Date posted: 07/09/2018 12 min read

Rise of the virtual CFO

Awareness of the benefits of vCFO services is growing among SMEs as firms embrace changes in technology and the marketplace.

In Brief

  • Virtual CFO services have been around for some years, but awareness of their benefits is now on the rise.
  • Cloud technology is opening up access to CFO expertise.
  • The vCFO enables smaller companies to benefit from services they previously couldn’t afford.

By Helen Ozolins

When David Thomas CA set up Figure Eight Finance, a chartered accounting practice that specialises in virtual CFO services, in early 2017, the concept wasn’t big in Australia. He was aware of the growing trend in the UK, the US and the Netherlands, however, and thought “this is going to happen here”.

While Thomas was an early entrant to the virtual CFO business, he was not the first to offer such services. Virtual CFO services have been available for a long time, according to David Boyar FCA, chief executive of Sequel CFO and a co-founder of the Virtual CFO Association. It’s just that it wasn’t called that before. “The term wasn’t around,” he says. 

In Picture: David Boyar

That was certainly the case when Love to Grow began providing vCFO services 13 years ago. “It took a while for clients to realise the ongoing benefit of the strategic assistance available,” founder Trish Love says. 

“As more providers came to the market, the acceptance and awareness of the benefits of the vCFO services rose for the industry.”

A changing marketplace

Irrespective of its history, recognition of the vCFO concept has grown in recent years. “What’s changing is – thanks to the market and software companies like Xero and Intuit – [that] business owners want more,” says Boyar. “They are asking more questions; they know they have more data.” Changes in the workforce mean more and more people are becoming their own bosses, so both sides of the market are starting to grow, he adds.

Dr George Beaton, founder and head of Beaton Research + Consulting, agrees that digitalisation and outsourcing are encouraging growth. 

“Software vendors like Xero and MYOB and Reckon, to name a few, are developing a very sophisticated service provision,” he says. “The cloud is enabling mobility, 24/7 service, and access to the ecosystems which provide your client with services.” The labour market trend towards the gig economy and the technological environment in which this can take place – the cloud, analytics and mobility – make this the perfect opportunity for growth in vCFO offerings. 

That accessibility provided by cloud technology has been instrumental in opening up the availability of vCFO services to small and medium business circles – companies with turnover of less than A$20 million. 

Awareness has grown strongly, Thomas says. He focuses on the SME sector, carving out a niche for himself in advertising and media. “Your targets are small, growing businesses, ones that have outgrown their bookkeeper but are just getting swamped,” he says. “They need the expertise but don’t know where to go; they’re looking for a CFO but they can’t afford it.” 

The services of a vCFO

The kind of services a vCFO offers varies. That is one of the issues the Virtual CFO Association – a membership-based, not-for-profit organisation that was launched in 2016 – is seeking to address. Colin Wright, its president and a founding member, says the association says a wide variety of firms are describing themselves as virtual CFO business: “from bookkeeping businesses who provide a bit of advisory, to public practice firms who provide some advisory”. Members of the association worry that this loose terminology will confuse potential customers about what a virtual CFO will provide.

A true virtual CFO business provides a level of service equivalent to that provided by a CFO/financial controller who is a part of the client’s team, Wright says. “This means being a part of the team. It is not just about providing forecasts, reports and analyses. It is about helping the business to focus on successful strategies and managing performance through accountability.”

Love echoes this sentiment. “Some accounting firms have attempted vCFO services in a formatted, paint-by-numbers type approach which … based on business owner feedback only works for a limited time.” Many accountants simply don’t have the creative and strategic thinking – coupled with enough commercial background – necessary for the role, she adds. 

The services offered by Love to Grow have expanded over the years to involve people with skills in all areas of planning and implementing. “We have been working with advisers with commercial skillsets to help support the vCFO,” she says. “We also hire non-accountants who have prior experience as business owners and general managers.” And her firm works closely with advisers in other business fields.

Gaps in the services were a factor behind EY creating its own vCFO offering three years ago as one element in its corporate service. The vCFO co-ordinates delivery of the services – company secretarial, bookkeeping, management and board reporting, statutory financial statements, income tax, GST and FBT returns and payroll services. But they also act in a strategic financial capacity to assist clients in focusing on financial elements key to increasing Return on Equity, says Kim Stewart-Smith, Oceania Corporate Services Leader for Global Compliance and Reporting at EY.

“A virtual CFO will improve the accounting process and systems, introduce new technology where needed and governance structures.” The vCFO will also guide the CEO and the board, focusing on key performance indicators and elements essential to improve profitability and the cash conversion cycle of the business. Finally, EY’s service also assists with funding, mergers and acquisitions, business valuations and taxation advice. 

Assessing the results

The vCFO concept allows smaller organisations “to access top talent in a way that they couldn’t afford if they sought to hire someone full time,” notes Joel Barolsky, a strategy consultant to law and accounting firms. Using a vCFO from a big accounting firm, he says, makes deeper expertise and more services readily available than an in-house CFO. 

Similarly, a firm might be able to adjust the scale of its operations up and down more readily. These are quite compelling benefits, Barolsky says. Stewart-Smith says EY’s vCFO services have proved very popular with clients – “not only those in [the] start-up phase but [the] growth phase, where they are not yet able to afford a full-time CFO and finance team of the calibre that EY can deliver”.

Regular meetings with a vCFO have improved profits for Love to Grow’s clients more than any other service. “We have many examples of client profits tripling within on to three years of hiring us as their vCFO. That applies regardless of turnover,” Love says. She also notes that the vCFO services have much higher margins than other services and are the easiest to convert and sustain, so long as the client’s results improve over time. 

Becoming a vCFO

Being a vCFO can be very rewarding for a chartered accountant, says David Dillon FCA. Dillon has run Custodian Backoffice, a vCFO business that specialises in the shipping, transport and construction sectors, for the past 2½ years. His previous corporate career spanned 25 years at both public and private companies. He works with a portfolio of smaller clients, often on the clients’ premises, giving him “diversity of people, new challenges, a change of scenery and the chance to create a unique working environment”, he says.

Thomas points to the ability to specialise and develop a niche a lot more easily, and to flexibility. But he also cautions accountants not to be fooled: “It doesn’t mean you’re working these fantastic hours; you’re probably working longer hours.” 

That may translate into higher financial rewards, though. Beaton notes that the vCFO may be making “a much better living than your employed financial controller because they may be dealing with 30 clients”. 

High on the list of required skills for the would-be vCFO are communication skills. “You need to be able to influence a business owner about the work that you do,” says Boyar. You also have to be good with communication technology such as Skype, and be well-organised, Thomas says. Answers don’t come instantly and there are no quick catch-ups around the water cooler.

Boyar developed Sequel CFO into a franchising business model after recognising that while a lot of accountants in commerce are “phenomenally experienced”, they don’t know how to “get their value proposition across”. “How do they sell? How do they grow a business? How do they build a brand for themselves? How do they manage multiple clients? What are the different soft skills you need for an SME as opposed to a corporate?” Sequel CFO launched its franchising program in March 2017, and now has six franchisees in Melbourne, Brisbane and Sydney. Its training program was in the finals of this year’s Australian accounting awards.

There are no regulatory barriers to starting a vCFO business. Anyone with an ABN and BAS agent registration can offer these services, Dillon says. But he warns that it’s not for everyone. “I think [that] without the requisite expertise … it will be tough getting clients big enough to afford a vCFO, yet small enough to match your level of experience.”

That human social element cannot be substituted by software.
Dr George Beaton founder and head of Beaton Research + Consulting

What next?

George Beaton is prominent among those who warn of the threat technology poses to accountants’ revenue streams. “Xero, Intuit and MYOB are positioning to take as much as 60% of what accountants are now earning from clients,” he warns. “But there is still a very large body of advice which one human being will give to another human being,” he adds. “That human social element cannot be substituted by software.”

The really good news, he says, is that accountants, freed up from the drudgery and mundane work of compliance accounting, can provide that human element to their clients. Virtual CFO services are one way to achieve that aim. 

Helen Ozolins is Acuity’s deputy editor based in Wellington.

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