Why hire a contract CFO?

It is common for entrepreneurs or start-ups to find themselves unable to make progress in their business plans due to their financial situation. The internal accounting processes not being optimal, or the financial data collected and analysed being irrelevant may be some issues you are facing in your business operation. You want to address them, but you cannot neither afford all your time and energy to the issues, nor the money to hire a full-time executive to do so. What option do you have?

Chief Financial Officer (CFO) — An asset instead of a liability

First, let us explore how a CFO can actually be an asset to your business. Typically, a CFO is responsible for activities which involve financial controlling & management at a firm, namely:

  • Budgeting and forecasting
  • Cash flow management
  • Corporate planning
  • Fundraising
  • Operational support (Financial reporting, audit preparation)
  • Transaction support (M&A, IPO, due diligence)

On a more relevant and specific level, the CFO will be able to help optimise your accounting processes, and ensure complete visibility of your accounts and ledgers. Moreover, you can receive much-needed insights into your business from proper cost allocations, tracking of revenue sources and expenses, and more importantly, improve profitability. With the CFO’s accounting knowledge and experience, you can eliminate problems that stem from inefficient processes and data which provide little to no value. Consequently, you can then channel more time into growing your business, while the CFO takes care of your financials for you.

Of course, the question of whether you can afford the services of a full-time CFO will naturally arise. You are looking at S$15,000 to upwards of S$40,000 a month for the services of a full-time CFO, a substantial sum that cash-strapped companies simply cannot afford, and comes at too high an opportunity cost for developing businesses. Furthermore, the value you get out of this may not justify the costs you have to incur; the cost of having a CFO around will become a liability to you instead. Fortunately, you are not out of options, as this is where a contract CFO can step in to help.

Full CFO services at a fraction of the cost

With a contract CFO, you are effectively paying for full CFO services at a fraction of the cost that you would otherwise normally incur. How so, you may ask. A contract CFO is similar to a full-time CFO in terms of his/her responsibilities, and possesses the necessary expertise to carry them out. The main difference, however, is the flexibility and potential cost savings you will have if you were to hire a contract CFO. You can engage the services of a contract CFO as and when you require the relevant expertise, and terminate them when it is unnecessary. You will thus only incur costs for the period of time the CFO is hired for, and the type of work that is carried out. Consequently, you will reap cost savings since you will not have to pay the high fixed costs that come with a full-time CFO for the same amount of work done.

Reducing opportunity costs to open doors

The cost savings you reap from hiring a contract CFO to resolve your problems opens doors for you to grow your business. Since you avoid having pay the exorbitant price of a full-time CFO, you are essentially making additional financial resources available for other purposes. These include investing back into the business itself to grow it further, or for an additional headcount that is necessary for your operations in another department. This may then result in more investment returns generated for your company, on top of the returns you are likely to receive from engaging CFO services. Hence, not only do you reduce the opportunity cost associated with engaging CFO services, you are also generating new opportunities to develop your business further.

Access to a wider range of skills

Hiring a contract CFO service is akin to hiring a company to help your business. Since a contract CFO service provider usually includes a team of CFOs and operational support staff, you are not just hiring an individual, but a dedicated team of experts to help your business.  This means that you may actually be tapping on all the talents available in the company, and extracting more value out of every dollar you have paid. If you were to contrast this with hiring an individual full-time CFO, not only are you limited to the knowledge and skills that particular individual has, you may even receive less value per dollar paid. As such, a contract CFO service may actually be better.

A contract for who?

Contract CFO services come at a substantially lower cost than the conventional full-time CFO role, and with higher value through more possible investment opportunities and wider range of skill sets. However, you still have to take some considerations into account before making your decision, mainly:

  • Do you require a full-time commitment or dedication from your CFO to your business?
  • Do you require a CFO to help you grow your business for the long-term or execute a long term strategy?

Depending on your answers to the above, a contract CFO service may or may not be what you need.

A contact for you…

If you answer “no” to the questions above, and are in need of CFO services to improve your business operations or explore near future business growth opportunities, have a look at our contract CFO services that we offer.

Alternatively, if you require CFO services that will help you in developing and executing long term strategies, here are some services that we offer which can assist you in achieving your goals.

When to hire a start-up CFO?

Companies often ask “Do I need a CFO?” and if so, when do I need one. In many cases, they are too streamlined to hire an employee for the sole CFO role as such a start-up CFO is an alternative!

A start-up CFO benefits your company greatly in many ways. Your businesses can benefit in the following ways:

  • Cost savings on salaries (average full-time CFO salary $250,000 or more)
  • Independent and fresh viewpoints due to deep experience in diverse areas of businesses
  • Financials advice such as how to better price products/services and manage cost
  • Efficient accounting systems to streamline processes resulting in cost savings
  • Precise and professional financial statements which are critical for business performance reviews
  • Fund capital improvements through cost-cutting strategies

You must be thinking since a start-up CFO provides so many benefits to businesses when should I hire one? Well here are a few ways you can access if it is time for your company to hire a start-up CFO.

Complexity of business

A key question to ask yourself is whether your business is complicated. A simple business that sells one product to a small fixed set of customers probably does not require a start-up CFO. However, if your business involves multiple products sold through various sales channels to multiple customers in several geographical locations – it is considered complex! Such businesses would thoroughly benefit from a start-up CFO, if they do not already have one.

Lack of capabilities

Demand for goods and services are driven by a need. If your business cannot perform the roles that CFOs provide then there is an evident need for it. In most start-ups, manpower is very streamlined as such CFO roles are often neglected due to the high cost of hiring a full-time CFO. However, CFO role such as bookkeeping, financial planning and advising is especially important for start-ups. Therefore, if your business lacks such crucial capabilities, it is highly recommended to consider hiring a start-up CFO.

Size of company

As your company grows in operations, headcount, sales or in any other metrics, its financial needs naturally become more complicated. An important metric to consider before hiring a start-up CFO is the headcount of your company. In some countries, reaching a certain headcount of employees requires the company to hire a CFO by law. In another context, a team of 20 is a ball-park figure to estimate when you should strongly consider hiring a start-up CFO. A CFO will assist your business in pay-roll and cost-restructuring. Redundant and inefficiencies can also be pointed out by the start-up CFO to reduce headcount or change operations to increase efficiency and profitability.

Growth stage of company

A start-up CFO’s role is considerably more strategic. It not only handles the basic financials of your business but acts as a consultant by taking up responsibility of company’s profitability. Hence, understanding where your company’s growth stage is currently at will aid in deciding to hire a start-up CFO. In cases where your company is planning to expand, raise funds, consider new product introduction, a start-up CFO will greatly support your company in your growth plans. As many start-ups are either in the rapid growth stage or preparing to enter this stage, prudent financial planning and advise is extremely beneficial. Therefore, a start-up CFO’s experience in managing finance cost, projections and market intelligence will be pivotal to your company’s growth success at a fraction of cost.

Preparing for mergers & acquisitions

Mergers and acquisitions is another good indicator that a business should hire a CFO. A start-up CFO will provide advice on the correct target company that will provide cost and revenue synergies after the deal. Furthermore, a CFO will be the best person to interpret due diligence reports by the prospective company in the deal. Additionally, a CFO can represent your company in preparing information and anticipate questions that industry experts will often ask; something a layman might not understand. If your company is considering any M&A deals, it is highly recommended to hire a start-up CFO to aid in your decision process.

Financing needed to facilitate growth

Bank financing is often obtained to facilitate growth and such loans often come with many obligations. These obligations go beyond the basic paying of interest and principal such as reporting of financial information on a monthly, quarterly or yearly basis. In such cases, a start-up CFO can deal with such pertinent issues that are not of utmost importance to your business’ progression. A start-up CFO will keep track of such obligations to ensure no hiccups occur as you focus on growing and improving your business operations.

 

Understanding the need and timing of hiring a start-up CFO is crucial for start-ups to strive in this ever-competitive business landscape. By understanding certain key indicators such as size and growth stage of your company, you can better evaluate the need for a CFO.