Why Would a CFO Hire a CFO?

While it might sound counterintuitive, there are certain situations where it’s beneficial for a Chief Financial Officer to hire a CFO services provider to come in and perform work on an outsourced basis. One of these may occur when a public company acquires another business and must meet strict SEC filing deadlines for 8-K reports.

I witnessed this first-hand when I was retained to help RadNet, Inc., a Los Angeles-based provider of diagnostic imaging services, file 8-K reports for two separate acquisitions. The challenge was that the reports both had to be filed within 75 days of the acquisition dates and include audited financial statements for each company’s prior year of operations.

Tight SEC Filing Deadlines

I had previously worked with RadNet’s Executive Vice President and CFO Mark Stolper in another engagement so he asked if I could help them with the report filings. Several factors made this engagement especially challenging. The first was the fact that audit opinions had to be obtained and 8-K reports filed under rule 3-05 for both acquisitions in such a short period of time and by the same date.

In addition, the financial statements provided to RadNet by one of the acquired businesses were not prepared in accordance with generally accepted accounting principles (GAAP) so they wouldn’t pass audit. Not only were the statements non-compliant, but many of the records were raw, missing or incomplete and much of the data was bad.

As a result, a completely new set of financial statements would have to be compiled and audited from the company’s accounting records. RadNet was also facing year-end preparation and the goodwill process at the same time. Not surprisingly, Stolper and Chief Accounting Officer Kirk Lowe decided that they needed some outside help to get everything done on time.

That’s when Stolper called me and asked if I could help as an outsourced CFO services provider. Specifically, they needed me to create GAAP-compliant financial statements out of raw accounting and transaction data with minimal direction or handholding. It was, as Stolper described it, a true “divide and conquer mission.”

No Time to Waste

I quickly met with Stolper and Lowe to get briefed on the data and deadline challenges they were facing and agree on the scope of the engagement. There wasn’t a lot of time for them to explain all the details to me — they really needed me to take the ball and run with it.

My first task was to create GAAP-compliant financial statements for one of the two acquired companies that would pass audit and be ready for filing within 75 days. Complex software and multiple element arrangements accounting rules, as well as revenue recognition and foreign currency requirements, were addressed in numerous accounting pronouncements.

In the end, we were able to prepare GAAP-compliant financial statements for both of the acquisitions and meet the tight SEC filing deadlines. The auditors were in full agreement on all of the accounting positions. “We were facing a serious bandwidth challenge — I can’t overemphasize this,” Stolper told me. “We needed a heavy hitter who could come in and hit the ground running, which is exactly what CFO Edge and Art Rothberg did for us. They really hit the ball out of the park.”

Concluding Thoughts

The scenario faced by RadNet isn’t uncommon for public companies that acquire other businesses. Hiring an outsourced CFO services provider is one of the best ways to meet the accounting challenges inherent in such acquisitions. Give us a call if you’d like to discuss how we can help you meet the accounting challenges of business acquisitions.

Click here to read a more detailed case study of how CFO Edge helped RadNet, Inc. meet its acquisition accounting challenges. No registration is required to download the case study.

Arthur F. Rothberg, Managing Director, CFO Edge, LLC