Taking on the CFO role for small businesses

Accountant & Bookkeeper Guides

7 min read

Neethu Stephen has worked with more than 300 startups​ since 2010​ and​ ​launched EstherStephen Consulting earlier this year ​​to provide remote CFO services. The firm’s already on its way to becoming a Xero bronze partner. Find out why the virtual CFO role is becoming so important.

Neethu Stephen, founder of NeethuStephen consulting

Neethu Stephen - Founder, EstherStephen Consulting

This guide is brought to you by Xero and our Xero partner, Neethu Stephen, because we share a passion for helping practices everywhere thrive.

Small business is getting more complicated by the day and small business owners are aware of it. Increasingly they’re turning to consultants to help handle the complexities. In fact their ability to tap into external resources is becoming critical to their business success. A Xero study found that successful business owners are:

  • 2.4 times more likely to seek outside advice

  • 1.6 times more likely to have an excellent relationship with their financial advisor

The trend towards using consultants puts you in a unique situation to partner with clients to grow their businesses, and yours.

Businesses are asking for more advice

Small and medium-sized businesses, and high-growth businesses, now feel the need to have a sounding board – someone they can reach out to before a big business decision is taken. Accountants and legal advisors are becoming that sounding board.

They’re consulted on questions like:

  • “How do I grow from a $100,000 a year business to a $1 million a year business?”

  • “Where can I improve internal processes?”

  • “Are we ready to hire our next team member?”

Even that last question is more complex than it looks. Traditionally we might check the figures to see if the business can afford a new hire – but the issue is probably deeper than that.

A modern business owner isn’t necessarily asking if they can afford an employee, they’re asking if they need one. They might want to know how many customers one staff member can handle before they reach tipping point. Where does the work and quality begin to suffer?

Business owners are starting to look for sophisticated advice. That’s where you can begin to take on a virtual CFO role for them.

Cash flow is often the first conversation

Many small and medium-sized business owners don’t have the skills to deal with cash flow issues in an organized manner. When not managed properly, those problems can lead to business failure or, at the very least, stress and distraction.

These business owners need a trusted advisor to take on a CFO role and build strong financial foundations, so they don’t dread bills and payday anymore. As a result, it’s probably the first invitation you’ll get to come in and expand your role in their business.

You can help them:

  • budget and manage cash more effectively

  • develop better invoicing systems

  • follow-up overdue accounts

  • access accounts receivable financing, if necessary

Helping clients improve their cash flow situation will relieve a lot of anxiety and vastly improve their outlook. Use it as a first step to a bigger, wider-ranging advisory role.

You don’t have to do it all

Most of us understand there’s an opportunity to deliver more accounting services to our clients. But we’re often so under water with day-to-day work that we don’t have the time to move to a new paradigm and take on a CFO role. Besides, we can’t be an expert in all things.

That’s why we need to collaborate with peers to deliver the advisory services that we don’t necessarily specialize in. There’s no need to be afraid of referring clients to specialist bookkeepers or accountants.

If a client brings you an issue that you can’t help them with, your next best option is to find them someone who can. It allows you to:

  • keep the client in your network of trusted partners

  • attract reciprocal referrals

  • deliver value to your client

You’ll still be the person who facilitated a solution for your client’s issue – so you’ve given them value even if you don’t do the work yourself. In your CFO role, you can be a generalist with connections – someone who knows how to make things happen.

The CFO role requires deeper client relationships

Go through your clients and book time for them to come in and talk about their business. I don’t charge for this. Just listen and gauge how you can add value. Don’t mention anything in this meeting about playing the CFO role for their business, and don’t try to sell them anything. Just take notes and form ideas.

The questions I ask to drive the conversation include:

  • “What’s your business culture?”
    This is to see if they’re seeking aggressive growth or a steady approach.

  • “What’s your biggest concern?”
    Are they having trouble with people, processes, or cash flow?

  • “What do you want out of this business?”
    I’m interested to know their hopes for the business, themselves and their employees.

CEOs and founders love to answer these questions. They’re great icebreakers before you jump into the minutiae of numbers. I’ve found this can be an emotional experience. As a third party, I’m making them look at their business in black and white.

A lot of clients are at a loss to answer questions like “What’s the aim of the business?” or “What does your exit look like?” Without a clear vision for the future, they’ll ultimately lose out to competitors with more cash, better marketing, or more market share.

Helping clients improve their cashflow situation will relieve a lot of anxiety and vastly improve their outlook. Use it as a first step to a bigger role.

Using the numbers to demonstrate value

If the client or prospect has Xero, I might review their latest management reports ahead of the meeting and pencil areas that look out of whack. They might include long-pending debtors or negative working capital. I don’t want to scare them with the data – the idea is to say “You need help and I can help you.”

If they don’t have Xero, I use the demo company in the software to show the client what great accounting software can reveal about their business. That, in turn, helps demonstrate what I could do for them in a virtual CFO role.

I haven’t had a single client walk away from one of these meetings saying “I don’t need this for my business.” We might differ on price points, but they can always see the benefits.

Give them a framework to measure progress

If you take on the CFO role, your next step will be to give your clients some concrete steps and tools. You need to create a roadmap.

Say, for example, they have a financial goal to get to 20% net profit, month on month. You can do a combination of forecasts to tell them what their numbers should look like to get there, and that’s fine – but it’s just a starting point.

To really help a small business owner, you need to provide a complete framework that includes:

  • achievable budgets

  • tools to measure the actions they take

  • analysis of their performance on a month-to-month basis

Teach them how to evaluate performance

Once you’ve decided on the goals and the key performance indicators (KPIs) that you’ll use to measure them, the next thing is to keep clients engaged. Try setting them up with accounting software that has a dashboard. That will allow them to see bank balances, monitor cash flow, and track those agreed KPIs on their mobile devices, 24/7.

The constant feedback on business performance will help keep them focused, but it won’t work without your involvement. There’s simply no substitute for human contact. Check in with them regularly to discuss what the dashboard’s saying. Help them interpret the information. Give them context and perspective. Help them troubleshoot issues and modify goals as they go along.

The CFO role can be rewarding

I recently had a meeting where I told a client he could afford to give his main developer a bonus. His reaction was very emotional.

“Now I can prove this business amounts to more than talk,” he said.

When I started the engagement, that was one of his main concerns. He was worried whether he would amount to anything financially and whether his business would become what his employees and clients wanted.

With consistent effort and focus, we helped this client reach a goal that was a defining moment for him personally and professionally.  For me, that’s satisfaction. And it’s the sort of fulfillment you get from filling a virtual CFO role.

Just remember that you don’t have to supply all this expertise yourself. You just need to position yourself as the facilitator. You’re the advisor who’s opening their eyes to new ideas and new opportunities – and helping them get access to the help they need.