The Inside Scoop From An Outsourced CFO

Helping to debunk the notion of needing a full-time financial leader, Dan Mead brings over a decade of financial executive-level experience to Keep’s Outsourced CFO team. Working with a wide variety of industries, including Nonprofit, Public Relations & Communications, and Healthcare, he tackles all things financial, from proactively managing the business to fine-tuning strategies for growth. We recently sat down with Dan (virtually, of course) to get the inside scoop on what it’s like to be an Outsourced CFO and the opportunities for small businesses. 

Tell us about your role as an outsourced CFO.

It’s been a rewarding experience for me. I found smaller businesses don’t always have trusted confidants or advisors in their corner to help them through situations, and many of those are financial.

The most common question that comes to me is, “Dan, I feel like our company has a good product, we make money, but I don’t understand why we don’t have more cash.” That’s usually the number one question I get, and we can take it from there. We typically make our assessment and get our numbers set in a two-to-six-month range; it just depends on the business. And then what happens is the numbers start telling a story. But there’s more than just telling you what’s on the page.

What’s the benefit of having an outsourced CFO if you already have in-house staff?

When you bring in someone like an outsourced CFO, it’s taking the numbers in the present and saying, what does that extrapolate going forward? What does this mean three to six months from now? And these are questions that small business owners often haven’t necessarily thought about or don’t know how to think about because they’re only looking at what’s right in front of them. They own the company, they’re also probably running human resources, some are doing operations, and some are doing the work of the job. They don’t have someone that they can ask the big questions like, “Why can’t I generate more cash?” Even more minor questions along the lines of, “I’m thinking about changing my employee benefits package; what does this percentage look like?” What would I do if I wanted to have a 401k match?”

A lot of times, if they ask an employee, they look at you and say, “Well, you’re the boss; aren’t you supposed to know the answers?” That’s on the smaller end, and on the bigger end, if you’re looking for things like organizational change, or you’re looking to get into a different market. These are questions you may not want to involve employees with because it affects them and their position within the company.

By being on the outsourced side, I’m giving you an unbiased opinion. I am not someone that works directly for you. I am not generating a W2 from you. I’m not getting benefits from you, so I’m giving you an opinion, and my opinion is strictly based on the view and how it’s going to change your business. It’s not in the back of my mind thinking, “How is this going to affect me?” Taking all of that off the table can lead to a little more open, honest, and refreshing conversation with the business owner about solutions based on financial ideas.

Having someone who can come in on an outsourced perspective also brings shared experiences. I’ve had many different clients over the years, and I can say I had a client like this before; it may not be the same industry, but they had a very similar situation. Let me tell you what we did and how it worked out. Working with many different clients can bring a unique perspective of how you will solve specific challenges.

What kind of questions would you ask a small businessperson to help determine if it’s time to look at an outsourced CFO?

It’s a combination of a couple of things. One of the first questions is, “What’s keeping you up at night? If you’re consistently having many of the same issues, it’s taking up a lot of your time, and you don’t necessarily have the answers. That’s when you need to think; maybe I need someone else to come in and help me figure out these problems.

For some business owners, it’s time management. They may or may not have a bookkeeper helping them, and they’re taking so much time out of their day to manage the books. Let’s be honest, when you start a company, you’re not creating a company to be a bookkeeper of your own company. It’s just a source of stress and frustration when you really want to get back to the core of what you do and grow the business. You want to be looking at more high-level things, and instead, you find yourself in the weeds and not getting the time to do it; that’s when you need someone to come in and help you from a CFO perspective.

I can help answer some of those questions, but I can also help prioritize. This is what you should be thinking about, and this is where you should be hiring. I might tell you that you need to hire a part-time bookkeeper or an HR person, and these are thresholds you should get to before you hire your next employee.

From a finance perspective, if you’re looking at the business from the standpoint of if there’s money in my account, I’ll spend it; if there’s no money in my account, I won’t spend it—then you know you’re not looking any further than the immediate. You need someone that can help you look forward, which leads to proper budgeting. If you’re saying I don’t have proper budgeting, but it’d be nice to know at what point we need to hire a new employee or at what point I need to increase prices? Or I have this idea of starting a new service, when is the right time to do it? It’s that long-term planning, forward-thinking aspect an outsourced CFO can provide.

Some business owners would say I’ve got questions that need to be answered. Do I need a business coach? Do I need to find a mentor? Or how do I know if I need a CFO, and what’s the difference?

I don’t want to generalize here, but peer mentoring organizations take a much broader perspective a lot of times. You’re with a shared group of people, and you’re saying, “Hey, I have this problem.” Some people might be able to give you some answers or ideas, but they’re not necessarily working directly with you.

Many people like to go to peer mentoring groups or business coaches. I’m not going to say there’s anything wrong with them because that very well could be what they need. There can be a lot of benefits. I know a lot of business owners who have outsourced CFOs, and they’re part of peer mentoring groups. They can cover a lot of subjects and offer activities to help move business owners along in their thinking.

How that’s different from an outsourced CFO, though, is that you’re getting someone specifically focused on you and your business needs. So, it’s not necessarily a shared experience. It’s not like you’re in a group, and you’re asking people general questions. You’re going to be talking to someone that has been doing this and can bring in experiences from other clients to tell you how it’s worked in the real world. It’s less an idea and more of how it works in practice. They’ve worked with these types of businesses and are specifically focused on what will work for your business.

In the beginning, as an outsourced CFO, there can be a lot of tactical aspects because, from a finance standpoint, I need to make sure that what I’m looking at is reliable. There have been clients that have told me, “Hey, my books are a mess. I had someone in here before, or I’ve never had anyone in here before; it’s been just me, and I don’t necessarily trust it.” As the CFO, I don’t know what I’m looking at, and I need to ensure there’s a full audit to see the numbers are correct.

When you bring those types of things to the equation, it is a little bit tactical because I need to make sure what I am judging my observations on is the real thing—the numbers are correct, and I can trust it. The tactical will fade once we get in a rhythm and trust what we’re seeing.

The way I look at it is there’s financial accounting and managerial accounting. On the financial accounting side, it’s more than numbers, an income statement, or a balance sheet; I look at it saying what it is today and past. Managerial accounting is about taking the numbers and telling you what it means today and forward. What you’re bringing in a CFO it’s to be able to look at that long term and say, “Three months, six months, nine months, this is where we need to be thinking, and this is where we need to be.” What we typically see is after a few months of the basics we start to find ways to partner on business strategy to make your business strong, more profitable and more sustainable.

Tell me about an “aha moment” you had working with a CEO.

I had a client involved with government contracting. The interesting thing about this particular client was they had a lot of startup success, but when the contract ended, so did the success. They had to reinvent the business. It was about two years into the process when I came in, and they had just received a bank loan. I looked at the numbers and realized their side projects were far more profitable than what they thought the core of the business was going to be. One side of the company was keeping the other going. So, we looked at it and said, if we just take this aspect of it in cash flow, and if we only kept this part of the business, we should be under in about six to 12 months.

My idea was to sell the part of the company that wasn’t very profitable to someone who might need it and might have the money to put into it. Well, within about two or three months, they got an inquiry from someone looking to get into the business and interested in buying. And so, we ended up selling that part of the business within about six months. We were able to take that money and reinvest it into this other part of the business that had become a very large, successful business at that point in time.

The ironic thing was the other company (a much larger entity) didn’t know what to do with it either. After about two years, they returned to us and said, this isn’t working for us, what if we just sell it back to you? So, we buy back this part of the company—there’s a little more technology, and we have more know-how. Now, they’re able to, slowly but surely, start to build into a much more profitable entity than it would have been the two years prior.

What do you think makes Keep different from other outsourced CFO services?

I’ve been involved with Keep for about three years now, and they do a great job at customizing solutions and designating people based on your needs. Maybe you need outsourced accounting, outsourced CFO consulting, or perhaps a part-time CFO or someone for an interim period while you’re looking to hire someone full-time. Where Keep excels is finding the right fit. Not only looking at the types of clients (for-profit, nonprofit, etc.) we’ve worked with, but also the type of client engagements.

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