29 March 2022

The feeling of building your business from scratch and growing revenue is a satisfying one. However, growth and success usually come with their own share of challenges for business owners. Once you've achieved success, your business will need an executive financial officer. But many businesses at this stage of growth find they can't afford to hire an in-house Chief Financial Officer (CFO) just yet. Fortunately, it's easy to outsource CFO services virtually. But what is a Virtual CFO, and how can they contribute to your business growth? Let’s jump in and find out.

What is a Virtual CFO?

A Virtual CFO is no different from your usual in-house Chief Financial Officer, only that with a Virtual CFO, services are offered virtually on a contract or part-time basis. Previously, most small businesses didn't consider Virtual CFO services as in-house CFOs were more common. Now, a Virtual CFO can be brought in as an outsourced financial consultant that provides the same high-level financial assistance as an in-house CFO does for larger businesses.

A Virtual CFO may be an individual or an agency. It's the same as onboarding a financial director as an extension of your team. Such financial experts are beneficial for small and high growth businesses that may not have the financial capacity to hire an in-house CFO on a full-time basis but require the financial expertise and the leadership they would provide within an organisation's financial department.

A Virtual CFO may handle different finance-related responsibilities that your organisation may not have the expertise for. Responsibilities like:

• Budgeting.

• Raising capital (equity or debt).

• Creating financial forecasts.

• Identifying emerging market trends.

• Financial and ASIC Reporting.

• Aligning business strategy with financial strategy.

Virtual CFOs are usually hired by small businesses and high growth businesses with limited employees, meaning they can also undertake extra duties such as bookkeeping and reconciliation. According to McKinsey, the Virtual CFO can generate high-level strategic and operational value that previously was not considered.

What does a Virtual CFO do?

A Virtual CFO brings the same contribution you'd expect from your Chief Financial Officer, except the Virtual CFO works on a non-permanent basis. As the Virtual CFO concept continues to grow more popular, top business leaders now leverage the data provided by the Virtual CFO through accounting, advisory, and forecasting services.

The success of this new concept can be attributed in part to the latest technologies used to automate each process, unlike the traditional accounting tasks that were less efficient. More and more accountants can capitalise on real-time financial data and insights to provide timely operational advice. With this flexibility and available real-time intel, business leaders can invest the data in valuable initiatives.

There is only one challenge to this milestone: CFOs are expensive. The average in-house CFO is superior to the company directors and managers. When a business doesn't have the financial means to hire an in-house CFO, they enlist the services of a virtual one.

Outsourcing CFOs virtually gives your business the advantage of harnessing their expertise at a fraction of the cost used to onboard an in-house CFO. Since such financial executives work virtually for several clients, their time is channeled to various duties, the same way a real estate agent would manage several properties simultaneously. Ideally, a virtual financial executive's scope of work depends on the size of your business, industry, and financial needs. Their pay also depends on the above factors and can be hourly or monthly.

What are the benefits of a Virtual CFO?

Hiring a Virtual CFO to help manage your business' financial requirements comes with multiple benefits, including:

Better ROI

One of the benefits of a top-level financial executive is top-notch expertise minus the heavy price tag. In Australia, the yearly salary for an in-house CFO can range anywhere between $185,000 - $700,000 [1], depending on the industry and size of the organisation. For most small businesses and startups, that is way too high for a single employee.

However, with a Virtual CFO, you only pay for specific services and only when you need them. Virtual CFOs are your best option when you need to access the same top-level expertise and still cut down on spending. These cost-cutting opportunities help recoup your investment capital.

Customised service

Every industry has different financial needs. For example, the financial needs of an eCommerce business differ from those of a construction business or professional services firm. Additionally, your business’ financial needs will vary based on where your business is at in its lifecycle - start-up, growth or established.

A Virtual CFO can tailor their services to meet the requirements of your specific industry and business lifecycle, and such services don't come with additional charges. Also, their services are often aligned with your business growth strategy.

Long term partnership and growth

Besides the financial needs of every organisation, business needs and objectives also vary. Some businesses generate $1 million in revenue, while others generate as high as $10 million. Virtual CFO services can help you achieve different growth milestones. While most Virtual CFOs work temporarily, they can grow with your business and transition from an extension of your team to an in-house part of it.

Knowledge and top level expertise

Typically, most Virtual CFOs specialise in one industry and work with various clients across multiple sectors. This way, they can pool together experience from multiple sources, valuable for your business. Whatever your financial situation, you can be sure that your Virtual CFO has the experience and expertise and can apply it when necessary.

Core outsourced services provided by a Virtual CFO

There's no downplaying the benefits of Virtual CFO services. However, the same services are not required by every organisation. Some businesses need top-level strategic advice. Then there are those businesses’ whose financial processes are not organised properly and require an outsourced financial executive to help set things straight. Once you understand your organisation's financial goals, a Virtual CFO can contribute to your business in these critical areas.

Financial clarity and oversight

As your business grows, it becomes more complex, and the responsibilities increase by the day. Gone are the days when you'd work comfortably in your basement alone. The more you invest in more resources (human, equipment, and supplies), the harder it becomes to manage your finances. A Virtual CFO can leverage the data available in your business to build an accurate picture of your financial health.

Financial strategy and design

Growing at an accelerated rate is good until it becomes a problem. Such growth can mess up your financial goals if you do not have the necessary skills to manage your working capital. A Virtual CFO can assist you in navigating those high seasons, provide actionable business advisory tips, and implement strategies for the next milestone, so you know how to monitor resources and manage cash flows and revenue.

Budgeting and forecasting

A Virtual CFO can help businesses manage risks and capitalise on opportunities.

Every industry has its own volatility, threats and uncertainty whilst also having its own opportunities and rewards. Sometimes these are driven by internal factors such as understanding your working capital needs or the number of staff you require and other times these will be driven by external factors such as increased competition, changes in customer behavior or increases in interest rates.

A Virtual CFO enables you to budget and scenario plan on how to identify and capitalise on new opportunities but also how to manage and reduce business risk.

How does a Virtual CFO work?

Businesses that work with a Virtual CFO gain access to expert financial officers at much lower pay than a full-time CFO. The services vary from organisation to organisation. However, a Virtual CFO will:

• Remotely perform all the duties and responsibilities of a full-time CFO on a part-time basis.

• Use cloud computing and automation to monitor the financial situation of your business.

• Offer financial advice and guidance on business decisions.

• Provide financial data entry and similar duties like a tax consultant.

When is the right time to hire a Virtual CFO?

Whether you are a small or medium-sized business, you may not have the financial capacity to hire a full-time CFO resource even if your business badly needs the services.

Thankfully, a Virtual CFO offers the required level of expertise part-time and at a fraction of the cost. They help manage your financial resources when you need their help.

What do you look for in a Virtual CFO?

Here's what to look for in a virtual CFO:

• Proven industry knowledge and expertise in corporate finance management.

• Relevant financial management skills in various sectors.

• Ability to organise and manage your financial resources to maximise efficiency.

• Ability to offer financial insights and guidance on diverse company needs.

• Well connected with other professional service providers such as tax consultants, corporate finance, lawyers and insurance specialists.

Conclusion

If a blurred understanding of your business's financial landscape is standing in the way of your business decisions, partnering with a Virtual CFO can make a big difference.

Download our comprehensive range of sample financial reports to help individuals, business owners and CFOs to simply visualise data with easy-to-follow reports.

[1] Hays Salary Guide FY 21/22 https://www.hays.com.au/salary-guide