No matter their place on the corporate ladder, no business (from start ups to those that have ten million in sales) can afford to pay a full-time CFO, nor is the full time assistance of a CFO necessary. What business owners should do instead is hire a part time CFO: a person with all the same skills as their costly full time counter part who instead provides the business owner with their services on an as-needed basis.
The CFO that really understands the risks of owning a business is your best choice as a business owner. Someone who knows how it feels to have no money in the bank account on Wednesday and a payroll to make on Friday is the person you want as your CFO. Someone who knows firsthand the same annoyance you feel watching employees causing disruption or just sitting around the office because they too have experienced it first hand—that’s a CFO you want to hire, because they truly understand the position you’re in as a business owner, having been there themselves.
The beauty of having the flexibility of a part time CFO at your dispense is that you can choose one, some, or all of their services at any time. You aren’t forced to select them all at once.
So what are CFO services every Chief Financial Officer should be able to and willing to perform?
Making sure you, the business owner, has good financial numbers. There is no way for a business owner to make good decisions with out good numbers. The first thing the CFO should do is make your numbers right if they aren’t already.
Specifically the Part Time Chief Financial Officer should be able to identify, assess and mitigate risk by working together with you. There is no question that your business, big or small, comes complete with risks. The only question is about how severe those risks are. The CFO should assess the severity of those risks and if they are severe enough, suggest actions to mitigate them. Severe risks can include anything from cash turbulence, low or no cash reserves, need for financing, to employee risks, inventory opulence risk, legal risk or personal liability risk.
You’ll want a Chief Financial Officer who will be able to tell you when it’s “cloudy”, not one that lets you know that it’s already “raining”.
This should come as no surprise—because business owners hate surprises. Business owners need time to review their options and fix whatever needs to be fixed, and to do that, they need their CFO to prepare them by eliminating as many surprises as possible. The thing business owners want the most is time to react, so the sooner they’re made aware of a problem, the better. Being made aware of a problem that’s already happening is useless to the business owner, because A) they already know and B) they can’t do anything to prevent it now. Business forecasting and modeling tools are a must for the worthwhile CFO to give the business owner the necessary foresight. Forecasting tools give the business owner time to react to downturns and upturns in their business. Next Step CFO, for instance, exclusively developed a forecasting and modeling tool called “CashTell”.
The major points a good forecasting tool should be able to perform include (but are not limited to, this is just a brief list of the bare minimum requirements of a satisfactory forecasting tool):
Being based on a set of solid assumptions the business owner can nonetheless change at any time, anyway they want through the creation of multiple “what-if” scenarios. All forecasting tools, including CashTell, work this same way.
Based on the assumptions you give it, a good forecasting tool will tell you how much cash you will have or need at any point in the future. For instance, a good forecasting tool will be able to determine your answer if you want to know if you will have enough cash to survive a 20% decrease in business. By the same token, it can also tell you if you have the cash to survive, say, a 50% increase in business.
A good forecasting tool can also tell you things like whether or not your business can absorb the purchase of equipment, machinery or a new computer system.
Your forecasting tool should tell you how to increase your cashflow. It isn’t always increasing sales that will increase your cashflow–a good forecasting tool can give you the answers regarding what else will help you.
And a good forecasting tool will help you determine the key metrics to evaluate your business on a regular basis going forward.
To sum up a good forecasting tool in one sentence, it allows you figure out the strategies that need to be implemented to drive profits and cash flow.
Once that’s been determined, your CFO can step in and implement those strategies.
Quantitative perimeters that help a business owner evaluate the productivity and performance of each separate aspect of your business are called Metrics, and metrics are an exceptional and necessary management tool! Determining and developing metrics to evaluate your business is something your part time CFO should be able to help you with.
A good part time CFO will work in your office location, and help you to get real results, contribute to business development, identify employee theft, shape your financial strategies (and exit strategies for when the time comes you are separated from your business), and improve the controls and processes that lead to the desired operating efficiencies.
Hopefully this proved helpful to small business owners by making them aware that a Part time CFO is an option that exists as an alternative to a more expensive and frankly not as sensible route.