In every business, from multinational corporations to small start-ups, the CEO has to figure out how to juggle many tasks with limited resources, including the things a CFO typically handles. For small businesses, having a full-time CFO and finance team is often an unaffordable luxury.However, trying to “get by” without a good CFO’s guidance, analysis, and advice can be disastrous. The solution is to outsource the CFO role until a firm grows to a point where it needs a full-time CFO in-house.
But what, exactly, can a part-time CFO do that is critical to an early-stage company’s success? In this article, we describe 14 services that part-time CFOs provide – many that are often neglected in that early stage when everyone in the company is being pulled in many different directions.
A part-time CFO can help stabilize a business and promote growth by taking on the following tasks:
1. Making Financial Forecasts
2. Analyzing Budget vs. Actuals
3. Determining Unit Economics
4. Preparing Board Presentations
5. Evaluating Sales Resources and Productivity
6. Strategic Planning
7. Reviewing Financials
8. Reviewing Customer Contracts
9. Reviewing Legal Documents
10. Providing HR Oversight
11. Risk Management
12. Treasury Management
13. Raising Capital
14. Guidance
CEOs of small businesses (or those in the early stage of development) may think their back-of-the-envelope financial projections are sufficient (“We’ll probably bring in $X in sales over the next three months, and our expenses will be about $Y…”). Those rough estimates do not capture key components of a business, and therefore do not get at “what will we need to get from where we are to where we want to be,” and “what could go wrong along the way?”
A strong part-time CFO can make detailed financial projections that, in our view, should start with the company’s org chart. Why the org chart (something many early-stage businesses lack)? Because it identifies the people who are responsible for the revenues and expenses that feed into a good forecast.
A good part-time CFO will help the CEO to think about how the org chart will grow as the company evolves from a place where everyone wears many hats to one that has specialists in different roles.
Creating that view of the company’s future needs allows for realistic financial forecasts, including “most likely, best case, and worst-case” scenarios.
Much more than a simple exercise of subtracting budgeted numbers from actuals, a good part-time CFO gets into why actuals missed the forecast. Are sales taking off faster than expected (which means headcount may need to increase)?
If raw materials or personnel costs were higher than the budget specified, is there a recurring problem or was it a one-time thing? What does this mean for the overall cost structure of the business? How do you use this information to adjust your plans?
A good part-time CFO will be able to advise a CEO if growth forecasts are too optimistic or to be blunt if staffing levels are simply too high. This is particularly important when you have outside investors – if the business is not meeting milestones and you have not adequately identified the reasons, it may be difficult to raise additional capital.
As the CEO, you need to know the average revenue your business generates per customer, and how much it costs to produce one unit of the product or service your company provides. A part-time CFO can calculate these critical measures, along with customer lifetime value and customer acquisition costs.
These metrics provide practical insights into what is working well for a business and what needs to change to improve profitability.
A part-time CFO can compile the information the CEO needs for board meetings, including financial results, the annual budget, forecasts for new business strategies, or plans for raising new capital.
A part-time CFO can attend board meetings to answer questions about the financials and explain the assumptions behind the forecasts.
A part-time CFO can objectively assess how many salespeople your business needs, and can identify individuals on the team that are not performing. This objectivity can be particularly useful when the head of sales resists making any changes to the salesforce.
This type of evaluation can also cover customer service/relationship managers, in terms of how many customers can one person support and what is the best way to structure the support team.
A part-time CFO with experience in your industry can provide advice on the business model an early-stage company is pursuing and may suggest modifications or an alternative approach that might offer better results.
Your part-time CFO can review the accuracy of key financial statements. Mistakes, oversights, and questionable items can come back to haunt a CEO when it is time to review financials with the board, raise capital or prepare the company to be sold.
Oversight by a strong part-time CFO review gives you and your investors confidence in your financials.
CEOs of early-stage companies typically have a vision and know their product/service inside and out. However, they often lack experience negotiating customer contracts and can end up signing agreements that are not profitable.
A part-time CFO can help a CEO to identify potential risks in a contract, clarify how revenue is recognized, and assess whether the contract terms are in the company’s best interest. A part-time CFO can also review the terms of vendor contracts to see if they could be improved.
Lawyers advise on matters of law but do not necessarily know whether something is appropriate from a business perspective.
An experienced part-time CFO can review legal documents to assess whether they are in the best interests of the business. Having a CFO’s perspective helps to clarify financial outcomes before you make a legal commitment.
Smaller companies typically do not have an in-house HR function. A capable part-time CFO firm can help onboard new employees, advise the CEO on designing compensation packages, and assist with layoffs and terminations if need be.
It is often difficult for a CEO to be objective in deciding which staff cuts to make when that is necessary. A part-time CFO can recommend how to reduce headcount costs in a way that best serves the company and may be able to bring in a firm that specializes in HR issues to avoid damage to a firm’s reputation in this litigious, social media-dominated environment.
A thorough review of your company’s insurance coverage can be invaluable. A strong CFO knows the types of insurance your business needs, including D&O, product liability, and cybersecurity insurance, as well as employment practices liability insurance that covers misconduct on the part of employees that can result in lawsuits over sexual harassment, wrongful termination, and other issues.
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A part-time CFO can recommend where to invest excess cash and help with capital structure decisions (such as whether to use debt to reduce your cost of capital and if so, how much). Venture-backed tech companies, even those that are not cashflow-positive, are often able to borrow not just from banks, but also from commercial lenders that lend against recurring revenue streams.
Investors are interested in the founder’s vision, so the founder should be the one who meets and develops relationships with investors.
However, part-time CFOs can help prepare documents and financial models for investor meetings, advise on types of funding other than straight equity investment, and help the CEO to prepare for meetings with lenders.
A strong part-time CFO provides a veteran’s perspective to entrepreneurs who may have a great idea and vision, but little to no experience in forecasting a company’s burn rate to estimate how long cash is likely to last, determining the need for new funds, exploring different funding options, and building a team (putting the right people in the right roles at the right time) to turn the vision into a successful business.
CEOs of small and early-stage businesses do not have time to do a CFO’s job, and typically do not need a full-time CFO. So, they often attempt to get by without the expertise a CFO offers because they do not realize what a difference a capable CFO can make to a business.
These 14 reasons companies use part-time CFO services can be the difference between thriving and constantly struggling to survive.
G-Squared Partners has deep experience working with companies on all of the items discussed above. Contact us or book a meeting to discuss how we can help your company to benefit from having a CFO who understands your business without hiring a full-time CFO.