In a world where anyone with a smartphone can Skype multiple people in multiple locations globally for no cost, or a child can replicate their favourite movie character at home using a 3D printer, it is more pressing now than ever for businesses to adapt to the ever-changing demands of the market in order to remain relevant.
Accountants are not immune to this demand. Where accounting was once a profession of ‘crunching numbers’ and ‘balancing the books’, the modern equivalent is now measured on its ability to analyse, understand and devise strategy; partnering with business to drive it forward.
The Role of the vCFO
Cue the field of Virtual Chief Financial Officers (vCFO’s). vCFO’s focus on the development, review and implementation of strategies to aid value creation in any business. Everything from product costing and industry analysis to identifying KPI’s and variance analysis, are the typical tools of a vCFO. In utilising these tools, and taking an external view of the business and its operating environment, a vCFO is in an ideal position to advise management of the opportunities and partner with them to achieve the strategic directive.
The delivery of strategic insights by the vCFO should not be at the expense of traditional cost management services, rather should build on them and take them further. Evidence of this ‘building’ exercise can be found in finding the true value and financial data.
The traditional ‘number crunching’ financial data produces an earnings figure, an equity amount, and a final cash position. The extrapolation of this data, combined with activities such as operational effectiveness reviews, competitor cost structure comparison, industry analysis, pipeline development, provide management with the information needed to confidently move forward.
Achieving strategic objectives should also encompass a thorough risk management process. Both operational and financial risk should be measured periodically, reviewed regularly and addressed as needed.
Organisations typically deal with risk “post event”, this is not intentional, though we typically forget those risks that are ‘hidden’. Examples of typically hidden risks include commercial risk (such as awareness of, and allowance for, performance clauses in contracts), liquidity risk (such as the construct of payment terms and the cash effect of late payment or default), as well as Interest rate and foreign exchange risk (and the options available to protect the organisations objectives). vCFO’s provide the knowledge and insight in these areas and provide management with the tools to address the issues.
What are the benefits?
To execute such a diverse function, a vCFO needs to step outside the traditional confines and attain skills that were not previously demanded. This upskilling can be categorised into 3 areas, technical, analytical and interpersonal. The typical ‘Technical’ skills that are now required are usually found in information systems management and data manipulation. This is basically making the ‘best use’ of the data presented to an organisation. ‘Analytical’ skills are then required to produce insights, such as project evaluation and variance analysis.
By far the most unfamiliar skill now required, to the accounting fraternity at least, are interpersonal skills. Put simply, having all the information is useless if a vCFO can’t communicate and influence the relevant stakeholders. This advanced communication requirement is both written and spoken and needs to be cognisant of the social environment in which a vCFO is operating. In the modern world, timely, accurate and pertinent information is key. Good organisational management demands the effective delivery of this information by someone who will partner with the business to achieve their objectives.
A vCFO builds on the traditional cost management exercises to deliver the information needed to confidently move forward. This extrapolation combined with an awareness and management of hidden risk gives an organisation vision of the various paths ahead and preparedness for any positive or negative events that may eventuate.
About the Author
Simon has a natural ability to understand the value creation process of a business. For more than 10 years he has have worked in a wide variety of business environments, all requiring a strong and committed management accountant to provide guidance and leadership. Simon understands that all businesses generate value differently, from a small corner store to a large international Engineering and Construction Company. Simon has worked with a very large cross section of businesses across my career and has taken the time to understand what it is they do, and what makes them unique.
Simon’s ability to be forward thinking, engaging, understanding and communicative, all culminates in successful value creation.
If you have any specific questions or would like to suggest future blog topics, please do not hesitate to contact Simon on firstname.lastname@example.org.
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