How a CFO adds value to your business

Thomas Taylor - Wednesday, April 10, 2019

Have you noticed that there seems to be a bunch of new Outsourced CFOs about? This is a great thing, I think there needs to be a lot more of us.

That's because there is a big gap between the sort of advice businesses can get from their tax accountants and from someone that has worked inside businesses, businesses like yours, helping to run them.

What your tax accountant does have is visibility across a number of businesses, and that's very valuable because most accountants that work inside a company full-time don't have that, they can get caught up with the day-to-day and get a bit siloed.

The rise of Outsourced CFOs bridges this gap, you get the best of both. They should have seen lots of businesses like yours, they should know what works, and what doesn't work.

The reason I'm happy about the recent increase in Outsourced CFOs is because it's been hard sometimes to explain to people what I do. I am an accountant after all, not a marketer, and Outsourced CFOs is a fairly new concept that a lot of people don't get unless they've seen it work.

There is a term in economics called "economies of agglomeration" which explains why you see a bunch of restaurants in the same strip sometimes, in aggregate more people go there to eat because they know they will be able to find something that suits them. As tax and bookkeeping become even more automated I think we are going to see many more Outsourced CFOs helping businesses and more people understanding what benefits they can bring.
So, what is it that an Outsourced CFO should do well?

1) Where are you really each month? Where are you headed?

I think it takes a lot of skill and experience to provide a clear picture of where a business is and what it's trends are. Reports need to show changes in performance at least monthly, not just a set of annual tax accounts. And it can't just be a set of cash accounts done by a bookkeeper. Proper, clear, and succinct, management accounts are extremely powerful; once you experience what they can show you won't ever put up with anything less. Outsourced CFO's don't actually have to crunch these numbers for you, the real value is getting them to help whoever does the reports to do them in a way that can help you most. Or, help you find someone that can do it for a reasonable cost. And then to make sure that the reports stay relevant by keeping a watching brief over the process. In my experience, it's a rare business that has monthly management accounts that accurately reflect where they are from month to month. I firmly believe there is a high correlation between accurate monthly management accounts and success.
2) Now you know where you are, where do you want to end up?

Call it strategy if you will but I think that most business people know what their strategy is. Do a search on LinkedIn and you can find plenty of strategy consultants, and they definitely have their place, but I believe the best bang-for-buck from your Outsourced CFO comes more from tactics. The art of connecting short-term actions to long-term goals. And then making sure operational and reporting systems support those initiatives so you can keep on track. Basically, making sure your business is doing the right things, and those things are in fact being done.
3) What have other people done in this situation?

There is no substitute for experience. Whenever you engage an advisor, make sure they have done it with their own bare hands before, and more than once. I've been asked by quite a few people what I think is important, and about the best ways to help clients. My response is always the same, have a genuine interest in your client's business and always be willing to listen and learn. It's not about handing out technical advice from behind a desk, it's about working togeather with the business, helping it to use efficient tools and tactics to flourish. And, hopefully, to have some fun along the way.
4) What the margins and costs should be

The easy way to tell if you are on track is to see how your margins and cost ratios match other businesses like yours. Your Outsourced CFO should be able to tell you what these are, and to help you plan improvements.
5) If, then, else

A good Outsourced CFO can prepare a simple model of your business that you can use, together, to help decide what to do about all those things that stress you out; when to take on new staff, how fast can you grow, how much to spend on marketing, how much cash can you take out in salary and dividends.
6) The exit (where you want to end up)

Selling a business can be a daunting thing. You'll need a good business broker, like you need a good real estate agent to sell your house. But also make sure you have a good wingman that can help you with all the financial aspects a sale brings up - from help with clear and elegant management accounts and business plans to lining everything up for due diligence.
 
I would recommend that you regularly review these six things to make sure you are on track.

Cheers
Thomas

 

 

Photo by Austris Augusts on Unsplash


 

 

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