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Without a skilled navigator and a compass, a ship may never sail. Likewise, a business needs various resources to stay competitive, and financial planning is the compass for a brand-new business.
Startups may not be able to afford a full-time CFO, but they still need these individuals’ advice and finance knowledge if they want to scale. Fortunately, they can get the financial advice they need from an outsourced CFO.
But who are outsourced CFOs, what are the benefits of hiring them, and how do they help businesses? Let’s find out.
Who Is an Outsourced CFO?
An outsourced CFO is an individual who can help businesses with strategic financial planning, keep an eye on important indicators, control cash flow, identify risks, and prevent future financial challenges. They have the same obligations and responsibilities as full-time CFO.
Outsourced CFOs offer high-level financial planning, system analysis and design, and operational optimizations. They also enable businesses to overcome poor cash flow, capital raising, narrow profit margins, inefficient system implementation, and expansion planning problems.
As a strategic financial advisor, an outsourced CFO can offer knowledgeable financial advice that can assist a business in reaching its growth goals and making informed decisions.
Role of an Outsourced CFO
Here are a few ways an outsourced CFO can help businesses:
1. Financial Planning
A business can work with an outsourced CFO to create a strategic financial strategy that supports its expansion goals. This means looking at past financial data, figuring out key performance indicators (KPIs), and making future financial projections.
Businesses with well-defined financial strategies can make decisions encouraging growth and raising profitability.
2. Cash Flow Management
For any expanding business, cash flow management is essential. A business can work with an outsourced CFO to generate a cash flow forecast showing how much money will be available.
Outsourced CFOs can also aid in the identification of methods for enhancing cash flow, such as more effective management of accounts receivable and payable.
3. Reduced Risk
A company’s chances of financial risk increase as it expands. But it can build risk assessment plans with the help of an outsourced CFO. These plans cover everything from insurance preparations to backup plans for unforeseen circumstances.
Companies can also reduce the impact of unanticipated events on their operations by putting a risk management strategy — created with the help of a part-time CFO — in place.
4. Fundraising and Investment
For firms aiming to grow, raising funds and getting investments are crucial. An outsourced CFO can help companies create a fundraising plan, locate potential investors, and offer advice on how to distribute those funds to maximize returns on investment (ROI).
Companies with access to the appropriate funds can scale their operations more successfully and invest in growth possibilities.
5. Enhancing Cash Flow
According to a study by the US Bank, poor cash flow management accounts for up to 82% of business failures, which emphasizes the significance of monitoring a company’s cash position.
A CFO helps businesses watch over their finances and make wiser spending decisions, reducing the chances of cash flow mismanagement. They take control of cash management — planning taxes and other aspects of liquidity — and strengthen a company’s cash position.
6. Strategic Financial Guidance
An outsourced CFO can help businesses determine cost-saving opportunities, develop pricing strategies, and evaluate new market potential. This helps them make better-informed choices that promote expansion and raise profitability.
Being able to access top-tier financial expertise without having to pay for a full-time CFO is one of the main advantages of using outsourced CFO services. It’s especially helpful for small to medium businesses (SMBs) and startups because they might not have the funds to engage a full-time CFO but still require qualified financial advice.
How to Scale Your Business with the Help of an Outsourced CFO?
Here’s how companies can scale with the help of a CFO:
1. Define the Scope of Work
An outsourced CFO can be a game-changer for small businesses struggling with streamlining their cash flow, financial planning, and forecasting. But signing up a CFO without knowing what they’ll work on is a losing strategy.
So, companies should define the scope of work before considering a chief financial officer. This involves defining the areas where an outsourced CFO will offer assistance, such as financial planning, forecasting, budgeting, and cash flow management.
2. Consider Task-based Division
Projects with dozens of tasks can be intimidating and have a higher chance of human error and failure.
To make projects easier, companies should break down financial projects into several tasks, e.g., separate cash flow statements for Q1, Q2, Q3, and Q4 for every year, making them easier to go through.
Once every project has been split into manageable tasks, companies should create plans to ensure that CFOs and everyone on their team are headed in the right direction.
3. Choose the Right CFO to Partner With
The success of a company depends on the CFO they work with. So, checking the service provider’s or individual’s reputation and credentials before signing them up is crucial to making the best decisions for your company.
4. Compare the Strengths/Weaknesses of CFOs
Before deciding on a CFO, consider what they do well and what they don’t focus on.
For instance, some CFOs may specialize in managing the cash flow of venture capital-backed or investor-owned companies. In contrast, others may focus on growth, scaling, mergers and acquisitions, and turnarounds.
You should also consider the experience of the CFO and the measurable outcomes they’ve created for companies they’ve previously worked with.
Managing the financial aspects of a business is crucial for growth, ROI, scaling, and tax purposes, especially for startups, venture-backed companies, and public-facing companies struggling to scale.
CFOs can be game-changers in these situations. They streamline company cash flows, enable quarter forecasting, help companies locate investors and raise funds, and produce high-quality, cost-effective results without costing an arm and a leg.