A competent CFO may help SMEs or startups to improve their business efficiency and sustain healthy growth. However, a dedicated CFO can also be quite expensive to justify the benefits to be realised in the long-term. Is there a way to reduce the cost?
How does a good CFO help a company grow ?
Common reasons behind a business’ failure may include losing control of finances and poor cash flow management. A Chief Financial Officer (CFO) is a senior executive who acts as a financial leader in a company, managing the cash flows, assets and liabilities, profit and loss. Book keeping and Data analysis are basic requirements.
Cash flows forecasting, financial analysis and financial risk management are essential competency in this dynamic changing financial world. A good CFO will also be required to plan and to drive an effective financial budget for the company’s tactical strategy in the medium term to long term.
Therefore, a CFO must have strong financial knowledge and solid experience. A competent CFO should have excellent communication skills in order to work along with other departments, especially the Chief Operating Officer (COO), to identify business opportunities and potential risks. In addition, the CFO will report to the board of directors and investors. So, he/she should have excellent negotiation skills to gain their consent in financial budget planning. With a broad network in the financial community, he/she will help the company to raise funds for operational expansion and to access necessary capital even in a difficult environment.
Without a CFO to design a feasible and solid budget, companies may miss out on business opportunities to move forward. A company needs to understand its position and the market situation. So, hiring the right person as a CFO is critical to a business.
Hiring an outsourced CFO service is a good strategy
Hiring a full-time CFO is expensive because of its professional background and expertise skill requirement. As a reference, the average base salary of a full-time CFO in Hong Kong is HK$1,286,119 per year.
Most companies outsource the tasks of a CFO to access professional experts and to achieve cost effectiveness. An outsourced CFO should monitor the cash flow activities and analyze the financial data in the corporate ledger so as to identify any increasing cost, shrinking profit margin, potential pitfalls or business risk. He/She should also scrutinize the labour utilization, fixed cost, variable cost, account payable and account receivable to identify any hidden cost, the profit margin from demanding clients and their additional required handling time. Therefore, areas that are underperforming can be restructured, business risk can be mitigated, unnecessary cost can be eliminated, and return on investment (ROI) can be calculated accurately. Eventually resources utilization can be optimized and ROI can be improved via corporate diagnostic and proper financial management.
In addition, an outsourced CFO should prepare a business analysis review together with the company financial health report. He/she can compare the performance with peers from time to time. Competitive analysis is important for management to recognize any imminent threat. Market analysis is another essential process for management to understand the trends of customer preference, supplier constraints and technology development. Any one of those elements antagonizing the company will harm the company’s business. Failure to respond is simply not an option.
Furthermore, an outsourced CFO should properly manage the treasury so that the debt and equity are well balanced. He/She should also make a financial forecast for the company in order to conduct a feasible and sound financial strategy. With a well-planned strategy, the company can allocate its capital and resources into the right segments for generating the largest return to achieve an optimal financial result.
Most importantly, an outsourced CFO should be able to handle both finance and account matters. He/She should also be prudent to ensure accounting procedures complying with all the regulators and to ensure all the financial reports are released promptly. He/She should be diligent to check all the sizable transactions, improve the cash management and ensure the payment to all payrolls as well as account payables without delay.
Xero — A good helper of Accounting
An online accounting system is required for an outsourced CFO to perform tasks efficiently and remotely. Xero, being an SAAS accounting system, may be a good choice for SMEs to adopt for acquiring outsourced CFO services. With Xero, financial data can be captured, copied and saved into Xero database for filing, bookkeeping, billing as well as reporting purposes. Since data is managed automatically in real time, standard reports, like Balance Sheet, Income Statement, Cash flow Summary and Executive Summary, can be generated from the system with a touch of a button. Moreover, Xero will handle purchase orders, payrolls, invoices, taxation and other payments automatically, so operational risk and cost will be reduced significantly.
Together with the outsourced CFO support in financial analysis and tax planning, you and your company will have good insight to make the right decision and smart corporate strategy.
Interested in CFO outsourcing or Virtual CFO service?
Normsun CPA is an accounting firm with a team of experienced practicing chartered accountants. ACH is a consultancy firm, grouping a team of professional experts with doctorates (Ph.D.), chartered accountants (FCCA, ACA), accountants, chartered financial analysts (CFA) and quality controller.