Too big to be small and too small to be big.
That’s how Eide Bailly’s Jim Ramstad describes most of the businesses he works with.
“They’re businesses who have some experience and have been in operation for a while,” explains Ramstad, who has more than 45 years of business-consulting experience. “They’ve had some ups and downs, and although they need a full-time CFO, they can’t afford one.”
Ramstad works out of the Fargo Eide Bailly Possibilities Center and is what’s known as a virtual CFO. If you’ve never heard of a virtual CFO, you’re probably not alone and shouldn’t feel bad, as the concept is a relatively new one.
Ramstad explains where the need for a virtual CFO often comes from.
“From my experience, business owners know 90 percent of what’s working and what isn’t working,” Ramstad says. “But what they don’t have is the resources to get things implemented. They don’t have the time themselves and they don’t have the people with the right acumen to be able to do it.
“That’s where we come in. Because we can implement change and help them go through all of the strategic planning—figure out where they are, help them get their accounting set up and take them from where they are today to where they want to be tomorrow. Because there’s a gap there of where they’re at and where they want to be.”
With Ramstad’s help, we’ve come up with a short questionnaire to help you figure out if your business could benefit from a virtual, or outsourced, CFO’s services.
Does your business fall into one of these categories?
$2-$5 Million Annual Revenue
This business is going through the phases of growth and making a whole turnaround. It’s asking itself, “How do I get to the point where my business model is scalable?”
$6-$25 Million Annual Revenue
This is a company going through exponential growth and wanting to create a new market or reinvent itself. It needs a trusted adviser for when it starts to ask, “How do we get from here to here?”
$26 Million or More Annual Revenue
These companies are well into growth mode but still could potentially need a resource and aren’t ready to hire one full-time, in-house.
“What I do is what a business would hire an in-house CFO for,” Ramstad explains. “The distinction, though, is the cost factor. There’s a point at which they get big enough that they need to have their own internal CFO in place. And it’s typically right around that $25-$30 million range.”
However, this is not a hard-and-fast rule based on revenue. The Possbilities Center also seees several other factors contributing to the decision to bring a CFO in-house, including complexity of the business, future growth plans and more.
Is your business in one of these stages of growth?
This is when you formulate everything, put your business plan together and put your target market together.
“Concentration” is the stage during which you implement what you put together during formulation. You see what works and what doesn’t work, particularly with your business model and marketing.
Once you stop chasing the customer and the customer starts coming to you, you’re in “momentum.” Once you get into “momentum,” you start growing exponentially. This stage can be very tiring because typically the entrepreneur is the person doing a lot of the work.
After you get through “momentum,” things stable off and you enter into “stability.” This typically happens around $2-$5 million and is the point at which you have to decide what you want to do. Do you want to grow? Do you want to stay the same? Do you want to sell? There are decisions to be made. If you want to take things to another level, then you enter into “no man’s land.”
No Man’s Land
This is where you have to decide whether or not your company is scalable. You have to figure out: as I grow and go from $5 million to $15 million, can my current business model take me there? Then there’s, of course, the money. You can get it from a bank, investors—either as a loan or equity—or you can grow through revenue.
*Note: Stages of growth from Doug Tatum’s “No Man’s Land.”
Do you face any of the following challenges on a daily basis?
Ramstad: “Basically, owners don’t understand their financial statements. And they don’t know if they really trust them. A lot of them will say, ‘Jeez, I made $1,000, but I don’t have any money in the bank.’ They don’t understand how the whole flow of it works. You have to look at your balance sheet and your income statement. ”
Lack of Leadership Team
Ramstad: “In the beginning stages or an organization, CEOs/owners are often alone at the top. They don’t have the resources to hire a full C-suite, but the advice these individuals offer is vital to the growth of an organization. Virtual CFOs can help round out the leadership team. They provide a sounding board to help an owner be heard. They also serve as their advisory partner.”
Ramstad: “Owners always ask, ‘How do I get my team to work together? How do I get them to see a clear direction?’ “Often, small- to mid-sized organizations don’t have a strategic vision set forth for their company. Or if they do, they haven’t communicated it to the rest of the organization nor how they can help achieve it. One of the best ways to do this is to establish key performance indicators (KPIs) for each team member that links their daily tasks to the overall vision of the company.”
No Long-term Vision
Ramstad: “Most businesses, from the time they start out fresh, don’t think about what their exit strategy is. ‘What do I want out of this? What do I want this to look like in 20 years?’ They have it in their head, but they haven’t put it on a wall. To me, it’s like a painting. What do I want this painting to look like? Do I want this blue? Do I want this yellow?’ “It’s a vision. They have a vision in their head, but they don’t know how to get it out. And that’s where we come in. We draw that out of them and help them figure out what they want that painting to look like. Then, we take that vision and put it into a plan, a roadmap, that will get that vision implemented and bring people along with us.”
Eide Bailly Virtual CFO Services*
- Management of financial infrastructure – accounting, treasury, finance
- Financial, business, and strategic planning and implementation
- Profitability analysis by service or product line
- Cash-flow management and projections
- Private equity and debt financing
- Analysis of equipment purchases, expansions and critical business decisions
- Bank financing and investor-meeting preparation
- Audit preparation and liaison with audit firm
- Key metric benchmarking and trend analysis
- Accounting software selection and implementation
- Financial and operational improvement plans
- Transitional planning
- Education and training for current accounting staff
*Management is in control of what CFO functions they want to have outsourced. From the list above, together you will establish which tasks you’d like outsourced, expected deliverables with completion dates and estimated time involved.
Business writer Patrick Lencioni illustrates the principles of inspiring client loyalty through a fascinating business fable. He explains the theory of vulnerability in depth and presents concrete steps for putting it to work in any organization. The story follows a small consulting firm, Lighthouse Partners, which often beats out big-name competitors for top clients. One such competitor buys out Lighthouse and learns important lessons about what it means to provide value to its clients.*
*Summary from Amazon
Ramstad’s 5 Things That Separate Virtual CFOs from In-house CFOs
1) We have to have the “heart of a teacher” as we are always teaching and coaching. We are not out to build an annuity for our service and want the client to become self-sufficient. Then, we can become a more-trusted business advisor.
2) Virtual CFOs work alongside a client to help them understand their day-to-day operationg and finances. But above and beyond that, we can take some of the burden off the client in a difficult situation, allowing them to prioritize working on their business rather than in it.
3) Because you’re not actually employing them, the cost of a virtual CFO is often cheaper—think no insurance costs, unemployment benefits, etc. Not to mention, you are only paying for the CFO time you need. Plus, you won’t have to deal with the transition if an in-house employee leaves.
4) We help the entrepreneur with the anguish of running a small-tomedium-sized business. By providing them with solutions, they can make more-informed decisions.
5) We serve businesses as their resource hub. Collaborating with management, we develop solutions and create value for the entrepreneur’s specific needs.
If you’re interested in or would just like to learn more about what a virtual CFO can do for your business:
Director, Eide Bailly Possibilities Center