Outsourcing a Part-Time CFO 101

Managing your profits is undertaken by the part-time CFO as their job duties. They watch your margins, manage them and educate other top level executives on what it means.

Outsourcing talent from outside the company is a staple for many organizations. It happens on all levels, although more commonly seen on the lower levels of an organization. Like that time you spoke to a contracted operator when you last called customer service.  There are a number of reasons this makes sense for companies. The same can be said for outsourcing top level executives from external sources.

Someone from the outside can immediately focus on the key impact elements rather than the day to day operational details of the business, which could otherwise quickly derail operations. Hiring an interim or part-time executive can not only a cost effective solution, but a strategic one. The perspective of somebody on the outside gives invaluable input and insight to strategic decisions.

John Lafferty is a part-time CFO. He started his career in public accounting with Arthur Andersen. After a number of years, he decided to be “the financial guy” in privately owned enterprises, whilst also running some businesses at the same time. After many years of experience in the industry, Lafferty thought to share what he did best by providing financial management services to businesses. This is not uncommon with interim executives.

Outsourcing a Part-Time CFO 101: Talking to the Business Owner

In all of his assignments, one of the first things Lafferty wants to know is what’s bothering the business owner? To help a company get on track, a part-time CFO needs to be aware of the key issues the company is facing on the financial side. You need to make them comfortable enough that they do most of the talking. Start by asking some basic questions, but only move on to the next question once they’ve finished speaking their answer.

Before you jump into the situation, you need to know the owner and get acclimated with the office environment. Try and establish the trust factor as a foundation to your relationship with the owner. Lafferty believes that any professional has to deliver on what they said they’ll deliver. They shouldn’t waver in their services, or if stuck in an unavoidable position, they should at least notify the clients of their problem and inform them of how quickly it will be resolved.

Outsourcing a Part-Time CFO 101: Breakeven Point

The amount of units – products or hours of service – you have to sell to cover your expenses is your breakeven point. Although breakeven points are central to a business plan, not many pay attention to it. They don’t understand the formula to calculate at what point they have enough sales to cover their expenses, after which their sales becomes profit.

Lafferty elaborates further on the breakeven point. He said, “When I look at their P&L statement, I can quickly see that there may be some line items that are misclassified. They’re going to need to be above what they call the line or below the line; that’s the gross profit line. Once they’ve understood that, then I say let’s assume you wanted to spend $10,000 on a marketing initiative, the same formula is going to answer the question ‘how much in sales do I have to generate to cover that cost.’” Understanding expenses in terms of sales, helps a company comprehend their decisions in regards to it its financial impact before executing it.

 Outsourcing a Part-Time CFO 101: Accounts Receivables and Accounts Payables

Another thing that part-time CFO’s watch out for is the difference in the number of days of sales in the accounts receivable and accounts payable of the company. The larger the gap, the tighter the cash flow. If a business is collecting receivables in 70 days and paying vendors in 30, that’s a wide gap. CFO’s then take action by encouraging the company to chase and bring down receivable accounts to 45 days, whilst stretching their vendors to perhaps 40 days.

Outsourcing a Part-Time CFO 101: Manage your margins

Understanding the implications of your profit margins is grossly underestimated in companies. Only an experienced “financial guy” can calculate and help you understand the significance of the numbers. For example, assume that you have $10 million in annual sales and you can improve your margin by 1%. That one percent is worth $100,000. So by improving the margin by as little as 1%, you can add $100,000 to your bottom-line income.

Managing your profits is undertaken by the part-time CFO as their job duties. They watch your margins, manage them and educate other top level executives on what it means. The surplus amount can then either be used for the business needs or invested elsewhere if not needed. An interim or part-time CFO accomplishes almost all the tasks that a permanent staff member is required to do.

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