The role of a Virtual CFO when negotiating with new investors

Virtual CFO

27 April 2022

As your business grows, there are many reasons to consider bringing in external investment. Whether it’s to help you overcome financial obstacles, improve stakeholder confidence or bring valuable expertise to your business, it’s important to choose the right investor for your business. And while that might sound simple enough, choosing the right investor can be extremely complicated.

At some point during the process, you may need the help of a Chief Financial Officer (CFO) to negotiate with new investors. For those businesses that aren’t quite ready for a full-time CFO, a seasoned Virtual CFO can help business owners choose the right investors, as well as analyse their financial records and advise the right time to find new investors.

Here is a comprehensive guide on the ways a Virtual CFO can assist your business when negotiating with new investors.

How a Virtual CFO assists with investor negotiations

There are good reasons why you may need a Virtual CFO during investor negotiations. Here are some of them.

A Virtual CFO provides financial clarity

The primary responsibilities of a Virtual CFO in a business include financial planning, accounting, budgeting, forecasting and aligning the financial strategy with the business strategy. They have an accurate understanding of a company's financials and how a small change would impact the overall growth.

Investors need clarity before making investments, and a Virtual CFO can help provide more financial clarity to potential investors to assist them with making informed decisions.

A Virtual CFO prepares financial records

Thorough financial records are required when you communicate with investors as they will need to evaluate the current position of your business before making a final decision. An experienced Virtual CFO helps to ensure your financial records are well prepared and ready for evaluation.

A Virtual CFO understands financial risks

A business faces many financial risks, including operational risks, market risks and legal risks. Investors consider all these when deciding whether to invest in your business. Analysing such risks requires careful consideration of multiple factors, and an experienced Virtual CFO can help you do this.

The unique skillset Virtual CFOs use to influence and negotiate with investors

Virtual CFOs are better equipped to assist businesses with understanding their financial needs and what they may be looking for in an investor. They’ll start by understanding a business’ financial position and why the business needs investors. Is it to get more financial support? Is it to increase stakeholder confidence? Is it to gain valuable expertise? A Virtual CFO uses that information to tailor their investor negotiations.

Virtual CFOs are generally experienced in a wide range of strategic financial areas – everything from mergers and acquisition to raising funds and business planning. Their skillset includes:

  • Budgeting.

  • Raising capital (equity or debt).

  • Creating financial forecasts.

  • Financial and ASIC Reporting.

  • Aligning business strategy with financial strategy.

In addition to having these skills, a reputable Virtual CFO will use modern technology tools and models for reporting and forecasting. And because they’ve got networks built over extensive careers, a Virtual CFO can connect you to and work with other external brokers or experts to help you get the best.

4 practices a Virtual CFO uses to negotiate with new investors

The process of negotiating with investors is critical to a successful outcome. The investors you bring to your business will need clear expectations of the risk and returns, so you need to make sure negotiations are managed clearly and transparently and that both parties understand each other well.

There's no pre-determined recipe for getting negotiations with investors right, but you can observe a few practices to make the process simpler and more effective. Here are a few things to keep in mind during the negotiations.

1. Understand the investor

Understand the goals of each investor and their expectations. How much are they willing to pay? How much equity will they want in return? Do they want a controlling interest in the business? And what does that look like? Understanding the goals and expectations of the investors gives you a clear understanding of what to do and what not to.

2. Create an agreement

Investor negotiation is a vital business step that requires a well-documented agreement. Your Virtual CFO acts as the middleman between the you and the investor. When all parties agree on particular terms, the official agreement is signed.

3. Identify the role of the investors

Why do you need investors? What role will the incoming investors play in your business? It's essential to understand the roles of everyone joining the board of management in your business. Therefore, you should highlight what you expect from each investor.

If a financial investment is a primary reason you are looking for external investors, your Virtual CFO should consider each investor's financial expectations and obligations. This reduces inconveniences and costly mistakes, which might affect the management of your business.

4. Highlight the duty of the Virtual CFO

A Virtual CFO should maintain open communication between you and your investors. However, they are obligated to protect you as the client and not the investor.

When businesses don’t adhere to these practices when negotiating with investors, it can often result in:

  • Raising equity at the wrong share price.

  • Getting the wrong investor for the business.

  • Exposing the business to more financial and management risks.

  • Raising funds from external investors where other means of raising funds would have been more suitable

Choosing a Virtual CFO to negotiate with investors

VCFO expertise is extremely important when it comes to negotiating with new investors. Investors determine the direction of a business financially, so you need to ensure you are working with a Virtual CFO that understands and can articulate the financial direction of your business.

When choosing the right Virtual CFO to negotiate with investors on behalf of your business, be sure to consider the following details:

  • Experience - ensure they have been in the industry for a long time.

  • Reputation - ensure they have a positive reputation from the public and past clients.

  • Knowledge and right skills.

The ideal Virtual CFO will evaluate the current status of your business and help you make the right decision. Perhaps, you don't even need an investor because you can utilise other options instead? A knowledgeable and experienced Virtual CFO can help you make the right decision and deliver the best results from any negotiations.

Negotiating with new investors requires expertise and good financial plans to get the right investors on board. Whether you are a new business or an established business looking to grow, a Virtual CFO can help you along the journey.

Find out more here or get in touch with the Accounting and Business Advisory team to see how we can help.

Author: Gerrit Vorster

Gerrit is a highly experienced adviser who works closely with business owners to develop tailored practical solutions to reduce their business risk, improve business performance and improve the business' owners quality of life. Gerrit works with clients across a variety of industries, specifically, small-to-medium businesses, and brings expertise in business strategy and scenario planning, cashflow forecasting, financial and management accounting, taxation and compliance and virtual CFO roles. Gerrit is a qualified Chartered Accountant and holds a Master of Business Administration (MBA).