can focus on the overall financial position and future of your business. Help that goes beyond daily, reactive bookkeeping and accounting functions. Help that proactively identifies opportunities to improve your business’ finances. Help to get you to a level of process maturity that positions your business for future growth. CFO-level help.

So should you wait until a certain milestone to contract a vendor for CFO Services? Or is the timing already right and the benefit already clear for your small business?

While every business and situation will be different, I’ll be giving both general advice and specific scenarios to help you understand when your small business might benefit most from CFO services.

How big should my business be before I invest in CFO Services?

There is no magic annual revenue number, number of employees or business age that might say you need a CFO – though in our experience businesses that exceed $2 million in Revenue can usually benefit greatly. A better metric is the transactional volume and level of complexity. For example, let’s say a services business sells a few contracts in one year vs. a construction contractor; both have the same annual revenue. However, the second business is much more likely to have a higher level of complexity and help needing an accurate financial picture. The contractor probably has equipment, financing, receivables and payables, bad debt, certificates of insurance for its subcontractors, and so on. There are also several business events and opportunities that could be a good indicator that your small business would benefit from outsourced CFO Services.

How CFO Services Can Help Your Small Business:

  • Cash Flow Management – One of the most common challenges that we encounter when helping small businesses is management of cash flow. CFO Services can help review and optimize internal processes to speed up cash flow.
  • Reporting Accuracy – How accurate is your reporting? CFO Services can help give you the peace of mind that your reporting is accurate and up to date so that you can be confident you are making decisions on the right information. A robust set of accurate and on time financials is an essential tool to help manage business performance. For this financial package to be useful to management, it must be timely, accurate, and understood. After all, if something is too late to be relevant, not accurate, or management doesn’t understand the reporting, what good are the reports?
  • Establishing KPIs – YTD Revenue vs. Prior YTD Revenue, YoY Change in Debt, Profit Margin by Product Line, Break-Even Analysis, Revenue Per Employee, Days to Break Even, Fixed Cash Burn – do you have KPIs in place to evaluate your business’ success and profitability? A CFO can help you both to establish and track KPIs.
  • Reducing Overall Risk – Outsourcing a CFO function gives more dedicated focus to your finances. CFOs can also help to put in place internal controls – processes, procedures and automations to help reduce errors or even fraud. This reduces the risk of costly financial mistakes. CFO services should also allow the business owner to focus on what they do best which is usually not accounting. This results in less risk in other areas of the business. A business owner spending more time on the factory floor, in the field managing jobs, networking with prospects or customers is likely solving little problems before they fester or actively growing sales, all of which increase value and reduce risk.

Business Events / Challenges That May Indicate Your Small Business Needs CFO Services:

  • You Are Planning On Opening Multiple Locations
  • You Are Considering Acquiring Another Company
  • Slow Invoicing & Collections Are Creating Cash Flow Issues
  • You Are Planning A Large Capital Purchase
  • You Are Expecting to Hire A Number of Additional Employees Soon
  • Need for Increased Professionalism in Management of External Relationships – Vendors, Suppliers, Banks, Auditors, Customers
  • You Are Late To File Taxes Due to Books Not Being Clean

CFO Services can relieve stress and worry in any of the above situations by helping to support you through critical business decisions and challenges. CFO-level resources have the business experience needed to help guide you through best practices and pitfalls in each of the above scenarios because they’ve seen it all before. Whereas these scenarios might be a big scary unknown for you – they are a familiar scenario for an experienced CFO with real-world experience.

How are outsourced CFO Services for small businesses typically structured? Should I expect to pay by the hour, monthly, annually?

While some outsourced CFO services providers will consider hourly engagements, most will want to work with your business for a minimum period of time so that they can provide the most value and benefit to your business. In most cases, the service provider will require an annual or monthly commitment if you decide you would like to work with them over the long term. That being said, certain engagements do lend themself to a special project (i.e. non-recurring) arrangement, PPP forgiveness is a great example.

When you are evaluating potential CFO services providers, you could ask if they would be willing to consider an initial 4-6 month consulting engagement. This could benefit both parties by allowing the provider and yourself to see if you are comfortable with the fit. It also allows you to gauge the expertise and level of service you will receive from the CFO-level resources before making a longer-term commitment. Anything less than a few months doesn’t give both sides the opportunity to change behavior, learn the systems and processes, or implement any improvements.

Many service providers offer a fixed monthly cost for CFO services. This predictable investment allows you to budget for the services without any surprises. When evaluating providers, make sure to outline all of your needs and ask whether their monthly fee includes help for each item you need, or whether there are any additional fees for specific services.

What should I expect to pay for Small Business CFO Services?

If you are paying by the hour, be prepared to spend between $180 and $300 an hour for CFO Services depending on the company that you select and the market in which they are located.

What questions should I ask when evaluating a CFO Services provider for my small business?

There are many CFO Service providers out there. So how do you know if you’ve found the one that’s right for your small business? Here are some questions to ask potential CFO services providers:

  • What is the average business size that you support? This question will help to confirm that your CFO services provider has a focus on and “gets” small businesses.
  • Will I have a dedicated CFO or access to a pool of CFO resources?In some models, you will be able to talk to the same dedicated CFO each time, in others, you may have access to a team of resources, but you may not speak to the same CFO each time.
  • Do you or my dedicated CFO(s) have business experience in the industry? Does the CFO service provider have real-world experience with small businesses in your specific industry? Can they provide a good reference or case study?
  • What type of reporting will you provide and on what cadence? A good CFO Services provider will be focused on getting you the data you need to make more informed decisions. The types of reporting they provide will be critical in getting you access to that data in a way that is easy to understand and actionable.

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