Three Actions to Expect from a Potential External CFO
A growing number of mid-sized businesses are bringing in an external CFO to help them meet a wide range of financial and operational challenges. When utilized properly, an external CFO will provide high-level strategic planning and business management that can increase shareholder value by improving financial performance and boosting overall profitability.
Executives looking at hiring an external CFO face several challenges. They tend to be cautious and skeptical when purchasing professional financial services such as those provided by an external CFO. Many have had experiences with service providers that over-promised and under-delivered, which makes them skeptical of unsubstantiated promises. They focus heavily on economic outcomes and retaining control, so they seek economic justification when making these decisions.
Few C-level executives have the time to conduct a detailed analysis of exactly what professional financial services firms (including those providing an external CFO) are offering, let alone analyze the proof of their claims to add value to an engagement. In searching for a provider, executives should expect to see three actions from an external CFO partner.
1. Collaborate with You on Building a Business Case
Without a solid business case, executives are not able to determine if they have selected the right services provider. Nor can they be assured that they will realize the return on investment they expect.
An external CFO should be willing to work with you and your team to build a valid business case for the engagement. Doing so demonstrates that the business will realize targeted value from the engagement — more specifically, the type of value sought, where it will be realized and how it will be quantified.
2. Provide a Proven Track Record of Client Successes
Executives we’ve talked with say they seek specific types of information in contacting references. They see references and case studies as additional forms of proof that the external CFO has helped clients complete successful engagements. In this context, references, testimonials and case studies should directly address areas like the following:
a. Client successes stories
b. C-level financial expertise
c. Your challenges and targeted value
d. Experience with similar situations
e. Scale, scope and versatility
f. Analysis, ideas and innovation
g. Service levels and availability
Therefore, in addition to references, external CFOs should be prepared to deliver proof of their successful track records, quality of service and client successes with client testimonials and case studies. Following are examples of how our external CFO services illustrate the seven areas above:
Acquisition accounting assistance — A half-a-billion-dollar public medical imaging business needed help with acquisition accounting during the transition period when it acquired a software company. This was the first vertical acquisition of a new business line beyond its core offerings, so it didn’t have the bandwidth or expertise needed to complete the acquisition integration. Our external CFO addressed intricate software and multiple element arrangements accounting regulations and trained in-house staff in foreign currency accounting and revenue recognition. Preparation for the audit and SEC filings were also accomplished — all within a compressed timeframe.
Three-year audit preparation — Deliberating a reverse triangular merger with a foreign issuer on NASDAQ, an unaudited company needed to update its books in preparation for a three-year audit. While evaluating the business case, the external CFO discovered critical operational challenges that showed the client’s best interests were not well-served by the merger. Therefore, the company decided moving forward with the merger was not appropriate. The CFO prepared the company for its first audit and helped to develop internal controls, recruit and train a controller, and create accounting policies and procedures.
Financial modeling — A startup firm needed to quickly develop a financial model to help internal focus on key financial anchor points and for fundraising. The external CFO helped the company understand and set revenue, sales and cost goals, as well as how to hit them in both operational and financial ways. The financial model helped the startup improve its business and better communicate with stakeholders and potential investors in a financial language.
3. Offer a Project for You to See the CFO in Action
An external CFO who offers to work on a complimentary project gives you and your team a first-hand view of many areas and delivers proof that the professional delivers targeted value as promised.
In addition to collaborating with you on building a business case, ask a potential external CFO partner about delivering a short, real-world project like a preliminary discovery engagement to assess challenges and uncover opportunities. Another offer might be for the professional to provide a complimentary benchmarking analysis that compares your numbers to peer companies in your industry and of your size.
Working together on a project like one of these lets you experience the CFO’s workstyle, cultural fit, approach, value outcomes and commitment to your company
A growing number of businesses are turning to external CFOs to help them meet a wide range of financial and operational challenges. However, challenges include executive time limitations doing thorough research on providers and a need for surety that a selected provider will deliver promised value. Look for an external CFO who will collaborate with you on a business case, provide thorough proof of successes, and offer a project to let you experience first-hand workstyle, fit and outcomes.
Arthur F. Rothberg, Managing Director, CFO Edge, LLC