Why Outsourcing CFO Services ?

The best way to find yourself is to lose yourself in the service of others — Gandhi



The Business Case for engaging a CFO Services firm by SME.

The Challenge

Take a scenario – It is easy going when the economy is bullish, business sustenance for medium sized firms should not be a big stuggle, but using the opportunity and taking the organisation to the next level with guided financial controls is a CHALLENGE. Equally challenging is business sustainability and financial supply chain with risk of business running out of cash flow.

The shift in generation

This is where many SME's firms fail, and have remained in a state of inertia for GENERATIONS. Equally while taking collaborative route via Joint Venture or PE/VC induction is commendable, managing expectations on finance & business front is another challenge.

Management & Ownership

To grow business owner has to constantly discover new opportunities and build internal capabilities to deliver value to the customer profitably. It requires dedicated resources to forecast, monitor, measure and take decisions based on data. Many such SME lack such visions, discipline and in turn, decisions are largely gut feeling of the business owner. There lies a bias due to incapacity & limited bandwidth to handle such complex business challenges with just internal resources, to judge the impact of decision as there is absolutely no difference in MANAGEMENT & OWNERSHIP.

In-house Management

Many times exclusive teams (devoid of an independent and integrity led Controller/CFO's) are not free from group think, it is political, and selling their ideas internally is difficult and ultimately becomes glorified suggestion box which no one cares within internal MANAGEMENT.

Emergence of CFO/Financial Controller (FC)

Chief Finance Officer (CFO) as an independent business guider and navigator and can help in validating ideas & gives require confidence to execute with refine performance framework. Risk mitigation is prime area & fencing of risk in execution is something which can be monitored by CFO with closer look at financial supply-chain side.

Changing outlook from a CFO

Often companies, like individuals, feel the need for an external validation that they are indeed moving in the right direction. There is fear of "letting go" for SME not realising that without this they cannot move to the next level. Many Companies do not have a good second line, so when an opportunity arises they do not have the bandwidth to capitalize.

In addition, these Companies also have to constantly scan the environment for growth, re-invent businesses, improve customer relations, while, all the time, keep an eye on costs & finance. In fact, cost and funds are two significant areas of concerns for SME and more so in India due to fast emerging globalisation of business place.

Sometimes SME's are force to take on 'unpleasant' activities like planning and announcing layoffs, cost cutting exercises, improving utilisation of resources and managing all kind of margin pressure on gross profit, EBIDTA and PAT.

Putting processes and discipline in place right from the beginning is seen as waste of time and money and they realise this only when the scaling up happens and they struggle. Understanding the right kind of systems is important for guided controls and growth. There are organisations that overinvest in certain areas like technology and they end up paying huge amount for installations and they do not use it after that. So here comes the role of reporting these dynamics based on independent outlook from CFO.

Emergence of Chief Finance Officer ( CFO)

Not-many sub-Rs.500 crore firms possess internal expertise in these areas due to talent, skill and cost factor. It would also not be wise for these companies to invest money or resources in these competencies.

It is important for business owner at top or the owners of SME to connect with the external world so that they are able to discover opportunities at the right time. Most of the times they are so inwardly focussed that they fail to recognise them. Seeing the large picture, seeing as to where they fit into the value-chain and what is to be done to move up the value-chain in critical.

Many SME's also get stuck because they only see the incremental growth and not the inorganic growth that is possible. When organisations are built on values of transparency, diversity and professionalism, at every stage there is an endeavour to invest with the right business & financial plan that forms the backbone for the growth of the Company.

That brings us to the role of Advisory cum Strong Implementation firms like ixCFO who has an understanding of working with multiple clients and multiple sectors as shared CFO.

CFO becomes a member of the executive management team and provides high level financial expertise and guidance in areas like the following:

Tx = Transaction Assurance Services – Controls. Processes & Scorekeeping
  • Accounting System Design
  • Audit Preparation & Annual Audit
  • Financial Statements with quality closing & integrity of accounts
  • Internal Controls
  • Corporate Governance led by Compliance management
  • Policies & Procedures
Fx = Financial Health Management & Business Support Services
  • Key Performance Indicators
  • Operating profitability Strategy
  • Risk Management Strategy
  • Tax Strategy
  • Executive Management Reports
  • Capital Requests
  • Cash Flow Assumptions
  • Budgets & Financial Plans
Ix = Inorganic & Organic Growth Execution Services
  • Debt/Equity Strategy
  • Financial Strategy
  • Growth Strategy
  • IPO, Acquisition and Divestiture Strategy
  • Joint Ventures/Collaborations
When to hire CFO Services firm
  • Realize that not having access to a Financial Controller/CFO's level of financial expertise is holding the company back.
  • Have a financial staff that is operational, but not strategic, and need some high-level strategic planning insight and direction.
  • Are concerned that their financial staff and key managers suffer from "tunnel vision" and want to bring in an objective outsider who can offer a fresh perspective on business and financial challenges and opportunities.

In this scenario, a CFO is brought in to work on a pre-defined financial assignment.

These may include:

  • A specific financial transaction (such as a financial restatement or revenue recognition) for whichintegration assistance is required.
  • The integration of a recently completed merger or acquisition to meet all operational and filing deadlines.
  • A specific financial project that requires focused, project-based engagement, but for which the staffdoesn't have the time or resources to devote to it.
  • A specific business process that is not working as well as it should and that an objective outsider'sperspective could help improve.
  • Upgrading or improvement of existing procedures and/or systems that the company has outgrown.
  • The capture of key business metrics and key performance indicators (KPIs) from systems and software inorder to better manage a growing enterprise.
  • An upcoming audit/due-diligence (from which the CA firm must remain independent) for which the business needs helppreparing (including the preparation of financial statements).
  • Implementing a new accounting rule for which staff doesn't have the time or expertise required.
  • Professionalizing and updating of planning, accounting and administrative systems and procedures toavoid unpleasant "surprises."
  • Assistance in ensuring that policies currently in place are in compliance with state and federal laws.
  • Assistance in creating proper internal controls to deter internal fraud and embezzlement.