Outsourcing Your CFO: Are you ready for a paradigm shift? A game changing concept! These days multiple business elements are being outsourced and generally we are comfortable with the idea for a number of reasons, many of which economic. Yet for all of our efforts to save money by hiring for a project rather than hiring permanently, we have been slow to consider outsourcing key financial functions. This has been a trend in the UK, USA, Australia and New Zealand and has now been made available by the CFO Shop in South Africa. The concept of a small to midsized business outsourcing the CFO seems surprising. Yet an increasing number of these companies are outsourcing this function. The idea of an outside CFO is not entirely new. It is only becoming more widely accepted today. Outsourcing the Chief Financial Officer (CFO) function achieves a significant cost reduction, contributing favourably to the bottom-line immediately. The average CFO in a small to midsized firm earns approximately R1m plus benefits and bonuses or even more. Many smaller organizations do not need a full-time CFO until they outgrow their financial controller. Certain efficiencies are gained by hiring an outsourced CFO. This person is hired to do certain things (and only those things). He or she comes in and focuses on the specific project. Outsourcing offers a CFO the opportunity to focus on what needs to be done in the business. An outsourced CFO might work two days per week or five days every two weeks. The company’s needs might be for five hours or for 50 hours. Once the outsourced CFO gets to know your business in depth, he or she can offer advice in key areas, such as cash flow analysis (which is so crucial to many companies) and improving collections. Cash is the lifeblood of many businesses. Yet if you are not paying attention, you could be borrowing too much on your credit line, writing off accounts receivable or risk killing your business with too much debt. When a CFO is hired internally, the individual might be great within the confines of your business. However, when you outsource you get a different skill set. When you hire an internal Financial Controller or CFO, you might get three of the five things you need. However, when you outsource the CFO function, you can look for someone who can do all five things. Sometimes an outsourced CFO provides the next level of skill or knowledge needed for a particular project. The project might be due to a major change in a law or the search for a merger or acquisition. An outsourced CFO will typically focus on five key areas (many are generic). 1. Cash flow Cash flow must be monitored and managed to ensure corporate health. If, for example, your company is growing too fast, you will probably have too much of your income in receivables that are not due in time to pay a supplier for raw materials or for product (retail). A CFO monitoring and managing cash flow would recognize this trend in time to borrow cash for the product or production needs. The CFO can help you understand your burn rate of cash. He or she can also advise you as to what you should say to the bank in order to borrow. 2. Budgeting An outsourced CFO brings a higher quality of services to your organization than most internal staff members. An outsourced CFO is a professional who has worked with many companies. He or she will have developed a broad frame of reference and can draw upon his or her experience with other companies. This will add a new dimension to your projections and budgeting for future growth. 3. Financial Mastery Every business needs to understand the financial aspect of their business. You need to know your breakeven point. You need to understand your cash flow. You need to know how to manage growth and how to control it. Every business leader needs to know the numbers about their business accurately and receive them in a timely manner. An outsourced CFO will likely have corporate experience, as a CFO or CEO, and will have the experience required to know what businesses are looking for to grow and take calculated risks. Know how the information can and should be used to manage your current business more efficiently and be more profitable. 4. Banking Relationships An outsourced CFO, because he or she is working with other clients, will have a broader range of banking relationships than most internal financial team members. These relationships can be very valuable to a business that is growing rapidly or outgrowing its physical facilities, etc. Banking relationships should be maintained at all times, whether you need a loan or you have fully repaid all loans. 5. Systems An outsourced CFO will carefully examine your accounting software and evaluate it based on his or her knowledge of a range of software options. He or she will evaluate whether the software is the best system to help manage your company for what you really need to know. If it is efficient, if there are important gaps in the data in reports or types of analysis it can perform. Your outsourced CFO will ensure that the software can do everything the business needs. He or she will also ensure that key performance indicators are included in the dashboard. An outsourced CFO can add objectivity to evaluate your people and processes that support your systems. Concentrating on these five key areas might not require a full time CFO in many small to mid-sized companies. While an internal CFO will probably be sucked in on all of the issues with human resources, insurance, travel costs, etc. an outsourced CFO will not become involved in these issues. As a result, the work is generally accomplished quicker and more cost-efficiently. Further, an outsourced expert has no internal favorites, no personal agenda within the organization, and plays no political games of the kind seen in many companies. Above all, an outsourced CFO brings years of combined areas of experience at a fraction of the cost. Perhaps an outsourced CFO is the right equation for profitability and for protecting your Company’s assets in your small to mid-sized business. The CFO Shop allows business to focus on the important day-to-day business issues like spending more time with your customers and improving your business offering by taking away the administrative burden. thecfoshop
Posted on: Fri, 07 Jun 2013 08:17:33 +0000
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