Personal Trainer for your Business

Virtual CFO Services: The First Thing Your Virtual CFO Service Should Do For Your Business

Written by Jeff Heybruck and Megan Stanton

Congratulations! You are a small business owner and have taken the first step and started working with an outsourced, virtual CFO. Okay, now what? Well, just like starting up with a personal trainer, the first step is to discuss where the business is now and what the management’s goals are.

Hard work in both the business and fitness worlds will be wasted without your virtual CFO (or trainer) helping you to define a solid plan of attack based on clearly defined and measurable goals.

Step 1: Identify the best metrics to gauge your business’ financial health.

To use a fitness analogy, anyone who has started a program that utilizes any kind of strength training has probably experienced a very frustrating thing: the scale goes the wrong direction. Without proper guidance, it can be frustrating. After all, we may be thinking, “I started this program to lose weight, how can this be happening?!” However, after discussing this development with a trainer, we may realize that our clothes fit looser in the right areas.

What does this mean? Your trainer explains that body composition is changing. Fat takes up more space but weighs less than muscle. As we get stronger, the scale can say we weigh more because the bulky fat is being replaced by lean muscle mass. What’s the moral of the story? The untrained person may be looking at the wrong metric to gauge success.

The same principle applies in the financial arena. Using a measurement that does not align with the goal will create frustration, confusion, and can lead to poor decision making. We often see this when an entrepreneur focuses solely on revenue and the bank account balance. Too often these type of business owners “grow” their way right out of business. Or someone tries to get the product/service mix perfect before going to market and loses the opportunity their product/service was created to solve. An outsourced CFO service can help you to lead confidently knowing that you are looking at accurate metrics and the right metrics.

Step 2: Use metrics identified to develop custom business financial dashboards.

Here at Lucrum, our virtual CFOs strongly believe that the best results will be achieved by working hand in hand with business owners to set goals tailored to individualized needs and developing dashboards that track key performance indicators (KPIs) specific to those goals. Just as one size does not fit all, each dashboard will be unique to the needs of the business and the challenges of the industry. Trainers have a variety of tools at their disposal but, what is more important, they know which ones to apply to a specific situation or individual. Fractional CFO’s are similar- we have experience in multiple industries, and it is amazing what can transfer or be adapted to help a business owner in a completely different industry.

For example, if the goal of the business is to increase sales and a heavy reliance on marketing is needed to achieve that result, then a rise in G&A costs and a decline in profit in the short term is normal until the payoff is realized in the form of increased sales and profits. The difference is a qualified outsourced CFO can make sure the anticipated long-term benefit provides a sufficient ROI to justify the initial spend. Just like a fad or crash diet rarely leads to long-term weight loss or improved overall health, implementing strict cost control measures to reduce spending would have a detrimental long-term effect. In another instance, the business may have a very healthy revenue stream but is bleeding dollars from a lack of cost control and the most effective strategy will be to institute lean processes to control spending and utilize resources more efficiently. The correlating fitness analogy here is a person who has a healthy diet but is unable to self-motivate to push themselves to qualify for a marathon or hit a certain weightlifting target.

In conclusion, every situation is unique and deserves a unique solution. Working one-on-one with an outsourced CFO provides value by tailoring a solution unique to the problem. If you don’t like what your “business scale” is telling you, reach out and start a conversation with a virtual CFO today.