Last month we introduced the concept of “outsourced CFO services” via an article written by Michael Flint. Inasmuch as CFO services is such a hot topic, we have decided to go a little more in depth.
As we discussed, “CFO” is an acronym for Chief Financial Officer. As a crucial member in any organization, the services provided by a CFO are essential in today’s business environment. The CFO can assist in managing the financial aspects of a business at a relatively low cost compared to the risks of an avoidable financial disaster, mismanagement, fraud or embezzlement.
Most CFO services consist of the following:
1. Debt management
2. Maintaining business and banking relationships
3. Managing divestitures and acquisitions
4. Preparing cash flow projections
5. Implementing internal controls
6. Risk and tax management
7. Developing profitability and performance strategies
8. Executive management reporting
Hiring a CFO can indeed be expensive and possibly unaffordable for some organizations. However, the good news is that CFO services and functions can be outsourced to experienced professional auditors and accountants at competitive rates. The following are some of the benefits of outsourcing CFO services:
1. Financial Reporting Accuracy
It is crucial that organizations keep and maintain meticulous financial records for the purposes of financial-analysis and tax-reporting. When these tasks are outsourced, a second set of eyes confirm the correctness and accuracy of financial data. Outsourcing can also provide a valuable resource that helps train employees such as bookkeepers on the best practices available for managing technology, financial and accounting processes. Additionally, organizations can also gain the advantage of having an expert on call to help prepare financial documents needed to secure financing, capital investment or for the annual audit.
2. Profitability and cash flow analysis
It is not uncommon for management to become so caught up in day-to-day activities that they do not take the time to review and evaluate financial data. Consequently, management and the board may tend to overlook financial issues which could potentially become problems, or they may miss rare opportunities to improve cash flow and profitability. Answers to questions such as whether some services or products are more profitable than others, or whether cash flow is managed efficiently are difficult to analyze from a spreadsheet. These issues require a higher level of knowledge and understanding of finance.
3. Fraud detection and prevention
Both large and small organizations experience significant losses from fraud committed by employees or others. Losses due to fraud may have a far greater adverse impact on smaller organizations and not-for-profits that lack the financial resources to recover from such losses. Often these organizations are the most susceptible to fraud since internal controls may not be effective in detecting and/or preventing fraudulent activities. An outsourced CFO can add a layer of protection by analyzing financial data for red flags that show signs of fraud and by identfying weaknesses in internal control that can facilitate and contribute to fraud.
4. Review of loan and lease agreements
It is important for management to fully understand the terms of loan and lease agreements and the rights and obligations associated with those agreements. These agreements often involve restrictive covenants which can be difficult to understand and can easily be violated. The outsourced CFO normally has the training and knowledge to interpret contractual obligations as well as the skills to implement policies and procedures to insure covenants are not violated.
5. Long-term strategic planning and short-term consulting
The analytical skills of a CFO can be applied to all aspects of an organization’s activities including operations, human resources, program services and technology. There is a financial component to all these activities that must be considered when developing long term strategic plans as well as monitoring day to day results. Outsourcing these functions can provide management with a high-level analysis and an enhanced perspective of their financial, operating, and tax efficiency.
These skills are essential in developing long-term strategic plans as well as making course corrections along the way.
Managing any organization is often complicated and tricky. The person in charge is often torn between the struggles of delivering services while allocating resources. Add the pressures of managing cash flow, reporting outcomes, and ensuring compliance with laws and regulations, the Chief Operating Officer has got a lot on his or her plate.
This is where the outsourced CFO comes to the rescue and gives the management team peace of mind……knowing that they are in good hands.