Consider an outsourced CFO when important financial decisions need more time or expertise than your current arrangements provide. Cash flow pressure, plans for growth and a major commitment are useful reasons to review the support you need.
A new contract could be an important step for your business. The work is a good fit, the customer is credible and the price looks right. You are ready to say yes.
Before you commit, there are some practical questions to work through. Can you pay for the extra staff and materials before the customer pays you? What happens if the work starts late? And how much profit will remain once you have allowed for everything needed to deliver it?
Working through these questions before you sign helps you weigh up the opportunity with a clear view of the commitments that come with it.
What does an outsourced CFO do?
An outsourced chief financial officer (CFO) provides financial management and advice through an external arrangement, with the work and level of involvement agreed to suit your business. That can include budgets, cash flow forecasts, management reporting and analysis of business performance.
The value comes from connecting that work to your plans. You might need to understand whether you can afford a new role, why sales growth is not translating into cash, or what a change in pricing would mean for profitability. A CFO helps you work through the numbers, challenge the assumptions and assess the options.
The decisions remain yours. Good advice gives you a clearer basis for making them.
Start with what the business can afford
A healthy profit does not necessarily mean cash is available to spend. Customers may still owe you money. You may have bought stock ahead of demand or used cash to repay a loan. Tax, superannuation and supplier payments may already account for part of the balance in the bank.
A cash flow forecast brings expected receipts and payments together over time. It shows when pressure may arise and gives you an opportunity to consider your response before a payment is due.
The assumptions deserve as much attention as the final balance. When do customers actually pay? Which costs must be met before work begins? What changes if a sale you are counting on is delayed? A forecast becomes more useful when those questions are answered honestly and revisited as circumstances change.
How can a CFO help assess a new contract?
For the contract described earlier, the first task is to map what happens between accepting the work and receiving payment. Recruitment, materials and delivery may all need to be funded during that period, even when the contract is profitable overall.
An outsourced CFO can model the contract alongside the existing business. That means allowing for the timing of recruitment and supplier payments, the work required before invoicing, likely collection dates and the commitments the business already has. It also means checking whether the new work displaces other profitable work or requires more management time than expected.
Then the options become clearer. Would a deposit or progress payments reduce the amount of cash tied up? Could delivery be staged? Does the price cover the extra supervision and administration? If the customer pays later than expected, can the business still meet its other commitments?
Payment terms affect when cash arrives. Pricing and delivery costs determine whether the work is commercially worthwhile. Both need to be considered before you commit.
You may decide to proceed, negotiate different terms or change the delivery plan. You may also decide the opportunity is too demanding for the business at this point. The purpose of the analysis is to make that choice with the consequences understood.
How should reporting guide your decisions?
Reporting should help you understand what has changed and where attention is needed. If revenue has increased but profit has fallen, a useful review goes beyond the totals. It asks whether the mix of work has changed, costs have risen, discounts have increased or jobs are taking longer to complete.
The right measures depend on the business. A project-based business may need to examine the margin on completed jobs and the cost of work still underway. A retailer may need a closer view of stock and product margins. An established service business may need to understand capacity and the cost of serving different clients.
Agree which measures support your decisions, who will review them and what should happen when something changes. If a job’s margin has slipped, for example, the next step might be to review how similar work is quoted. A report becomes useful when someone takes responsibility for the action it points to.
How does a CFO fit with your existing team?
CFO support works best when responsibilities are clear across your finance team and advisers. Bookkeeping, payroll, financial reporting, tax and business advice are connected, and the people doing that work may already contribute to several of those areas.
Start by identifying what is working and where more support is needed. An experienced internal finance manager might need help with a complex forecast or an important commercial decision. An owner managing the finances personally may need broader support, including more reliable reporting and a regular discussion about performance.
Accurate records remain essential. A forecast built on unreconciled accounts or incomplete information about outstanding invoices is a weak basis for a decision. Improving those foundations may be the first piece of work.
It is also worth being clear about terminology. Services described as outsourced, virtual or fractional CFO can cover different arrangements. Ask who will do the work, who you can speak to and what is included. The scope matters more than the label.
What are the signs you need more financial support?
Consider CFO support when the financial questions facing your business require more time or expertise than your current arrangements provide. The need may arise during growth, a difficult trading period, a change in ownership or preparation for a major investment.
Useful questions to ask yourself include:
- Can we explain why cash is tight, and when that is likely to change?
- Do we understand which work is contributing to profit?
- Can we test a significant decision before committing to it?
- Are our reports available in time to act on them?
- Is there someone with the time and experience to work through these questions with us?
The answer may be a focused piece of work, an ongoing arrangement or additional capability within your own team. Start with the gap you need to address and agree the level of support around it.
What should you expect from outsourced CFO support?
Start with your priorities. Explain what you want the business to achieve, the decisions coming up and the concerns that are taking your attention. In an owner-managed or family business, that includes what the business needs to provide for you and the people who depend on it.
Agree the practical outputs around those priorities. Useful support may include:
- A cash flow forecast with clear assumptions about receipts, payments and timing.
- Reporting that explains changes in performance and the decisions they raise.
- Agreed actions, with someone responsible for following them through.
For a significant decision, a more detailed forecast may connect profit, cash flow and the balance sheet so the effects can be considered together. Agree what information your team will provide, when you will meet and how questions between meetings will be handled.
Review your budget and forecast against actual results and update the assumptions as circumstances change. Use the review to decide what action is needed and check progress on earlier decisions.
How should you compare outsourced CFO fees?
Compare proposals against the work included, the experience of the people involved and the access you will have to them. Check whether the scope includes bookkeeping, payroll or tax work as well as CFO support. Establish what the ongoing fee covers, what is charged separately and how additional work will be agreed.
Consider the demands on your own team as well. If information needs to be cleaned up or processes changed, allow for that effort. The right arrangement needs to be workable for the people who will use it.
Start with the decision in front of you
DLK Advisory’s outsourced CFO and virtual finance services bring together strategic financial support, management reporting, budgets and forecasts. Our broader business advisory work also includes financial modelling, performance reviews and succession planning, so the financial decisions can be considered alongside your wider plans.
If you are considering a new contract, a significant hire or the next stage of growth, that is a useful place to begin the conversation. We can work with you to understand the financial implications and the support you need before you commit.
Speak with the DLK Advisory team about the decision you are working towards.