When Should You Consider Outsourced CFO Services?

When is the best time to fix the leak in your roof? Before the storm shows up, right? The same is true of your business.

Your business needs a Chief Financial Officer before the figurative storm. And to check for that incoming bad weather, you need an accurate forecast. This is exactly what an outsourced CFO service (or a Virtual CFO) provides for your business. Delivering the appropriate advisory services and accurate financial forecasts, they make sure your business has the information needed to weather any storm.

You might be thinking, “business is going really well right now, I don’t really see the need for a forecast just yet.” Or you might be thinking business is not great right now, there is no way I can afford to pay a fractional CFO to help me get out of this valley. The truth is, regardless of which position your business is in you can greatly benefit from hiring an outsourced CFO to help set key metrics, forecast how different business decisions will impact your performance, and build long term financial strategies to ensure the health of your business.

As a small business owner, you’re passionate about your business and the growth plans you have for it. If you’re not also a financial expert or accountant, you might not have the knowledge to create a holistic roadmap to success. Where do you want to be in two years? Three years? And what financial strategy do you need to implement to achieve those goals? On the flip side, if the economy goes into a recession, what’s your business plan? How do you scale?

If you need to hire, how many people do you need? If you want to grow your business by 10% next year, what’s your plan for achieving that goal? If you don’t plan accordingly for these questions, it could mean the difference between the failure or success of your business.

While this may seem overwhelming, all of this information is attainable through a forecast—a projection of where your business needs to be to hit each milestone and benchmark. And that is where having an outsourced virtual CFO can make all of the difference.

The role of a Virtual CFO is more than just bookkeeping, pulling financial reports, and balancing a bank statement. They take all of the pieces to the puzzle of growth and build out the big picture to create an actionable plan for the health and longevity of your business. Part-time CFOs provide owners with tailored cash flow forecast models so they can achieve the results they want. Without a forecast, it is very difficult to monitor and adjust accordingly to maintain the desired growth trajectory.

Forecasting

So now that you know a bit more about what Virtual CFOs can do for you, let’s learn more about what forecasting is and how exactly it can impact your business for the better.

Fractional CFOs provide advisory services and financial expertise to help you plan for long-term growth. They gain insights from your business numbers, analyze industry trends, and monitor the economy to help build a plan that aligns with your company’s financial goals. They also help you think about “best-case” and “worst-case” scenarios, so even if the unexpected happens, you have a playbook and a course of action to take.

What’s even more important is having a forecast that is updated on a monthly basis or when an unexpected major event happens. Virtual CFOs use dynamic forecasting to integrate all the pieces and parts of the puzzle in real time so that, as you navigate the storms, your business can pivot accordingly. Your business isn’t stagnant, so your forecast shouldn’t be either. Our CFOs meet with clients on a weekly basis and continuously updating the business forecast based on real time information.

Having quick access to a forecast gives VCFOs the ability to advise owners on the financial direction and future of their business. Noting how key performance indicators are moving in step with the every-changing economy and industry allows your CFO to make accurate changes to the forecast. By the time your business needs to change because of shifts in the industry, you and your team are prepared to execute the plan of action your forecast and virtual CFO empowered you to build ahead of time.

As an owner, you’re not only responsible for your business. How many employees do you have? 10, 20, 30? In a way, you’re responsible for them and their families as well because they’re depending on you to make payroll. When you have a forecast, you can tweak it as needed to ensure everyone who depends on you and your business can keep their cadence of life. That’s where I feel the forecast is really the most valuable.

Remember, your forecast is never static; it’s very dynamic; it's always changing. Something's always going to happen this month that you weren't expecting, good and bad, and it's going to really impact things to where you need to be on top of it. Having an up-to-date forecast and the help of a CFO and their team is going to help you and your business navigate those situations so when the storms in life come — because they will come — you won’t be caught off guard.

When To Hire an Outsourced CFO Service

All of this sounds amazing to you, but you have one question... How do you know if your business is the right size to reap the maximum benefits of having a virtual CFO?

Generally, we’d advise that if your business is under $2 million in annual revenue, a bookkeeper or traditional CPA firm will likely be more cost-effective.

However, if your business is over $2 million in revenue and has grown to the point where you need advisory services, but your business can’t yet afford a full-time CFO or controller, a virtual CFO is the right fit. This way you reap all of the benefits of having sound financial strategy, set KPIs, and accurate financial forecasts at just a fraction of the cost of an in-house CFO.

If you feel your business is ready and you want to learn more about fractional CFOs that can fit your specific needs, please feel free to reach out to us. You can book a free virtual CFO consultation where we can share more information about the services we offer and if we’d be a right fit for your business.