The CFO'S Perspective

“How do you build a three-year financial model?” It’s a question we get (and answer) a lot.

A financial model is a type of financial projection that pulls together important data to allow organizations to analyze their current financial position and predict their future financial position. While effective financial modeling takes significant time and expertise to complete, the considerable benefits provided make it well worth the investment. Financial modeling is an essential tool used to manage risk, allocate resources, make smart investments, secure funding, and develop long-term growth strategies.

Some projections are over a longer time horizon while others only cover a short time horizon. However, whether your financial model covers two, three, five, or ten years, it’s important to understand what it should accomplish, why you should do one, and what it should include. Find out now why you need financial modeling and how to build a financial model for your organization that will offer the insights needed to make key strategic decisions.

We’re trying something new today by giving our readers access to insights from an internal conversation we’ve been having! In a recent team meeting our experienced CFOs were discussing what organizations can do to get ready for a recession or economic downturn. The list of tips that our team came up with to prepare your business for a recession offers great advice for for-profit and non-profit entities alike, no matter what the future holds. Below is the result of that brainstorming session.

Invoice factoring, also known as accounts receivable financing, improves cash flow by selling your company's outstanding invoices to a factoring company for a fee. As with any financial strategy, it's crucial to understand these risks and weigh them against the potential benefits. Invoice factoring can be a powerful tool for improving cash flow, but it needs to be used wisely as part of a well-considered overall financial strategy.

In this article, we review and answer the following questions:
(Each links to your question/answer of interest.)

1. Factors to consider when deciding whether to use invoice factoring?
2. What are the risks when using invoice factoring?
3. What is the average cost of invoice factoring?
4. What types of businesses use invoice factoring?
5. When should a company use factoring?
6. Do factoring companies check credit?
7. How do you get your company approved for factoring?
8. Why is factoring so expensive?
9. How do I get out of a factoring company agreement?
10. Do you need a CFO to get invoice factoring?

Hiring a fractional (part-time) CFO is becoming increasingly popular because this type of employment engagement offers significant cost benefits. Outsourcing their CFO role allows an organization to bring someone in for a fraction of the cost because they do not incur expenses related to benefits, bonuses, payroll taxes, etc. As Michael Newsome explains when talking about utilizing fractional service providers,

“Searching for ways to optimize human capital, while fighting the inefficiencies of talent markets, is an ever-present challenge for businesses in the middle market. The human capital corollary to the engineer’s triangle (fast, cheap, reliable – pick two) seems to be availability, relevant experience, and compensation expectation... An increasingly popular way for businesses to address this issue is using fractional service providers, which have proliferated significantly in their breadth and depth of service offerings in the middle market... A fractional solution can offer a way for a business to access additional capability at a lower total cost than bringing on a full-time hire.”

And while the cost savings are clear, many companies remain resistant to hiring a fractional CFO. Their biggest fear is that doing so requires that they sacrifice on quality in a role that requires the utmost proficiency. Leadership with these types of reservations will typically ask questions like, “Is a part-time CFO as good as a full-time CFO?” or “Can you really trust a fractional CFO to perform at a high level?”

Organizations that question whether a fractional CFO can truly get the job done well for less should consider how a fractional CFO can:

A Chief Financial Officer(CFO) is a senior executive role that manages the financial actions of a company. The CFO's duties include tracking cash flow and financial planning as well as analyzing the company's financial strengths and weaknesses and proposing corrective actions.

When a company asks CFO Selections to engage in a search for a CFO, we walk through each company’s specific needs to create a customized job description. The job description for a CFO can vary somewhat depending on the size and industry of the organization, but here is a typical example:

There is a misconception that business services companies do not need to prioritize cash flow management in the same way that retail businesses do because they do not have the same kind of inventory demands. However, cash flow planning is just as important for service providers as it is for retailers because cash is the lifeblood of both!

People are asking, “How much office space do service providers need these days?” But perhaps it is more appropriate to ask, do service providers really need office space at all anymore?

Since the shift to remote work, it seems everything from making introductions and generating quotes to signing contracts and conducting client meetings can be done virtually now. With that in mind, many services companies are left wondering if they even need their office space these days. As a result, they are leaning on their CFOs (Chief Financial Officers) to do the cost analysis required to determine if they should keep their existing office space, downgrade to a smaller space, or forgo having a centralized office entirely. Where service providers do retain their office space, a CFO’s job is not done. In these cases, service companies are relying on their CFOs to re-negotiate office leases and make leasehold improvements to help improve their cost efficiency in today’s tight economy.

To keep the office or not keep the office – that is the question. What should your business do?

Creating authentic connections with customers can help companies to attract new customers, retain existing customers, and develop brand advocates to increase customer lifetime value across the organization. It can also benefit employees, strengthening the company from within. Having a meaningful connection with the people they are serving allows employees to find meaning in the work that they do, simultaneously increasing employee retention and making it easier to attract top talent for new roles. The net effect of these internal and external shifts is greater, more sustainable revenue.