Last week we talked about the top reasons a government contractor needs to outsource their CFO function. I think it is prudent to step back and look at why a small business needs a Chief Financial Officer to begin with. What does a CFO do that an accountant doesn't do? Why would a small business need a CFO if they have already contracted to have their books kept up to speed meeting GAAP, FAR and other regulations? These are good questions and not always obvious to answer.
Let's start out with the duties of presenting and reporting accurate and timely financial information. This is a key requirement because critical decisions about the direction and operation of the company are based on these reports. In a very large organization there is usually a Controller as well as the CFO. Normally the Controller takes on the responsibility of preparing these reports but he CFO is ultimately responsible for the accurateness of the reports and the content. The CFO serves as a final review of the information, how it is presented and how accurate the information is. This "dual" function can be used to reduce the amount of risk of incorrect information or improper reporting. In a small organization, there is normally not room in the budget for both a controller and a CFO so the "second set of eyes" is not usually available. This is one of the best reasons I know to outsource your CFO responsibilities since this will provide an additional set of eyes and a different perspective on the data from which important decisions will be made. Having someone with CFO experience to review and advise on these reports is extremely valuable to a small business.
Another big responsibility for the CFO is for the financial condition of the company. This not only includes the cash flow position but it includes managing the capital structure of the company. Cash flow issues are more often than not a primary reason for company failure. A CFO to help direct this is not rational for a small business but an outsourced part time CFO is a reasonable solution. This would include help decide the best way of financing the company and/or company growth and then securing this financing. In a very small company the owner fills this function by default. In reality the owner may not know all of the methods of financing available nor does the owner have time to investigate the best overall solution for the company including cost of capital. As a result, many times the financing is not optimized for the small business. A seasoned CFO can resolve this issue and bring to the table options that are cost effective for the company based on the CFO's experience.
Finally one of the top functions of a CFO is to help with the strategy development and forecasting of future business for the company. Forecasting is somewhat of an art and to find someone that has done a lot of that is an invaluable tool for the small business. Again, the problem usually is that the small company cannot afford to hire this expert on a full time basis. This is where outsourcing this function can be beneficial. The real key to outsourcing is to select someone that you can build a trust with and can become a real partner. When the outsourced CFO is a trusted partner with the small business, the small business has the best of all worlds. The partner can make excellent recommendations for the company to consider as well as help develop forecasts that the company can utilize to grow the business.