Over the past six weeks we’ve spoken to a number of accounting firms as well as experts on the topic of a virtual CFO. While the notion of helping clients remotely or virtually has been around for some time, we continue to hear more about firms moving up the value chain and offering higher value-add services to their clients.
What is a Virtual CFO?
Throughout our conversations the following definitions stood out:
- A Virtual CFO plays the CFO role on a part-time business for a fraction of the cost of a full-time CFO
- A Virtual CFO cares about the health and well-being of the business
- A Virtual CFO acts as a sounding board and provides financial sanity
A Virtual CFO is essentially a financial advisor. Someone that becomes a trusted source for financial perspective at a fraction of the cost of a full-time CFO.
Why is this role emerging?
There was widespread agreement that the following overarching trends are occurring in the industry and have been for some time:
- compliance work is commoditizing
- increased competition
- increased fee compression
- technology is helping to automate basic functions
Against this backdrop it becomes important for firms to differentiate their services. Offering compliance, financial statements, and tax returns are status quo and are increasingly seen as commodities. The firm of the future is one that is providing insight and analysis beyond basic compliance.
There are many types of firms across the public accounting industry ranging from small bookkeeping firms to large firms with outsourced accounting divisions. The following image is a simplified view of public accounting breaking it up into four segments—bookkeeping, bookkeeping+, accounting & reporting, and CFO advisory.
Of course there is more to each segment than described and not every firm will fit cleanly into one of these segments, but it is a good approximation. As you move to the right along the chain you are adding more value for your clients. The services to the left are the ones that are facing, and will continue to face, more commoditization and automation as illustrated by the greying.
Connectivity to bank feeds, for one, is driving efficiencies that are saving some firms months of employee hours. Many accounting firms are focused on working smarter, not harder. The more efficient the process, the less time spent on fixing errors and making adjustments. This frees up time so to work on value-add services and drive more value to clients.
In addition to this, roughly 50% of small businesses don’t make it past the five-year mark. While there are several reasons for business failure, many small businesses simply aren’t making the wisest financial decisions. Unfortunately most small firms can’t afford an in-house finance head to help navigate the dark art of accounting and finance. Nor do they want to. They’d rather be running the business, talking to customers and drumming up that next sale. They need the help of an accounting professional more than ever. Interestingly, the vast majority of small businesses are unaware that their accountant can help beyond compliance and tax.
Stepping into a CFO advisory role is an obvious next step for firms. To get there, practitioners need to see themselves as a CFO first. Yes it’s a mindset shift, but not a huge one, as most have the knowledge and capabilities already.
I’m going to be chatting with several experts in a three part series on the subject over the course of this month in an unscripted interview format. If you are interested, you can register here for the first one:
Becoming A Virtual CFO: A holistic view of a new industry trend with Leslie Shiner