Posted by Shivali Anand
August 5, 2022 | 5-minute read (969 words)
The role of chief financial officer has undergone a dramatic shift in the last decade. While financial reporting and compliance continue to be among the CFO’s core responsibilities, CEOs and other executives may not be aware how much the role has evolved in terms of importance. In addition to stewardship for a company’s financial operations, CFOs today are expected to be increasingly forward-looking and focused on strategy.
The rise of CFO services represents another change to the landscape. Through outsourced CFO services, businesses can tap into professional finance expertise without hiring in-house for the role.
An outsourced CFO can manage a multitude of tasks, based on your business’s particular needs, that are impeding growth. They can be used full-time, part-time or on an individual project basis.
Among an outsourced CFO’s duties are providing high-level finance, accounting, business and operational guidance. Internal and external financial reporting, asset stewardship, and cash management are also intrinsic to the role, along with strategy.
To accomplish these responsibilities necessitates a high level of skill and experience. So what should you look for in an outsourced CFO?
The essential skills of a CFO
As the CFO position has evolved, the focus on day-to-day finances remains a priority, but its importance is overshadowed by the growing significance of other skills. To fulfill the role, in addition to their financial acumen, a CFO must also excel in these four areas:
– A CFO must have the skills to develop and implement financially viable strategic plans. The outsourced CFO’s skills are also needed for predictive modeling, macroeconomic analyses and integrating nonfinancial data. Conveying strategy to external stakeholders and investors, as well as providing progress updates, is also among their responsibilities.
– A CFO must be able to lead by example and to communicate effectively. They must be able to translate their knowledge into clear and succinct messaging to lead organizational change efforts. Developing a talent pipeline to make sure the right people are in place on the business’s finance team is also vital.
– A CFO is expected to ensure that the company's financial policies and practices conform with applicable regulations. They must also be able to look at risk from both a commercial and a financial perspective. As the business executes its plans, the CFO must be able to manage risk while maintaining internal controls and financial reporting processes.
– A CFO should understand the company's business model and the industry to provide an impartial perspective and actively question commercial and operations teams. Part of this is ensuring that the company's decisions are based on appropriate financial parameters. Additionally, the CFO should be able to identify top-line growth potential and drive profit improvement through product line/regional research and industry benchmarking.
How a CFO service works to reduce risk
Rather than merely reacting when a crisis strikes, businesses must proactively plan for how they will react in a potential crisis scenario, but the entire endeavor begins with a risk assessment. While risk mitigation refers to limiting the effect that risks pose to a company, it is only one facet of a larger risk management process, which is the purview of the CFO.
However, this cannot be done in a vacuum. The company and the outsourced CFO service must work in tandem to find solutions.
Typically spearheaded by the CFO, a risk assessment is a systematic process that entails identifying, analyzing and controlling. It is accomplished by following these steps:
1. Identifying concerns.
Brainstorming is often the best way to identify potential risks, and staff should be invited to contribute to the discussion.
2. Analyzing potential risks.
The next step is prioritizing identified risks based on how likely they are to transpire and the level of damage they could exert if they were to happen. This helps ensure risks with the highest potential for damage get addressed first.
3. Planning appropriate action.
The outsourced CFO service must develop initiatives that minimize risks, as well as contingency plans in the event a risk comes to fruition.
What are the benefits of hiring an outsourced CFO?
Unless they have an advanced finance professional on board, most business owners routinely make decisions based on inadequate or even inaccurate financial information.
Meanwhile, imprecise (or nonexistent) numbers relating to quantities, costs, margins, inventory and cash flow, to name a few examples, could have a direct impact on profitability, market share and access to capital.
Your business needs someone to handle its finances and use that data to improve performance. The value a CFO service can bring to your business makes it a promising investment. An additional upside of an outsourced CFO is that they take lessons from a variety of businesses and experiences, from which you can also benefit.
What a CFO can do for your business:
• Continually monitor and evaluate financial data, to include budgeting, assessing long-term and short-term financing needs, and forecasting.
• Review the company's financial health and give recommendations to improve.
• Evaluate whether a new product or concept is financially viable, including forecasts, net present value and internal rate of return calculations.
• Analyze methods for collecting financial data and producing reports, with suggestions for improvement.
• Provide fundraising and debt/equity advice.
• Put together pitch decks for the board of directors or potential investors.
• Prepare quarterly financial reports.
• Represent the business in negotiations with financial institutions.
• Analyze M&A potential, including financial projections for business as usual and post-acquisition.
Businesses face a plethora of risks that can affect long-term viability, and few have staff skilled at determining how to improve procedures and fine-tune processes. But if you lose track of your business’s finances, it could fail. Fortunately, you can access the benefit of an experienced CFO on a part-time or project basis.