One of the most crucial activities, business finance management, if done efficiently, immensely contributes to the growth of a business. Incorrect financial inputs on quantities, costs, margins, inventory, cash flows etc. can adversely influence a company’s market share, access to the capital and eventually the profitability of the business. Hence, a company must have skilled and experienced business finance management executives, who can proficiently keep a track of all its finances and prepare error-free financial statements, which are a reliable source of information for investors, creditors, lenders, and other stakeholders. Besides, strategic financial planning helps businesses to ensure their expediency and the right allocation of funds by providing a clear idea of what they are currently doing and where they are headed towards.
Imperative for any type of business, appropriate finance management helps entrepreneurs to decipher the growth opportunities and threats, and take expansion decisions accordingly. But, for small businesses or start-ups, which are often tight on budget, hiring in-house finance executives and CFOs(Chief Financial Officers) generally turns out to be expensive. Hence, many small to medium-sized companies and start-ups prefer to outsource their finance-related activities to third-party finance management agencies or an individual external finance expert, commonly known as ‘outsourced CFO’, with high experience level and qualification, rather than hiring a full-time in-house CFO. But, how to understand when is the right time to get an outsourced CFO?
4 Signs a business requires an outsourced CFO:
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- It is unable to record accurate financial data on time.A business generally has multiple bills to pay. Hence, in-house finance executives or start-ups or small business owners with inadequate experience in finance management often make mistakes while recording copious finance data. As inaccurate data doesn’t give a clear idea of the current financial condition of a business, entrepreneurs usually find it difficult to make any emergency purchase decision, even if they need to urgently buy new equipment. This is because they cannot figure out how the sudden capital outlay might affect the coming month’s cash flow. An outsourced CFO makes sure the recorded data is accurate and the financial statements are provided on time. As a result, the outsourcers can make confident financial decisions, without being worried about cash flow issues.
- It is facing cash flow issues.In the case of start-ups and small businesses, generally, the owners manage to create cash flow projections and budgets single handedly, in the initial phase. But, as a business grows and the supply chain gets erratic, various unanticipated variables often pop up and put the company in financial turmoil. The rapid growth of a company signifies that it is experiencing high demand for its products or services. But this increased demand often leads to operational inefficiency, which requires a huge amount to get fixed. As a result, the company faces a cash flow crunch to meet the growing market demand. An outsourced CFO, due to its expertise in finance management, can effortlessly tackle such a situation by keeping a track of the cash inflow and outflow of the business. This allows the outsourcer to efficiently handle the growth phase without worrying about cash flow issues.
- It is unable to integrate financial inputs with the business plan.Financial data immensely help business owners to understand their current financial situations and accurately forecast their growth in the coming years. Hence, it is quite crucial for strategic business plans to include metrics and definitive financial data to precisely explain the vision of the company. As business strategies are often about calculated resource allocation, financial inputs are imperative. Hence, companies, especially start-ups, which do not have ample funds to hire an experienced and highly-qualified in-house finance manager, get an outsourced CFO, who can provide them with all the necessary metrics.
- It does not have enough funds to update its outdated accounting practices.With the rapid advancement of technology, accounting practices are also getting amended. The advent of cloud-based accounting makes sure the one using it is compliant with all the legal and industry requirements. However, switching to the latest accounting practice and buying software often turns out to be expensive for small companies. But outsourced CFOs are often equipped with cutting-edge software and updated on the latest accounting practice.
- It is unable to record accurate financial data on time.A business generally has multiple bills to pay. Hence, in-house finance executives or start-ups or small business owners with inadequate experience in finance management often make mistakes while recording copious finance data. As inaccurate data doesn’t give a clear idea of the current financial condition of a business, entrepreneurs usually find it difficult to make any emergency purchase decision, even if they need to urgently buy new equipment. This is because they cannot figure out how the sudden capital outlay might affect the coming month’s cash flow. An outsourced CFO makes sure the recorded data is accurate and the financial statements are provided on time. As a result, the outsourcers can make confident financial decisions, without being worried about cash flow issues.
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Summary
Getting an outsourced CFO is cost-effective and ensures strategic planning, unbiased financial advice, timely risk detection, smooth cash flow management and accurate financial reports. Hence, companies that are witnessing exponential growth, often prefer getting an outsourced CFO instead of draining money in hiring an in-house finance officer, as the rapid expansion usually increases responsibilities and creates financial chaos.
