When agreement is in place for out-sourced CFO services to be delivered, it is critical to the success of the assignment that the external accountant gains as much background information about the client as soon as is practically possible as well as specific financial goals, if any exist.
A good starting point would be to analyse the most recent set of annual financial statements together with any interim financial statements that may be available. The analysis will reveal key points about the business such as sales trend, gross margin, profitability, cash flow status, working capital management, financing profile ie debt/equity etc.
Where multiple branches, departments or subsidiaries exist, similar information for each trading entity should be obtained and analysed. At this initial stage, the information may, of necessity, be high level and is intended to give the virtual CFO an insight and better understanding of the financial status, both good and bad, of the client. Being aware of any crucial issues facing the client, such as bank pressure, is also essential. As the CFO becomes more familiar with the business, he/she will in turn, seek more information by “drilling-down” into the financial records.
The more interaction the CFO can have with the business owner, CEO and senior management the better, as much relevant information can be gained via informal discussions. Likewise, walking around, observing and interacting with operating staff will gain more invaluable information, often in contradiction with what management thinks is happening.
Don’t ever overlook the value of developing working relationships with key personnel such as the CEO, GM, accounting staff and if relevant, with the bank manager.
If the client doesn’t have a current budget, encourage and assist them to develop both an operating budget and cash flow forecast. These will be extremely useful in assisting the client to monitor future financial performance. With time, these budgets can be developed around branches, departments, subsidiaries and in some cases, products.
Investigate the accounting system as to both suitability and correct operation as many systems are either out-of-date or poorly implemented. Often, if the accounting system is adequate, it often doesn’t take much tweaking to improve the reporting. Equally, most modern accounting systems have easy to use report writers allowing the CFO to obtain customised reports that will provide different insights into the financial performance. Another aspect to consider is whether the chart of accounts requires modification so as to improve the quality and content of the reports.
Encourage the management team to meet at least monthly to discuss an agenda that includes the prior month’s financial performance including variances from budget. Review and, if necessary, revise the budget for the remaining months of the current budget cycle.
A virtual CFO has a very privileged role in an organisation gaining a wide range of insights into how the business operates. Drawing on his/her broader experience, the CFO can make a significant contribution to the client’s underlying financial performance and related value enhancement.
Author: Geoff Storey CPA CA, Alliance Advisor with ATL Network