It depends on your management culture and the stage of your business lifecycle

How different levels of financial management services can add value to businesses in relation to their lifecycle stage

Stage 1: Start up/Early stage

  • Requirements will vary for the different profiles of businesses in this stage. Profiles will include:
    • Limited capital/grunt equity/lengthy early stage
    • Well capitalised/short early stage

Financial Management Issues:

  • As the management team grows, reliable financial reporting becomes more important for profitable decision making
  • Early-stage companies often have under-developed financial reporting capabilities. This requires appropriately structured general ledger and clear accounting policies and procedures
  • Reliable financial controls are essential to ensure that financial reports can be relied upon to represent the true performance of the business
  • Those businesses planning a relatively short establishment phase should undertake 3-way forecasting to ensure they will have sufficient cash reserves to remain solvent
  • It can be uneconomic to attract the experienced, quality financial managers required. A virtual CFO/Controller can provide the necessary expertise within an affordable budget

Stage 2: Established/Growth rate

  • Requirements will vary for the different profiles of businesses in this stage. Profiles will include:
    • Low capital/high labour v High capital/low capital
    • Growing teams/systems/processes
    • Limited capacity to attract high quality managers

Financial Management Issues:

  • Growing businesses often have under-developed systems, processes and key management/operations teams that are experiencing a lot of change
  • These businesses will often survive on the strength of their forecasting and planning activities
  • Achieving profitable margins can rely on how well the business understands the behaviours of its profit & cost drivers
  • Critical financial information that supports profitable decision making and healthy cash flows will require strong financial controls, key metrics & analytics and well-developed forecasting and modelling systems
  • Until these businesses achieve a level of profitability that can support the recruitment of appropriately skilled and experienced finance managers, retaining an experienced virtual CFO/Controller will provide the necessary financial leadership within an affordable budget

Stage 3: Mature/Low growth stage

  • Requirements will vary for the different profiles of businesses in this stage. Profiles will include:
    • Manage costs/drive sales v Seek acquisitions/divestments/reposition business
    • Established teams/systems/processes
    • High quality, motivated managers

Financial Management Issues:

  • Mature businesses will generally have well developed systems and processes, along with experienced management teams
  • In many cases, mature businesses need to react to changes in their traditional business environment, or to occasional significant one-off events like pandemics
  • Many mature businesses reposition themselves through acquisitions or divestments
  • In these cases, the forecasting and planning processes are critical for performance outcomes. A rolling 3-way forecasting process is the ideal approach to managing this process
  • A virtual CFO services provider that has well developed 3-way forecasting models and experience in working with teams to co-ordinate bottom-up forecasting processes, can provide significant value to these businesses

Colin Wright is the principal of The Virtual CFO Group Australia. He is a founding member of the Association of Virtual CFOs. The Virtual CFO Group has provided virtual CFO services to a range of client businesses for the past 9 years. They have worked with a range of client businesses, some of whom have experienced growth levels of as high as an average of 65% per annum over more than 5 years.