Understanding outsourced CFO services from the remote consultant’s perspective

From the colonial era to the present day, small businesses have been an integral part of America’s economy. In fact, pre-pandemic, more than 99 percent of America’s 24.8 million firms were small businesses. A strong market, and the need for independence and self-satisfaction, have been key contributors to the consistent growth of the business sector. While the expansion resulted in increased sales, the strategies to accommodate the advancement differed for small business owners, compared to their bigger counterparts.

As of April 2022, 21.6 percent of surveyed small businesses claimed that the pandemic had a large negative effect on small businesses and their growth. In addition to the collapsing economy and imbalance of product supply and demand, workforce availability even became scarce. While most small businesses already lacked the much-needed resources, they’re now struggling even harder with restricted working capital. It became evident that business owners need to put an additional focus into financial and data analytics.

Most small business owners start their journey after prior work experience, which motivates them to strike out on their own. They often envision themselves working in their own company, focused on doing what they love, without understanding just how many hats they would have to wear before their business became successful. It is neither efficient nor advisable to fight a battle on multiple fronts.

Often due to time constraints, the business owner focuses primarily on sales, leaving their financial position to chance. Other financial aspects remained difficult to analyze or understand. Statistics say that 60 percent of small business owners feel they aren’t knowledgeable about accounting and finance. Market instability in the last few years has made it even more evident that these struggling owners need more strategic help to interpret and analyze their numbers.

As an outsourced CFO, I have worked with numerous small business owners. The question I heard most, regardless of the industry: “My sales keep increasing, so where is all the money going to?” More and more, this is now turning into: “While our business is still struggling, how do I measure my cost and find skilled resources?”

To those within the accounting profession, the image of a multitasking small business owner is very familiar. While the thought of an overworked business owner who’s stretched too thin amidst economic crumble may scare many of my peers, I see it as a great opportunity to introduce the benefits of outsourced CFO services.

To explain my persistence, I must first help define what it means to be an outsourced CFO for a company. According to Wikipedia, a fractional or virtual CFO “is an outsourced service provider, offering high skill assistance in financial requirements of an organization, just like a chief financial officer does for large organizations.”

Depending on the needs of the company we are working with, the tasks required can vary greatly. While improving a company’s cash flow and spend analysis is always important, there are often tasks that are just as important to ensure the business’s success.

Here are some of those tasks:

• Process improvement
• Technology implementation
• Financial literacy training
• Break even analysis
• Capital Acquisition
• Budget vs actual reporting
• Capital structure
• Merger & acquisition activities
• Financial strategy and advisory
• Exit strategy
• Business remodeling
• Forecasting

My journey to advisory services

Prior to joining Analytix Solutions, I spent 10 years as a member of numerous internal teams across a wide range of industries, including oil and gas and finance, as well as various start-up companies. It was during those years that I understood the financial and management requirements of the business, above and beyond the traditional bank reconciliations and monthly closes. While start-ups requested assistance in setting up their accounting procedures, generating budgets, and even raising capital, more established businesses often needed help analyzing the data points of their business to help them overcome an obstacle.

Looking back on my career, I remember the pivotal moment when my role as a traditional accountant transformed into the advisory role I am in today.

It all started with a client, Brenda, when we first onboarded her start-up in early 2017. Initially, I was hired to handle basic bookkeeping tasks, including recording bank transactions and monthly reconciliations. Each month, I would present her a list of questions that we needed her assistance with. Even when the list of open items grew, I was unable to draw her attention until we reached December. With year-end approaching, the client finally asked about the growing balance in the uncategorized expense account. We quickly scheduled a meeting to review all the information.

Brenda came into the meeting convinced of being in a strong financial position. During our very long meeting, I was able to convey the message that even if she had a good year of sales, she had various liabilities and other important cost factors that may have put her into a negative bottom line. Something interesting happened—Brenda now opened up and reached out for help by asking me two questions:

1. What did she do wrong?
2. What should she do now?

While my immediate suggestion would have been to hire an expert, she and I both knew that the business did not have a margin to pay for a management-level employee. For a cash-strapped company, it can be scary to consider adding to their headcount, especially if the work to be completed did not require a full-time employee.

Understanding Brenda’s circumstances, I offered to act as an outsourced CFO until we were able to hire someone directly. The solution turned out to be a true win-win for both of us.

Together, we managed to raise additional capital for her business, while also increasing her sales by 17 percent. Once I had her attention, I was able to educate her about various benefits of outsourced CFO services. For the next few years, I worked with Brenda on raising more capital and adding a partner. I maintained my advisory role in the growth of the partnership, as well as both the partners individually. From measuring product profitability to developing efficient operational workflow, and from compliance to IT security, I have been able to help many businesses like Brenda’s by being their trusted financial advisor.

In the last few years, we’ve been busy assisting pandemic-affected businesses who had access to various government funding and several relief programs. Now, more than ever, these business owners need a trusted advisor that can guide them through very shifting business trends.

Most of our legacy clients have gone through some type of business remodeling, or have made changes to their product and service strategies. As our clients rely on us to educate them about the common trends, our standard service offerings have been updated to add minimum cash position review and dimensional tracking of expenses.

Since finding skilled and cost-effective resources has been the most difficult task, adoption of technology has been widely preferred. As the number of millennial business owners continues to increase, the accounting industry must continue to adapt and evolve forward. While working with an established company or a struggling start-up, process automation and technology implementation could be the top advisory options. Manual workflows can be replaced by using data import tools, accounts payable, and accounts receivable platforms.

As the machine takes over for the manual transactional recording piece, our role of traditional accountant must evolve to incorporate more of the advisory services. Today’s business owners need these modern accountants—known as outsourced CFO’s—who can diagnose current business needs and prescribe right solutions.

Editor’s note: This article was originally published Oct. 19, 2021, and updated with new content on Sept. 16, 2022.