Is the state of your startup’s cash flow causing you to lose sleep or need a bit of help interpreting data? Why not get outsourced CFO services?
A lot of small business owners are secretly embarrassed that they don’t have a firm grip on their finances. As a result, more and more of them are doing something about it.
Savvy leaders are filling their insight gaps by working with seasoned financial strategists. Most of them are looking at Virtual CFOs, as it is more affordable than having a full-time resource, and it provides them with more control than they would have when working with an advisor on their board.
Of course, if you are “hot desking” at a coworking space, all you need is basic services like bookkeeping. However, if your annual revenue is above $500K, but still within seven digits, then you will likely benefit from part-time CFO services.
You may be wondering how a virtual CFO service can give your startup an advantage in your market. Here are seven ways SMEs in Singapore typically use outsourced CFOs.
When to use Virtual CFOs
1. Redesigning the entire accounting process
2. Overhauling reporting
3. Coaching the CEO/Owner
4. Replacing technology platform(s)
5. Navigating a cash crisis
6. Managing key stakeholder relations
7. Raising capital
Redesigning the entire accounting process
When you work with an experienced external CFO, you get more than just helpful knowledge. You gain an impartial partner, who knows all the best practices and solutions available. They will help you implement proven processes which have worked well for other organisations. You will be surprised by how much your financial team’s efficiency can improve.
Many organisations lack clarity over their finances, simply because they don’t get the right reports on a regular basis. A virtual CFO service can come in, and completely (or partially) rebuild your reports. The weekly, monthly, quarterly, and/or annual will help your team make better-informed decisions.
This may involve tracking new or different Key Performance Indicators (KPIs). The KPIs to watch often vary by industry and business size/growth stage, so look for a resource with experience in your industry if possible. Our current clientele is dominated by growing startups in the tech, fitness, creative, and finance industries.
Coaching the CEO/Owner
CEOs often have deep expertise in their industry and more than one area of business. This may not be Finance. A virtual CFO can teach you to see the story behind the numbers. Eventually, you’ll get the training to be a data-driven CEO, who is less reliant on analysis by financial advisors, and more confident of decisions made.
Replacing technology platform(s)
CFOs are often called on to audit and/or replace financial software platforms, in order to streamline processes and improve business scalability. It’s a tall order that will have long-term implications for your startup. Once tasked, your virtual CFO will help you implement an integrated stack of solutions required for financial insights and tax compliance.
Navigating a cash crisis
It is not uncommon for SMEs and startups to seek CFO services when they are near the end of their cash runway. A top-notch external CFO will have survived the trenches with many businesses before. They can jump in and prioritise tasks that will make the biggest difference to your startup’s survival. Your virtual CFO can also put cash management controls in place to ensure your business is never blindsided by a cash crisis again. It will buy you the time needed to respond well to future crises.
Managing key stakeholder relations
Naturally, people get demanding when they have skin in the game. Some CEOs have the financial acumen needed to deliver the right package of reports, and field tough questions from boards, investors, or banks. But there’s nothing wrong with bringing in a pro to help you navigate those important relationships.
Most stakeholders like outsourced CFOs because they are pragmatic. They ensure startups won’t spend ahead of need and demand. Companies with boards or investors spend carefully because they know just how costly growth can be.
On a similar note, outsourced CFO service providers may be willing to hit the road with you as you pitch to angels and VCs. They can also prepare your financials in a way that will attract capital from investors, even if they don’t actively participate in those pitches and negotiations. Either way, a virtual CFO with experience in fundraising can do wonders in your quest for working capital.
Frequently asked questions when engaging an outsourced CFO
If you are seriously considering a virtual CFO service for your startup, you will have questions around how the relationship would work in practical terms. Here are some of the most common questions asked when hiring fractional CFOs:
How many hours do outsourced CFOs typically work?
Under normal circumstances, virtual CFOs work anywhere from half a day per month to two days per week for each company. Of course, this may dramatically increase if their client is in the midst of fundraising.
How much do outsourced CFO services cost?
Most providers will create a custom quote based on your specific needs. The spend can range from $1,200-$2,000 per day. Hiring a full-time CFO can cost $225,000 per year (salary + benefits).
When would be the best time to bring in an outsourced CFO?
In general, the virtual CFO should have constant check-ins with your startup, on a monthly or fortnightly basis. But, for larger projects, such as improving your accounting processes, or overhauling your reporting, we recommend doing so during your downtime because you’ll have more bandwidth to workshop intensely.
The other options are:
- Two months before starting to raise capital
- A month prior to annual planning
What are the priorities of an outsourced CFO during a cash crisis?
A recent report by JP Morgan Chase Institute found that less than 25% of small businesses have enough cash buffer that lasts for 62 days, while the recommended minimum buffer is three to six months. The priority of the virtual CFO is to help you shore up that buffer.
Here are the first four steps a virtual CFO may take to help your startup stay afloat.
1. Utilise cash management tools (weekly, monthly, or quarterly cash flow projections) to understand the severity of the situation and forecast a projected duration.
2. Identify options for generating cash (stretching payables, selling, pulling in receivables, etc.). This task will include prioritising actions for preserving and producing cash.
3. Act on the identified options on a daily or weekly basis, depending on the severity and duration of the crisis.
4. Once the company’s cash flow has stabilised, your virtual CFO will help establish reporting to provide a more advanced warning mechanism, so that you can respond quickly enough to avoid another crisis.
If you’ve made it to the bottom of this page, you’re probably seriously considering CFO services. Lanturn offers virtual CFO services on a case-to-case basis. Contact us to schedule a time for a free consultation.