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Managing growth: the rise of outsourced CFOs

As your business grows, you shift from being a service/product provider to a capital manager. The shift is gradual but represents a significant challenge if you haven’t developed the necessary skills or don’t have any aptitude or interest in this new role. Most often the solution to any skills gap is to bring in expertise, which for capital management, is someone with financial credentials to become or act as a ‘Chief Financial Officer’ (CFO).

Ten years ago, the establishment of a CFO role was an obligatory step in breaking through the ‘small-to-medium’ glass ceiling and corporatising a growing business. However, the landscape has changed.

The emergence of innovative accounting software has disrupted everything. Use of a cloud based central ledgers reduces the need to hire finance staff. These functions can be more cost effectively outsourced, and in real time. You’ve already engaged an accountant to lodge BAS statements; it should be an easy adjustment for the agile accounting businesses to provide an ‘outsourced finance department’.

Outsourcing some of the finance functions, such as payroll, inventory management and capital allocations, results in your business getting an experienced finance manager, affordably, without the burden of another mouth to feed. Additionally, this outsourced finance manager is more akin to a partner than just another employee, greatly improving your onboarding of capital management skills.

I’ve outlined the business lifecycle below, identifying when and how outsourced finance functions might work for you:

1. Start-up phase

As a start-up, you’ll keep costs lean and use professional advisers as little as possible. Depending on how much interest or expertise you have, you probably have the time to tackle things yourself and wear many hats, even that of budding accountant or CFO.

2. Ballooning Growth

Sometimes things just take off. You win a contract or suddenly half a dozen pitches roll in the door. You naturally bury yourself in that work, ‘producing the goods’. Things start to get hectic but it’s still too risky and expensive to hire someone to manage the finances in-house. You start to lean on your accountant, and maybe an outsourced bookkeeper, to pick up the slack.

4. Survived the first few years

You’ve nailed those pitches and winning work is becoming a more regular occurrence. You have hired some staff to help to deliver your services or products. You should have handed over a lot of the responsibility for bookkeeping by now. You’re still a lean business but you’ve got a bit more skin in the game and you’re starting to consider some longer term investment decisions. Do you raise capital or credit? Have you retained some earnings? Are you reviewing partnership/shareholder agreements and other structures?

Is it time to bring in a CFO or do you dive a little deeper with the accountant? Much will really depend on how the relationship has gone to date, as well as your skills, growth ambitions and the skills of the accountant and how much you have utilised financial technology.

4. Nailed it

So you’ve reached the tipping point. Things are growing and there’s no avoiding some of the pitfalls (or benefits) of a growing business. With a larger and growing business, it is almost impossible to avoid hiring in-house expertise such as a CFO, HR, finance and marketing departments. You might actually find that your accountant’s role in the day to day of business management winds-down and that relationship with your accountant shifts to become more focussed on structuring your growing personal wealth needs.

The Take Out

It’s a great time to be starting a business. The internet is introducing owners to a global marketplace, technology has streamlined the pesky administration tasks and, with record low interest rates, it has never been cheaper to finance new investment. Small investments in the right software and advisers will take you further along your business journey than at any time before.

About the author:

MatthewVickersMatt Vickers CFP® is the principal adviser of Snowgum Financial Services.

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Matthew Vickers

Matthew Vickers

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