Does Your Small Business Need a Virtual CFO? | Erin Armstrong

Does Your Small Business Need a Virtual CFO?

by | Feb 8, 2020 | Accounting & Logistics, Leading Your Business, Small Business

A lot of times, in life (and business), you don’t know what you don’t know… until you know it. So, in that spirit, I’d like to clarify why many small businesses could benefit by hiring a Virtual CFO.

First, you might be wondering what exactly is a Virtual CFO. In short, a Virtual CFO is a chief financial officer who works remotely (and typically part-time) on a contract basis for your business. A Virtual CFO should generally deliver the same benefits to you that hiring a traditional CFO would—but at lower cost than adding a full-time executive level employee to your staff.

So Why Might Your Small Business Need a Virtual CFO?

Years ago, I opened my business doors positioning my business as a traditional accounting firm in Los Angeles. At that time, my company was hired by small businesses for bookkeeping, business financial consulting, accounting, or tax filing. And, what I quickly noticed through providing those services, is that business owners who were really interested in creating revenue growth or in creating a fully sustainable business, couldn’t get the level of support they needed through these types of services.

While there’s no question that bookkeeping, financial consulting, accounting, and tax filing are imperative to a business functioning, these services tend to be more reactive in nature. And, in the few times these services were proactively sought (such as financial consulting as a company re-considers its’ scalable structure or when thinking about tax strategy for the year), the ways in which a business could get help were limited due to time and understanding constraints from whom they brought in for this short-duration task. A one-off consultant can often point out a few things here or there that could be optimized. But it’s hard for a one-off consultant to see all the connecting financial pieces and how they talk (or don’t talk) to each other—and, from experience, it’s nearly impossible for the business owner(s) to implement significant financial or structural changes without expert ongoing support.

When you hire a Virtual CFO, what I see as the big advantage is that you’ve brought someone to the table who’s proactively looking at all the financial aspects of your business on an ongoing basis. That’s primarily why small businesses need a Virtual CFO. Of course, when you look more granularly, there’s all sorts of tasks that a Virtual CFO will take care of for you (such as financial reporting, operational & financial analysis, increasing profitability, risk mitigation, staffing & scaling concerns, and much more). But if you just want to think big picture for a moment, it’s all about having an experienced financial expert take on a huge level of responsibility with her primary focus on the growth and health of your company.

When Does Your Small Business Need a Virtual CFO?

When I look back over the past decade of working with hundreds of business owners (both as a Virtual CFO, accountant and in other contracted financial roles), I believe that the small businesses who have most success with a Virtual CFO are those that have been in business at least 2 years, are making north of $400k in gross revenue, are emotionally ready to take their business to the next level, and are interested in the ideas of their business’ long-term sustainability and long-term financial health.

What may surprise many people is that you don’t have to be a huge company to hire or benefit from the services of a Virtual CFO. Many small businesses owners, in fact, get more benefits from hiring a Virtual CFO. That’s because, to the point of bringing on a Virtual CFO, the owner themselves has been largely guessing at each next step. So, operationally, there tends to be a large bit that a Virtual CFO will streamline and optimize. Also, a great Virtual CFO will almost always find ways to increase a business’ profitability that’s in line with the owners’ values and desires. Lastly, a huge benefit for small business owners is that they get to relax–knowing that someone else is leading the financial conversation and overseeing the needed changes.

An Extra Unique Benefit for Small Business Owners

Through my own experience of working closely with many small business owners*, I’d like to bring up a really important extra benefit that small business owners, in particular, get when working with an awesome Virtual CFO. And that is attention to their personal finances.

Both traditional and Virtual CFOs will help you create short and long-term plans for your business. But, I find that crafting small business financial strategies works amazingly well when we factor in the owner’s personal desires (for what they actually want to be doing, what money they want to be taking home, what additional funds are needed to secure their future or fund their dream life, and what kind of work/life balance they need).

Essentially, as a small business owner, your personal future is intertwined with the health of your business. So, to me, it only makes sense that as your Virtual CFO, I’ll help you create a business plan that also aligns with and helps you reach your personal financial goals.

*Small Business Owners is a term used very loosely here (and throughout this article). The SBA and US government themselves, define small business specifically by industry. When we look at the tax laws, it’s safe to say that, generally speaking, small businesses are those with less than 50 employees, and making under $10M/yr. I often work with multiple six and seven figure businesses that have some employees and are interested in growth—but, within limits. Essentially, many small business owners in this situation want to keep full ownership and are not interested in growing a public company (or employing hundreds of staff)—but they are interested in adding another $1M/yr. or taking home double the profit, etc.

Investing in a Virtual CFO + Your ROI

So let’s talk money. You might be wondering what it costs to hire a Virtual CFO and what kind of return you’ll get on your investment. These are great questions to be asking.

An average CFO that is hired as a full-time employee makes over $375k/yr + vacation and benefits. Most small business owners (even those with businesses that are making several million a year) feel that this is too much of an investment and that having someone available full-time in this capacity is overkill for their needs.

So this is where an awesome Virtual CFO can save the day. Most Virtual CFOs charge a fraction of that average annual cost and work on a contract, part-time basis—while still providing you the insights, leadership and management you need for your company. You should expect a Virtual CFO who is actually providing CFO services (in other words, not a bookkeeper who’s decided to use the term “Virtual CFO” because it’s sexier) to cost an average of several thousand each month.

As far as return on investment… From my own experience in working as a Virtual CFO, I believe you should be able to directly track the financial savings and additions they’ve made to your company. When I look back at my past clients, every single one of those companies has gotten more than double their investment back (even the ones who didn’t follow through with recommendations) and many saw their profitability, tax savings, cash flow (or all 3) increase by over ten-fold. Sometimes this return can all happen within one year, but usually to see the extremely positive results, it takes 2-3 years. It really all depends on your company, its’ history, your industry, your goals, your willingness to pivot, and the speed at we’re able to make changes.

Will a Virtual CFO Help You Through Financial Crises?

Part of human nature is that something has to become too uncomfortable or painful before we seek help. For many people, addressing anything money-related falls into this camp. Through numerous conversations, I’ve noticed that many small businesses do not consider hiring a Virtual CFO until they’re in actual financial trouble, are feeling completely overwhelmed, or are ready to make monumental changes in their business. So, while you do not need to have any of these “big” feelings or needs to benefit from virtual CFO services, it’s common to start looking for Virtual CFO help when the “big” stuff is already here.

A great Virtual CFO should be able to help you through an actual financial crisis. In fact, you may find it surprising to see how simple an experienced expert can break it down and make the next steps. For instance, I once worked with an internationally-recognized, high-end service provider who was ready to close shop. While she had prestige, there was (almost) nothing in the bank account. I was able to help her restructure her business, finances and offerings, so that she could move from an average profit margin of 13% to an average profit margin of 55%. We were also able to increase cash flow by over +200% by changing some operational procedures. This meant hundreds and hundreds and hundreds of thousands of dollars of a difference over the course of just one year, and took her from closing shop to thriving.

Another of the many clients I’ve worked with had 5 different related-businesses, and had not filed taxes in several years. When he first approached me, both the IRS and his professional board were auditing him for lack of tax filing, among other financially-related things. What became evident as the bookkeeper tried to recreate a paper trail is that, yes, he needed his immediate mess cleaned-up; but, also importantly, if he wanted to continue doing business, he needed a bigger-picture financial plan for his life and how these businesses were to function for him and with one another. So we worked through the mess and got everything cohesive, aligned and talking.

The majority of my former Virtual CFO clients have approached me when they’re feeling financially overwhelmed, and that there’s just too many unknowns for them to factor in (can they afford another executive-level hire? do they add an additional revenue stream? why aren’t they (the owners) seeing more personal financial rewards themselves? feeling like too much money is going out to staff…).

Your small business does not need crises to justify hiring a Virtual CFO, but if your small business has some pressing financial challenges, a (good) Virtual CFO will not be turned off.

In Conclusion

Hopefully this article has been able to help you consider if and when your small business needs a Virtual CFO. If you’re ready to explore getting Virtual CFO help, check out my Virtual CFO Services and CFO Lite Services for more information.



Wishing you fulfillment & financial success,

Erin Armstrong

Erin Armstrong is a Chief Financial Officer, Business Coach, Tax Strategist and licensed Enrolled Agent who’s on a mission to financially empower business owners. Her unique, comprehensive approach integrates all the financial aspects of your business (such as accounting practices, tax strategy, profitability, budgeting, & cash flow) with an emphasis on developing a positive money mindset so you can move forward in a confident, proactive and empowered way. Find out more about Erin here.

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