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Outsourced vs In-house
What is the difference between an Outsourced CFO and a Company Accountant?
An outsourced CFO is an experienced Financial manager who enjoys working with many different companies. The CFO is not just a title for an accountant who is in charge of the accounting department, but helps you identify and manage your financial objectives working closely with management, its investors and banks.
The CFO can do all of the Company accountant`s functions with the difference being specialised financial analysis and communication. The functions of an outsourced CFO is not limited to only providing accounting services. The right CFO for your business will understand your strategy and work closely with your management to keep you on track. We will help you set the budgets and keep your management informed as to how they are doing. We help you analyse and deal with your cash flow issues and make sure your expenses are well tracked and controlled. An outsourced CFO can identify weaknesses in current systems and suggest improvements to ensure the business is run effectively and efficiently.
The company accountant is responsible for making sure that the company's transactions are properly recorded and that financial statements are generated every month. The accountant books the past.
While the company accountant understands accounting and accounting systems, a CFO will take a more forward look at business by projecting, forecasting, managing cash flow and planning for future growth.
The CFO manages the company accountant and is also responsible for the overall financial health of the company. In addition to supervising the accountant, the CFO is responsible for Treasury functions (cash), financing (debt), Legal, External Accountants, and provides the answers to the CEO and the shareholders. The CFO also provides the CEO and shareholders with a financial picture of the future. He/She acts as the visionary for growth and provides critical financial guidance.
Whenever anyone ventures out to start any business, there are three primary reasons:
a) Make profits
b) Give back to society by way of employment & revenue by way of taxes & duties
c) Grow to a global level
In all the above three reasons, a business is helped by accounting to not only know where the business stands via its goals, but also helps the business in taking measures to achieve the goals faster & in a better way.
But how does Accounting do this?
a) By making sure that all the transactions that the business is entering into is recorded in a timely manner
b) Ensuring that all such transactions are grouped under the correct account heads
c) Ensuring that the profit & loss account and the balance sheet along with other reports like the Cash Flow Statement, Debtors Ageing and Creditors reports are prepared in a timely manner & presented to the owner for taking the right actions.
Given the importance accounting has on business, it is natural that businesses the world over, consider accountants very critical. Probably that is the reason why a CFO goes hand in hand with the CEO of a company.
Now that we have understood the importance of accounting and accountants, let us now understand the differences between an in-house accountant and an outsourced CFO/accountant.
An in-house accountant means a business hires an accountant as full time employee to keep its books and manage the finances. The benefits attached to having an in-house accountant are:
(i) In-house accountant is a person from the same region as the business and thus understands the business and its environment better. This can be beneficial when the accountant has to analySe the conditions affecting the business.
(ii) An in-house accountant may be called on to extend a helping hand in areas other than accounting whenever there is a requirement of the business.
An outsourcing CFO/accountant is a person not under the employment of the business and has a contractual relationship with the business to provide financial and accounting services.
The benefits associated with outsourced accountant are:
(i) Since an outsourcing business is a professional service provider, it would have highly skilled experts at its disposal who can be of immense help to a business as they can add tremendous value to its financial management, strategy and accounting.
(ii) Unlike in-house accountants, a business does not have to bear with payroll and leave requirements as essentially the outsourced CFO is a company consultant and there is no employer-employee relationship.
(iii) By Outsourcing a CFO, companies gain access to the skills that need to take them to the next phase of development, at a fraction of the cost of hiring a full-time person.
(iv) SME businesses can match the wits with the big end of town by making use of Outsourced CFO skills
Thus the benefits of an outsourcing accounting provider are far more than the benefits in having an in-house accountant.
Q: Is my company too small to benefit from CFO services?
A: The need for good financial management is not a function of size. Small companies as well as large ones benefit from the services of a CFO. But small companies usually don't need these services on a regular day-to-day basis. That's one of the reasons iDeasl CFO SOlutions was founded: to provide a way for companies of all sizes to get the financial management they need, as they need it, without the cost of a full-time executive officer.
Q. Can't my CPA Firm do what you are doing?
A. No. There are several reasons why your independent CPA can not perform our services:
They are ethically required to remain independent from certain functions in your business. This became abundantly clear during the late 1990's, when several of the "Big 5" were eager to make millions of dollars in consulting and auditing fees, then looked the other way as clients such as Waste Management, Global Crossing, WorldCom and Enron cooked their books. Starting with Waste Management in 1998, the accounting irregularities started coming to light. In One major component of the legislation is the requirement for independence.
They are CPAs who have not had the responsibility, accountability and experience as a Corporate CFO.
Being a CFO, whether on a full-time or part-time basis is much more than being able to crunch numbers or to fill out a tax form. A CFO is multi-faceted. A good one has lots of first-hand experience wearing many hats including administration, management accounting, production, purchasing, human resources, facilities, contracting, and negotiations in addition to having strong finance skills. Above all, a good small business CFO must be business savvy.
What accounting services should my finance team be providing?
- Routine tasks like paying bills, recording deposits and handling payroll
- Monthly closings and account reconciliation
- Cash projections and monitoring
- Creating and printing reports
- Financial analysis of operations
- Integration of strategic plan with accounting operations
- Ability to communicate your financial situation both internally and externally
Is my accounting staff doing what they do properly?
- Are you receiving reports on a timely basis?
- Are the reports accurate and do they help you understand the results and current condition of the business?
- Are your bills paid on a timely basis, cash permitting?
- Are your receivables collected on a timely basis?
- Are your critical internal and external reporting requirements met within deadlines?
- Are bank and other critical accounts reconciled on a timely basis?
- Can your staff answer questions about the business?
What types of information should I be getting?
- Monthly and year-to-date financials on a timely basis - timely is what you need to run your business
- Budgets and actual financial reports
- Annual financials on a timely basis, to meet tax and banking needs if required
- Cash flow projections, if required
- Operational reports as defined for your company and industry to assist in business operations, which could be as often as daily
If my financials show that I'm making money, where's the cash?
- Are your customers paying your invoices on a timely basis?
- Are you paying your bills immediately and not taking advantage of your due dates?
- Are you growing rapidly and financing your company's growth, (i.e. has your Accounts Receivable grown rapidly)?
- Did you purchase capital assets such as equipment and fixed assets? This uses cash not reflected on your income statement.
- Do you have more inventory than you can sell within several normal sales cycles?
- Could you possibly have theft or internal losses?
How do I select the right bank?
- Does your bank provide the products and services you need?
- Is your bank located at a convenient location for you to do banking?
- Do you have a credit line to fund your operations and, at a minimum, any cash gaps you may experience?
- If your bank has denied your loan request, has it demonstrated a willingness to work with you and assist you to overcome the obstacles?
- Do you have all of your accounts concentrated at one bank to leverage your negotiating position?
- Has your bank contacted your business, especially if it is a growing business?
- Do you have a banker at your bank that you can call anytime and get service?
- If you are in a unique industry, does your bank understand your business niche?
- Do you meet with your bank at least once a year to discuss your business growth needs, account analysis for fees and new services/products the bank offers that can help your business?
Should I buy or lease an asset (not real property) and how can I tell?
- What is the average life of this equipment?
- Can you afford the difference in cash outflow (usually buying requires a greater cash commitment upfront) between buying or through monthly payments?
- Can you afford to take the monthly expense hit if you lease?
- Will you want to keep the leased item after the lease period? What will the cost be to buy after the lease period is completed?
- Do you need the flexibility to change your mind? How easy is it to sell the equipment vs. breaking the lease?
Can I afford to give that employee bonus or customer discount?
- What is your motive in giving the bonus or discount?
- Can you afford it?
- Will this impact any bank, investor or lender restrictions?
- Does the discount result in increased sales and are you covering your direct costs? What is the contribution to fixed cost coverage?
- What is the impact to other employees or customers, if they find out? How will this impact future employees/customers?
Contact Alan at iDeal CFO Solutions to discuss your outsourced financial and accounting requirements on 0425 835 398
New Year’s Personal & Business Resolutions
With the start of a new decade, now is a good time to make your personal and business resolutions for 2010 and beyond. Matters to be considered include:
Personal
- Review/update wills and powers of attorney. Those who don’t have a will should consider putting one in place, particularly if they have dependants or own major assets
- Consider if retirement savings will be adequate even if retirement is many years off
- Review mix and performance of investments during the past 6 to 12 months, including those held in superannuation
- Review super salary sacrifice arrangements in light of the halving of the contribution deduction limits from 1 July 2009
- Check that insurance cover is adequate. Self-employed people should have income protection insurance and sole income earners in the family should consider having life insurance
- Review level of debt and restructure finances to reduce interest charges
- Set a budget for next year which also takes into account where you want to be in three to five years time
- List personal circumstances and expectations to see what other issues should be considered.
Business
- Review/update the succession plan for the business and ensure it includes both management and ownership succession
- Review cash flow and profit & loss budgets for the next 12 months and make adjustments where necessary. Compare actual to budget
- Review reporting systems to ensure accurate and timely financial reports are prepared
- Ensure that debtor payment terms are strictly enforced and review debt recovery systems
- Review business plan and update to take into account expected changes in trading during 2010
- Review insurance coverage to ensure it is adequate. Consider insurance for key persons in the business
- Check inventory controls, improve stock turnover and reduce stock obsolescence and spoilage
- Review staff remuneration to take advantage of FBT concessions (e.g. cars) and exemptions such as laptop computers
- Review staff roles and update job specifications/employment agreements where necessary and talk over opportunities and expectations with employees
- Check that the financing arrangements are still appropriate and review alternative forms of finance.
This is not an exhaustive list, but provides a good starting point for future planning
Make an appointment with iDeal CFO to discuss these matters.
Steps to improve business cash flow
As a finance professional, I am often approached to assist my clients with a cash flow solution. Now whilst I do not profess to be a magician, often some simple yet practical steps are required to make significant changes in the way a business manages its working capital and more significantly its cash flow.
To direct my clients on the planning of their business`s short and long term funding requirements, I always stress the importance to forecast likely cash requirements than to project profitability. In fact, every business owner should not only measure its results via its financial statements but should also ask the critical question of “where is the cash?”
Cash fuel drives you in business just as jet fuel keeps a plane aloft. A pilot is very careful to accurately predict the fuel requirements. You should place the same importance on cash flow control because if, at any point in the future, you run out of fuel, like the pilot, you've got a BIG problem.
So what methods should be applied to improve cash flow liquidity to enable business debts to be paid and have cash surplus available? Well, your finance professional will in most cases, correctly project changes in balance sheets accounts together with detailed income statement movements to show expected cash positions. In fact your smart accountant might even build some surpluses in your budget for unforseen events and split investing and operating activities from financing activities. This is great accounting and it’s wonderful to track your forecasted cash flow against actual results. This discipline can be performed weekly, monthly and yearly - a great business tool to enable management/business owners make prudent decisions.
How else can you improve your businesses cash flow?
Well let`s consider the questions that need to be asked and the appropriate answers
Are your customers paying there invoices on a timely basis? Are you extending payment terms to ensure customer retention and thus financing your company`s growth?
Now that’s a great question! Whilst most businesses would like to achieve high sales and customer volumes, extended payment terms could be detrimental to cash flow. It’s more than likely that the product cost has already been met by the business and is thus financing the purchase of these goods. Thus when payment is received in arrears of its due date, cash flow pressure is created. The sale is reflected in the profit and loss but where is the money? Am I going to receive payment this month, next month..worry, worry. Whilst not all clients will pay cash for purchases, a clear and rigid collectables system needs to be in place. The lesson here is not to burn your cash in support of customer retention
Are you paying your bills immediately and not taking advantage of your due dates or the simple management of extending your due dates as and when is required?
Good cash flow practice should only allow for the payment of purchase invoices on their due dates. If financial constraints are preventing this from taking effect, manage those creditors who could extend your terms. I have always followed the motto of paying yourself first and then pay your creditors
Did you purchase capital items such as equipment and fixed assets outright?
If the business used cash to purchase fixed assets, this cash outflow will not be reflected in your income statement and hopefully has been budgeted for in your balance sheet. Options are available for capital expenditure in terms of finance leasing, operating leases etc but the future cash effect of such purchase would need to be analysed from a cost- benefit point of view
Do you have more stock than you can sell within several normal sales cycles?
Your cash outlay in stock might be too aggressive and you could have slow moving or obsolete stock items. Stock requirements need to be strictly managed based on demand as much as supply. If stock turnover is at lower rates than previous years, the amount of stock on hand needs to be reduced. A great financial indicator to manage stock levels is comparing gross profit percentages (Sales – Cost of Sales) from previous years and months.
Could you possible have theft or internal losses?
I am of the belief that senior management and SME business owners should be signing off their monthly bank reconciliations to have hands on feel as to the monthly movement of cash. Also, appropriate security controls should be in place to effect bank payments, receipts of money. Often two signatories and authorises are a good control to ensure cash control is not only in the hands of one individual
These tips and a strong internal reporting system are critical factors in cash flow management. The objective here is to simplify your cash flow strategy to make your cash king.
