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Out with the Old and In with the New

With the advent of accounting tools such as Xero that put the power in business owner’s hands, you can be left wondering whether you’re getting the most from your accountant. They are probably doing your annual accounts, tax returns, bookkeeping and board resolutions. However, is there more they can do to help your business succeed?

How much about the market you operate in, the efficiency of your business, the systems you run, the economic outlook for your industry or your current pipeline of forward work is your accountant aware of? Do they know the plans you have for your business? In any business, there will no doubt be opportunities for the business internally (efficiency and productivity gains) and externally (new markets and new products to diversify your business). Chances are though that your accountant isn’t working closely on these because they’re not tasked to do so, or they don’t have the background to focus on forward looking and value generation concepts. Often, what one accountant does for you is no different to another and unfortunately many have been operating the same way for decades and it’s a case of old dogs not learning new tricks.

Having a finance professional who understands the outlook of your business and is intimately aware of the way you operate goes beyond regular tax returns. Which is why 5th Green offers a Virtual CFO service.

What is a virtual CFO?

A virtual Chief Financial Officer (CFO) is an experienced finance professional and business consultant that comes at a fraction of the cost of a full time CFO and brings skills to the table that are unlikely to exist in a typical small or medium New Zealand business.  They’re probably a Chartered Accountant and they offer will be uniquely aligned to where your business is in its lifecycle and where you’re ultimately steering it.  They’re less concerned with where you’ve been and more interested in where you’re going because that’s where their strengths lie.

A Virtual CFO in most instances, will provide your business with experience and skills that are unlikely to exist in a typical small or medium New Zealand business.  What do for you should always be aligned to where your business is at in its lifecycle and where it is wanting to get to.

So, what does a virtual CFO do? Here’s a quick run-down:

  • Monitor the financial health and wellbeing of the business, usually from afar given the accessibility of cloud technology (such as Xero) available today
  • Offer deeper financial insights into the business and recommend how to use those insights to grow and improve the company. These insights will be well beyond what your revenue and profits have been for the month.  Anybody can do that
  • Put in place strategies for your business to allow it to grow, become more efficient, tap into new markets, prepare itself for sale or simply take away the day to day financial stress and pressures that many owners without a financial background may find themselves facing
  • Act as a sounding board in respect of company decisions from a financial standpoint
  • Provide or oversee back-office and bookkeeping functions such as managing all ledgers, compiling GST returns, running depreciation, ensuring your fixed asset register is built to correctly house useful and meaningful data and that its values are always aligned to your balance sheet

How would small to medium businesses benefit from a virtual CFO?

You might be wondering whether a small or medium business like yours really needs a Virtual CFO. Isn’t that more for big corporates? In a word, no. The beauty of this service is to offer small and medium businesses the valuable expertise and experience of a CFO at a fraction of the cost of a full time resource, which will result in a much deeper level of service than your regular accountant. Hiring a Virtual CFO is not the same as asking your accounting firm to take a more active role because the skill sets might vary and you’re not comparing apples with apples.

A good Virtual CFO will earn their keep in no time by alleviating your financial stress and saving time by completing financial tasks much quicker than you can.  The monetary benefits of using a Virtual CFO could include:

  • Tax savings through a greater understanding of the New Zealand tax rules and laws
  • Improved productivity and efficiency gains through deeper insights and recommendations
  • Increased revenue achieved through a better understanding of which products, customer and markets are making the business money
  • Improved cash flow. If you’ve got a professional managing your cash flow, then you can expect them to implement cash improvement plans to ensure the business has the cash it needs when it needs it
  • Better profit margins. Why are your margins where they are?  How can you get them higher?  Improving your profit margin by a small amount will result in their costs being covered.  So, every other financial benefit they bring to you will just drop straight to your bottom line!
  • Access to new networks, markets, and alternative suppliers. A Virtual CFO has ‘been around the block’ for quite some time and with their skills and experience comes a long list of contacts and new opportunities that can be introduced to the business and will also be able to work for its greater benefit

Fit for Purpose and Tailored to Your Needs

The lifecycle stages of a business and business ownership each have different needs.  Be it a start up in search of capital from an investor or lending institution, a fast growing business wanting to do a capital raise to assist with expansion into new markets, preparing a mature business for sale, or a desire to improve efficiencies and productivity, a Virtual CFO should be skilled in providing expertise and experience with all of the above.  In other instances, businesses have been known to ask a Virtual CFO to run the majority of their office-related functions because the owner wants to play to their strengths which lie on the tools and at the coal face.  5th Green has done this a number of times for businesses across the country and it always works well because communication is at the forefront of what we do well and why we think we’re different to many other finance and accounting professionals.

Most Virtual CFOs have low overheads due to business systems being cloud-based and can work from anywhere there is an internet connection. This results in significant savings to you and your business and the fees could be more affordable than you think.  In a nutshell, Virtual CFO fees are not the same as an accountant’s.  You should expect much more friendly rates because they don’t need to cover the overheads an accounting firm has.

It’s also worth checking to see if your Virtual VFO is part of the Regional Business Partner Network.  If they are, their service may be covered through the network which means you potentially get access to a highly qualified and experienced professional at little to no cost!

What’s the cost of not getting the right financial advice?

Getting sound financial advice is crucial when it comes to running a business.  Getting it wrong could mean undoing your incorrect work and having it re-done by a professional.  The moral of that little situation?  If you think a professional is expensive, wait until you see the cost of an amateur!

Also, you don’t know what you don’t know. If you miss a tax deadline, if you don’t take advantage of tax breaks, cheaper sources of funding or other opportunities that you’re not aware of, the lost revenue or cost savings you’ve missed can be substantial.

And lastly if you’re working on the financial side of the business, is your eye being diverted away from the reason you got into business?  Is your time better spent on focussing on your “why” and generating more revenue, leads and opportunities?

Let’s put some hypothetical numbers around to give it some context.  If you run a business that is generating around $1.5m of revenue a year, what’s the hourly rate that business is earning?  Well to keep things simple, if all that revenue is generated through the hard work of one owner (we’re not talking about the team doing the work, just the person drumming up the business) and that one owner works on average, 45 hours a week for every week of the year, the hourly rate is $641.  So if that’s you and you’re spending your time stressing over the finances and trying to make them right, you’re forgoing $641 for every hour that you do that because you’re not out there generating new business.  How much revenue has your business potentially lost because you were trying to juggle administrative tasks rather than selling yourself?

And if you’re one to leave the financial tasks until after hours, think of the toll this might be taking on your personal life. You got into business to have more control of your life and your lifestyle.  Late nights at times is part of the gig as you work hard to keep the wheels greased and everything on track, but it shouldn’t be a regular occurrence.  One of 5th Green’s aims is to help business owners to focus their energies into successfully growing their business, hence our tagline “balanced business better life”.  Doing all your accounts yourself or trying to dig for little golden insights to help you maximise your profitability can mean nagging doubts about whether it’s being done correctly or whether something has been missed.  Save yourself the stress and talk to a professional instead. And get back to doing what you’re an expert in!

Horses for Courses

Not all Virtual CFO’s are created equal so it’s in your best interests to be upfront with what your needs and requirements are.  Have full and frank conversations prior to agreeing to a working relationship.  You should expect your Virtual CFO to quickly ascertain your needs and be in a position to offer suggestions and ideas regarding what they feel might be a suitable working relationship and how they can bring immediate benefits to the business.

With more than 20 years of experience and internationally recognised qualifications gained in both New Zealand and the UK, 5th Green’s Virtual CFO services and offerings come tailor-made for you and your business.  We take the time to understand you, your business and what your long-term goals and strategies are.  We carry out Virtual CFO roles for small and medium businesses from Dunedin to Whangarei and everywhere in between.

Get in touch now for a no obligation discussion about how 5th Green can add value and alleviate your business stress!