Blogs

28 Jan 2020

The era of virtual CFO in SME sector

the-era-of-virtual-cfo-in-sme-sector

Startups

A qualified professional and acting Virtual CFO in different organizations having more than 15 years of experience received a call from a SME. They want him to fill in immediately for their CFO, whose departure is in near future and his work was closely followed by that of his assistant who devoted a few hours to them daily. “The company had good accounting systems in place, but the assistant is not willing to manage the work independently due greater compliance requirements and changing regulatory environment” they says. Over the next six months, he created a system controls for identified noncompliance due to new regulations currently imposed and cure fraud risks to ensure that the controls are functioning effectively which saves adding substantial cost to company

Companies today face several challenges in his business respect to financial and non-financial issues. Besides ensuring positive cash flow, other critical issues include lack of strategic insight and direction to accelerate growth in business. Many companies have accounts department, but from a financing perspective, planning and strategizing is the area where they really need help.

Issues regarding planning and strategizing can be addressed by hiring a permanent chief financial officer (CFO), but it is no secret that experienced CFOs are expensive. The cost to deploy such a professional for full-time on a long-term basis may, however, be an unaffordable proposition for small companies/start-ups. Thus, was born the idea of virtual CFOs which apart from low cost service, provides greater compliance requirements, global accounting standards, changing regulatory environment.

Virtual CFO is new breed of finance professional who offer assistance to small and medium enterprises/startups in India in to direct multiple challenges effectively through professional recommendations, analysis and support in achieving the financial objective. The need for a high-quality virtual CFO was always there. Such CFO goes beyond accounts to build a sustainable business model, introduce strong controls, ensure regulatory compliance and raise resources. The advantages of having a full-time CFO are many, but SMEs are often constrained by limited budgets, a small scale of operations and a traditional family-run approach. That is why a virtual CFO (mainly Chartered Accountants in practice) often fill the gap.

"The in-house Chartered Accountants could not see beyond the balance sheet. Engaging a virtual CFO quickly changes the course of the company. The virtual CFO not only help with company valuation, but can also help structure the company.

A virtual CFO engagement, be it an independent professional or firm can be advantageous as companies under him nurture and shape their own future. The excitement and challenges of working with a growth company CEO is an enriching experience.

Reasons for catching up the concept of virtual CFO services in India are listed as under:

  • Greater compliance requirements, global accounting standards, changing regulatory environment
  • Some companies have financial staff that is operational, but not strategic, and need strategic planning insight and direction
  • Complex business environment demands for changes in strategy
  • Increasing demand from startup organization for high-quality financial expertise
  • Such professionals are likely to keep fixed costs low and having outsourced service provider provides them the flexibility of choosing services

The model of a virtual CFO has many advantages for organizations which are in their growth phase. Some of them include:

  • Virtual CFO is flexible which helps organization start small, and scale up as they grow
  • They brings on board many years of relevant experience which can help strengthen their finance function
  • They acts as advisor to the CEO and helps management formulate business strategies
  • They also represent the company as CFO in important meetings with banks, investors; clients, vendors etc. for decision making and better negotiations

A virtual CFO vests the CEO with information. Virtual CFOs charge about very small percent of the fee as compared to appointing the full time CFO. Thus this concept is catching on.

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