Virtual CFO: A Part-time Chief Financial Officer

What are the role and responsibilities of the Virtual CFO?

18th Jan 2020
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At present, organizations face many challenges in terms of accounting, financial aspects, management, and growth.  For this, there is a need to appoint an officer, who can be principally accountable for managing the financial risks, Cost Management, record-keeping Debt Reduction, and financial reporting of the company. Further, the Chief Financial Officer is the officer appointed for managing the above-stated operations. But, at times, the small businesses don’t have an in-house Chief Financial Officer (CFO) because of the budget constraints. Thus, there is a need for small enterprises to appoint a virtual CFO. Moreover, the appointment of a virtual CFO will lead to meet the financial challenges effectively and efficiently, as he would provide both professional and financial analysis, advice and support to the management.

Why is the role of Virtual CFO crucial?

  1. Due to continuous increasing competition
  2. Virtual technology supports the business
  3. Increment in fees
  4. Commoditizing of the agreement work
  5. A lot of knowledge and experience is required to play the role of virtual CFO. Further, the demand for virtual CFO will increase in the near future.

What is the Right Time to Hire a Virtual CFO

  1. Need to raise capital with Investors.
  2. Complicated lending procedures and requirements prescribed by the Banks.
  3. Not able to derive the required financial information.
  4. Not able to appoint a Chief Financial Officer because of Budget Constraints.

Why go for the option of Virtual CFO?

  1. Increased Flexibility
  2. Better control over Financial Resources
  3. Adaptable to changes
  4. Expertise in taxes
  5. More accurate and correct financial statements
  6. Fact-based decision making

What are the services provided by Virtual CFO?

  1. Financial Advisory – Guidance is provided by the Virtual CFO as per the need. Proper and appropriate financial planning takes the business to the next level. With proper financial planning the top management can easily focus on the core issues without any fear.
  2. Cash Flow Projections – the next valuable service of the Virtual CFO is to project cash flows.
  3. Budgeting – The service list of Virtual CFO also includes the service of budgeting.  Through budgeting, top-level management can track the company’s progress.  It is always suggested to review budgets on either quarterly basis or half-yearly basis, to implement changes as per the company’s goals.
  4. Break-Even Analysis – Under the break-even analysis, fixed cost + variable cost (total cost) is compared with the company’s revenue to find out a point where company neither makes any loss nor makes any profit. The point where the company neither makes any loss, nor profit is known as the Break-Even Point. Here, the virtual CFO will help the company in deriving the Break-even point by which the company will be able to regulate its expenses.
  5. Internal Controls – A proper direction regarding companies’ growth through streamlined internal control system results in increased reliability of the organization. Further, accurate and proper accounting records, financial reporting, and well- informed financial decision are vital factors for effective internal control. Lastly, the Chief Financial Officer helps in the assessment and execution of the above-stated processes.
  6. Accounting Policies and Procedures – For a comprehensive framework of the organization’s internal control, a well-structured and properly maintained accounting system is required. This helps in increasing the consistency and accountability of the organization. Further, the accounting policies and procedures help in the creation and implementation of well-defined management and accounting in the organization.
  7. MIS Reporting – MIS stands for the management information system. Further, Virtual CFO is accountable for providing timely and correct information regarding the company’s financial health in the MIS report.
  8. Audit Support – Virtual CFO is required to provide end to end audit support for all the queries raised by the auditor.
  9. Closure and Filling of Year End Accounts – Virtual CFO ensures timely drafting and annual filing of the financial statements. Further, it also provides for filling of GST Return and Income Tax Return.
  10. Debt Planning – To achieve the desired goal along with debt control, proper debt planning plays a vital role. So, a virtual CFO is responsible for making proper debt planning.
  11. Cost Management – Cost Management is a process in which the virtual CFO makes a proper plan to cut the cost incurred by the company. Further, virtual CFO also helps in determining the operational efficiency. Lastly, the virtual CFO is required to analyze the variable cost to control it.
  12. Corporate Governance – Rules and regulations followed by any corporate organization mean corporate governance. Further, corporate governance makes a balance among the interest of the shareholder, stakeholders, management, and clients.
  13. Application of various acts – Virtual CFO is required to provide solutions to the company as per the companies act, 2013, IPR Laws, Contract Act, FEMA, and Income Tax Act, 1961.
  14. Accounting Function of the Organization – Accounting Services plays an essential role in the organization as it helps in the assessment of the financial accounting health of the company. Term Accounting Health Check means an overall evaluation of the company’s accounting and financial aspect. This area requires an eminent and qualified professional, as he is required to prepare a complete data relating to accounting practices. Complete data includes the preparation of data and accounting policies. Areas of the expertise are needed to be accessed beforehand to achieve the next level’s growth and development.

Benefits of Virtual CFO services

  1. Cash Flow Projections – Cash Flow projections will be made by a virtual CFO to ensure cash inflow.
  2. Financial Projections – Financial Projection will be provided by the Virtual CFO, after analyzing income and financial statement.
  3. Budgeting – This means setting up of every year’s budget to track the progress record periodically.
  4. Manage Cash Flow - Cash flow management is necessary to ensure proper cash utilization.
  5. The Creditor and Debtor Management – This is an important area as it helps in mitigating the credit risk.
  6. Setting up of an Accounting System – This means the continuous evaluation of the prevailing accounting system along with recommendations for improvement.

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