How much help do you need to manage your business?
The answer will change, as your company grows and becomes more complex. Many businesses hire experts to manage growth, but taking on a high-level employee can be expensive. One expert most businesses eventually need is a Chief Financial Officer (CFO).
Fortunately, innovations in technology now make it possible to hire a virtual CFO. Use these tips to understand the role of a CFO, how CFOs differ from other accounting positions, and the benefits of hiring a virtual CFO.
A virtual CFO is a person who fills the role on a part-time basis, which is cheaper than hiring a full-time executive. Thanks to cloud-based accounting systems, CFO’s can work remotely.
To decide if you need a CFO, you need to understand the three basic accounting roles and the services they provide:
- Bookkeeping: Bookkeeping refers to using source documents (bills, invoices sent to customers) to record financial transactions in an accounting system. Rather than perform this process yourself, you can hire a bookkeeper to post customer sales transactions, inventory purchases, and company expenses into your accounting software. Using the services of a bookkeeper frees up your time for more important business tasks, and this is the first accounting role a business owner may staff.
- Accountant: An accountant can use the transactions prepared by a bookkeeper, along with payroll data and other records, to generate monthly financial statements, including the balance sheet and income statement. Business owners use the financial statements to assess business performance, and to make informed business decisions. After finding a bookkeeper, you may hire an accountant to review your transactions, and to generate and analyze your financial statements each month.
- Chief Financial Officer: A CFO manages the accounting staff, which will grow as your firm expands over time. In addition to overseeing the accounting transactions and financial statement preparation, a CFO also serves as a trusted financial advisor. An effective CFO helps a business owner by creating budgets and forecasts, and advising the owner on major financial decisions.
You may start by filling any of these positions on a part-time basis, and move to full-time staffing as your company grows.
Cindy owns and operates Fireside Shops, a chain of shops that sell greeting cards, books, and other gifts.
When she started her business, Cindy owned one shop and did all of the accounting herself. Fortunately, she had a business background and started operations using accounting software. Cindy posted accounting entries using the shop’s bills and customer invoices, and generated financial statements using software.
The first Fireside Shop generated $300,000 in sales in year one.
Adding an accountant
Cindy grows sales and profits at the first store, and adds two more locations within 5 years. She hires a bookkeeper when she starts the second location, so that she can spend time at both shops. Shortly after launching the third shop, Cindy hires a full-time accountant.
The accountant manages the bookkeeper, reviews all accounting transactions, reconciles the bank account, and produces the financial statements. Cindy and the accountant review the financial results to identify areas of improvement, such as cost savings opportunities.
The CFO need
Fireside Shops grows to five stores with a bookkeeper and accountant on staff. Six years later, Cindy decides to purchase three additional shops from a competitor. After consulting with her banker, her attorney, and several industry peers, she decides that she needs a virtual CFO to manage the eight shops effectively.
Cindy hires Laura as a virtual CFO, starting at 10 hours a week. Laura manages the bookkeeper and the accountant, and creates a budget and cash flow forecast for the eight shops. The CFO helps Cindy decide whether or not to purchase a building to expand one of the shops, or to lease a location.
As the owner, Cindy depends on Laura to provide advice on every financial issue.
Finding the right person
Finding the right people is critical for your company’s success, and you need to invest the time and effort needed to find a great virtual CFO.
Start by talking with your professional contacts. Ask them if they know any business owners that use a virtual CFO, and reach out to these owners, to ask about their experience. Talk with accountants that you know, and ask them what traits you need to look for in a CFO.
When you interview candidates, find out about their comfort level with technology, and if they’ve worked as a virtual CFO in the past. A growing number of accountants are becoming full-time virtual CFOs, and you should be able to find some good candidates.
Ask them about financial decisions they’ve made, and how often they speak with the business owner. If you’re willing to make the effort, you can find the right person.
Worth the effort
Company growth means that you must process more transactions and make decisions that have a bigger financial impact on your business. Before you get overwhelmed, find help. To hire an accounting expert on a budget, invest the time needed to find an effective virtual CFO. Grow your business with confidence.