What is Virtual CFO: Coverage, Benefits, and Costs
Have you ever wondered what is Virtual CFO? As you start a business, you need to learn how to balance your finances as well as drive and reach your business goals. Most CEOs would agree that operating both finance and business needs isn’t easy. As a result, your earnings start to multiply, along with the challenges of managing cash flow and paying corporate taxes.
The job of a bookkeeper is only limited to recording your business’ transactions and creating financial statements for you to interpret. These reports are important to measure your historical financial data and incorporate it into the business KPIs.
However, analyzing and interpreting the revenue reports can be tricky, especially if you’re flipping through pages of balance sheets and income statements. If you’re having a difficult time interpreting your business’s revenue reports, an outsourced CFO can help. But what is Virtual CFO, and why does your business need one?
What is Virtual CFO: Who are they?
Small and big companies struggle financially because of mismanagement. If you’re a startup or small company, a virtual CFO may be the right person to seek. But how do you start? As the saying goes “Finance begins where accounting ends”.
A CFO is a financial consultant who produces detailed reports on financial insights. They create economic scenarios using benchmarks and revenue models. With the summarized reports, you and your CFO can find solutions on how to manage your business needs consistently.
Meanwhile, a VCFO offers the same services while working remotely through phone and video calls and mostly is a part-time role. These CFOs are frequently seen working with small businesses and startups.
Virtual CFO benefits are many-fold, especially since the COVID-19 pandemic hit. One of the top priorities of CFOs to date is risk management. With digital transformation, CFOs and finance play a significant role in utilizing technology to suggest improvements in the business world. These improvements create a driving force to increase efficiency and growth.
A CFO gathers accurate and relevant financial data to execute the best business decisions for the company. To put it simply, a CFO works with your accounting team, to ensure that you get the right reports relevant for decision making. While an accountant creates income statements and balance sheets, the CFO will interpret the data and make recommendations to improve your business.
- Are you reaching your business goals?
- Are you spending more than earning?
- What type of investment strategy should your business focus on to increase profit?
- Financial analysis of your business
- Help business owners make sense of data
These are some of the questions your CFO may answer, depending on your business goals.
Most people prefer hiring Virtual CFOs due to their flexibility and alternative work arrangements. You will gain a lot of information since these CFOs have more experience handling different types of companies. These CFOs primarily aim business owners make sense of their data at a fraction of the cost of a full-time CFO.
Why should you hire one?
Since you have an idea of what is a Virtual CFO, it’s time to understand when you should hire a CFO for your business, and the virtual CFO benefits. After understanding your business goals, your VCFO will focus on five key concepts:
Every small or big company should have a budget to measure its finances correctly. If you have no business budget, you’re basically walking on quicksand. Because at any minute, your situation can go out of control. In corporate terminology, if the situation worsens, you may not have enough cash flow to pay for your employees, vendors, and taxes.
A virtual CFO services provider will first understand the source of the problem, and analyze the business goals using financial analysis. Then, present a financial information to business owners that’ll meet both KPI and business goals.
Having a business budget is just the start to corporate success. Now, you need to follow and maintain the expenses with the help of your virtual CFO.
The CFO will provide a monthly variance analysis that reports the planned budget versus the current business expenditures. Through this report, you can identify if you’re overspending or underspending and if these costs can ensure you can reach your business objectives.
Cash management is quite complex. You need to consider a few factors such as taxes and employee salaries, to name a few. In most situations, when the tax dues come, some owners panic because they mismanaged the cash funds. Always remember to keep aside a portion of the business’s cash to prepare for unexpected events such as a decline in revenue or an economic downturn.
The Virtual CFO can help manage your profit and project any business cash flow needs to make sure your corporation has enough cash to cover minor or major expenses. Besides this, they predict potential risks that may impact your cash flow by creating strategies to collect cash for your business.
Other than a VCFO’s responsibilities, they can also assist you in financing your business through loans, credits, or grants. It’s to ensure your business keeps running and you never run out of cash to operate the company.
A Chief Financial Officer (CFO) measures and analyzes your business goals and determines the KPIs that are critical to your business. For example, every business’s goal is to increase one’s profit. One solution to accomplish this goal is to improve your customer retention or customer satisfaction. But how? Let’s say customer retention is the KPI for your business. One suggestion to increase customer retention is to be open to feedback, understand what the customers want to gain in your business. If you’re able to increase it, your business revenue will follow.
In every business, you need to make decisions in difficult and stressful situations. Before deciding, you need to have a reliable financial partner to help you understand the implications of your business decisions.
Always remember that for any decision-making process, you need to consider the financial reports in your business. If you don’t understand the financial story, you will risk making ill-advised decisions.
A Virtual CFO can offer you advice on how to effectively manage and build your finances through strategic planning and cost control. Even if your company is a startup or a small business, it’s essential to hire a CFO who can give you the right financial decisions for your business needs.