GUEST POST – Can your small new business afford a CFO

06/02/2011  This article was recently published in the Idaho Business Review.  Author Scott Lockwood eloquently describes what I can do for your business:


According to the U.S. Small Business Administration, small enterprises, employing fewer than 500 people, dominate the U.S. economy and account for 52 percent of all U.S. workers.

Small businesses and their owners are successful because they are exceptional at what they do — they are personally in touch with their customers and are well-suited to meeting their needs. This is true of physicians, IT consultants, small manufacturing companies, or any not-for-profit entity.

Also, according to the SBA, more than 50 percent of small businesses fail in the first five years with many more struggling to get by. What is behind the failures?

Quite often these same small business owners that are so extremely successful with their customers lack the necessary skills and competencies to expertly manage their finances or manage appropriate accounting for book or tax purposes.

They didn’t invest years to educate themselves in corporate finance or accounting. The result is that the business ends up with insufficient capital, poor inventory management, and over-investment in fixed assets or poorly arranged credit agreements.

The area of corporate finance and accounting is many times overlooked until the business becomes cash-strapped or it is tax time. When it is time for businesses to look to financing for growth, or even complete their taxes, they are unprepared and it then becomes a large investment of time and money to sit down and recreate what occurred financially over the last twelve months or more.

As our economy continues to struggle and companies, in particular small businesses, are looking to cut costs, the last thing any business owner wants to do is add more overhead, such as hiring a CFO to help manage the finances and accounting of the company on a day-to-day basis. This added cost, which generally exceeds $100,000 in salary for a typical CFO, is something small businesses cannot absorb.

How do you get around paying these high salaries yet still have the knowledge and expertise of a CFO at your fingertips? The answer that, as many small- to medium-sized businesses have found, is hiring a professional, outsourced CFO. The outsourced CFO can encompass many different functions for the company, from assisting with the implementation of a new accounting software package to developing a cash management program for the business.

The role of a CFO is ever-changing in today’s economy. They not only need to understand the debits and credits but need to have a well-rounded understanding about the business they are in, tax laws, labor laws, industry specific rules and regulations, changing accounting principles, and changes in banking rules and regulations, just to name a few. All of these items are not generally things that business owners want to deal with, nor do they have time to deal with them.

A few of the benefits of having an outsourced CFO versus an in-house CFO are:

* Cost reduction: A full-time CFO’s salary and benefits are generally in excess of more than $100,000 a year. The outsourced CFO can be billed on an hourly basis or contracted on a fixed-fee arrangement depending on the level of involvement. The cost savings can be as much as 80 percent compared to hiring an in-house CFO.

* Expertise: Hiring an outsourced CFO that has a specific expertise in dealing with similar-sized businesses or in similar industries can allow them to provide more focused analysis and support. Outsourced CFOs have seen the best and worst in business and can use that knowledge and expertise to advance your business.

In addition to the outsourced CFO’s particular expertise, these individuals often have greater access to a larger group of experts than the business owner may possess. These could include business valuation experts, specific tax law experts, industry specific experts or other non-accounting and finance related experts. Having the access to a wide range of services and experts will only enhance your business and allow you to have a distinct advantage over the competition.

* Special projects: A company may only need a CFO for a couple of projects throughout the year, such as obtaining a new bank loan, developing a budget, helping with a merger or acquisition or implementing a new software package. Identifying these projects allows the outsourced CFO to focus solely on the task at hand and not be burdened by the day to day operations of the company, such as signing checks, billing, payroll or other functions that consume considerable time for a traditional CFO.

The outsourced CFO is a growing service that many small- to medium-sized businesses are taking advantage of to reduce the cost of having a full-time CFO.

Having a high-level, experienced financial manager and trusted advisor at their fingertips will allow the business owner to focus on the things that matter — running the business and selling the products that have made them successful.

To grow the business, to keep it viable, to stay competitive, the business owner can no longer do it all and do it alone. It is with the added support of a strong, knowledgeable, experienced and energized support group that the business will successfully beat the competition and move above and beyond past successes.

Scott Lockwood, CPA, is a senior manager with Mengel, Metzger, Barr & Co. LLP. He may be reached at