4 Signs You Need to Consider an Outsourced CFO for Your Small Business

Published by Matt Brady | August 8, 2016

With rare exceptions, most small business owners are true experts in the industry that their business serves, and less-than-experts in other fields. If you’re busy building a construction company or a medical practice, chances are you don’t have a lot of time to read up on business law, contract negotiation, employee benefits reporting, IRS tax exemption rules or accounting strategies. And yet, you need to perform these tasks at least as well as you perform those activities directly germane to the business of your business.

Finding a way to do both — serving the customer by providing outstanding solutions in the company’s chosen field, while simultaneously managing the affairs of the company in areas such as law, accounting, human resources and procurement effectively — is one of the greatest challenges that a small business owner will face. For many, the challenge ultimately becomes insurmountable and the company suffers from a lack of structure, poorly implemented procedures or incorrect operating assumptions.

One reason that small business owners suffer with these challenges so greatly is that by their nature, smaller companies are not in a position to financially afford full-time professionals who would oversee each area of the enterprise. The likelihood of finding an owner-led small business that also employs a litany of full-time C-level executives in areas such as operations, accounting and human resources is almost infinitesimal.

However, there is another option available — one that more and more small business owners are discovering and taking advantage of. That option is to retain a fractional expert — essentially a part-time, outsourced executive — who can oversee that area of the enterprise in a cost-effective manner.

One of the fastest-growing areas of fractional executive expertise is that of the outsourced CFO. An outsourced CFO can work with you on a weekly or monthly basis to answer questions, ensure compliance and help you plan and execute effective strategies for the financial future of your business.

Here are four signs that you should consider an outsourced CFO for your small business today:

1. Operations are in hand, but not in control or compliance.

Yes, the bills get paid, the paychecks go out and invoices are sent out (most of the time). But sometimes, you are writing manual checks and entering details later, or taking other shortcuts due to lack of time (such as crediting the value of a return directly to a new purchase without recording the transactions individually).

This is survivable — for now. But it’s not sustainable, and it can plunge your business into crisis if at any time the Band-Aid solutions fall apart, or the IRS comes for a visit. Clearly, you need a competent financial expert to come in, get a hold of things, and lead your business into an organized and systematized future where accounting processes are consistent and compliant.

2. Cash is coming in, cash is going out…and that’s all you know.

Some small business owners forget that when cash is rolling in, a company can be loaded with money and still on the verge of failure. More than a few cases have arisen where small businesses grow revenue fast but let costs go up faster, only to discover the gap during an unanticipated “D-Day” when the house of cards comes tumbling down.

If you don’t know a P&L from a Balance Sheet or a backlog report from a chart of accounts, then you likely have no real handle on the health of your business. At times like this, an outsourced CFO is the essential resource that you need in order to move forward with confidence. Don’t wonder if you’re making money and operating effectively — find out, with a financial expert on the team who can advise you, explain reports and organize the metrics you should use to run the business.

3. Planning, financing and investing in growth feels more like a bet than a strategy.

If you decided to open a new office in a different market tomorrow, would you work up a plan, prepare a forecast, assess financing options and update your overhead projections to accommodate the change? Or would you find a decent place to rent, add in a few extra dollars for furniture and utilities, sign a lease and worry about the rest tomorrow?

All business decisions involve risk, and of course making aggressive moves can be enormously effective in beating the competition and establishing a new niche to serve. But if you make blind leaps rather than reasoned, data-backed choices, then it’s time to add a competent financial expert to the team who can assess, evaluate and help you make data-driven decisions.

4. To you, planning for exit means making sure your offices meet fire code.

If the only kind of ‘exit’ you’ve ever planned for is the fire exit in your newly constructed or renovated offices, then it’s undoubtedly time to add a CFO to the team. The most important objective of any privately-held business is to create and build lasting value that can be monetized in the future.

Would you buy a house and then let it sit for years without proper maintenance and upgrades, all the while expecting it to sell for top-dollar when you’re ready to downsize? Of course not — and yet that’s exactly what many CEOs do with their company. You need to start preparing for the future today, because every decision you make about how your business is structured and operated has a dramatic impact on its present and future valuation in a sale transaction.

Note: To learn more about exit strategy considerations for small business owners, please read our article, 5 Things Every Small Business Owner Should Do to Prepare for Exit Today.

From getting your accounting operations organized and your financial house in order, to guiding you through critical decisions that ensure you are planning effectively for the future — retaining a competent outsourced CFO can serve as one of the most cost-effective and valuable investments you can make in the success of your small business.

Learn more about what an outsourced CFO can do for your business by speaking with your CPA today about the most important priorities and options you can address for the future of your business.