Digitisation and financial analytics in a fast-paced world are transforming the traditional CFO role. The owners of SMEs now have real time access to financial information in a way that was previously only available to larger firms. They are looking for professional advice on how to use this information to plan for growth and value within their business.
A virtual CFO is a person or an accounting firm that takes on the role of CFO for a client on a contract basis. Virtual CFOs are well placed to help business owners focus on essential, long-term strategic and financial planning. They base their planning and forecasting activities around the business drivers and report performance against these drivers.
Accountants in public practice are ideally suited to provide this service through technology and a strong focus on communication. Thanks to cloud accounting systems, accountants can work largely remotely to monitor finances and advise on key business decisions. Their investment in the development of digital solutions and data analytics is affordable because it can be spread across many clients.
WE have recently completed a detailed review of 100 accounting firms currently engaged in delivering vCFO services to their clients. The results are surprising. Most firms (77%) are providing vCFO services on an ad hoc basis and are struggling to effectively leverage this service. Just 23% of firms stated that they had a formal vCFO service.
When asked what vCFO services firms provided, most focused on a combination of processing and advisory work. 87% of firms said that they provided a management and financial reporting services, even if it was ad hoc. Other services provided by at least 50% of firms were:
1. Management and Financial Reporting – 87%
2. Payroll – 79%
3. Bookkeeping – 78%
4. Budgeting – 73%
5. Management /advisory board – 61%
6. Accounts payable and receivable – 52%
7. 3-way forecasting – 50%
There were no real surprises in relation to software platforms used to deliver these services. The top 10 platforms used were:
5. Spotlight Reporting
8. Receipt Bank
These platforms largely focus on financial reporting. It’s clear that a minority of these firms are actually using dedicated reporting platforms on a consistent basis with clients. As a result, they don’t have the opportunity to develop leverage and capacity for growth.
Managing scope of work and charging an appropriate fee for service were reported as the 2 key challenges for firms. This no doubt relates to the challenges accounting firms have in communicating the value of work beyond tax compliance and difficulties in proactively managing client expectations.
Key challenges included the following verbatim (unedited) responses:
1. Having the team record time accurately and be thinking of the scope as work is completed
2. The difficulty has always been knowing what the client will need and pricing accordingly, but the price seeming too high (to the client). We have then moved to a time cost model with the ability to review after 3 months and move to a fixed fee.
3. The scope of work is always changing with management accounting. My letter of engagement is very straight forward for the compliance work. I have then added to it that i will provide additional management accounting services as directed by the board of directors. I get these additional requests minuted in the board meetings to provide accountability and authorisation
4. Can be hard to cost jobs accurately for new clients that we don’t know very well. Staff members don’t always recognise out of scope work and discuss it with the client before starting. Clients expectations can be hard to manage.
5. Scope creep is always a challenge which is why I will look to try and do all that is possible with allocated time due to my broad experience
6. The challenges in training the staff and the fee structure. The fee structure is either on standard charges or to vary the rates as to the amount of work and their turnover.
7. Challenges are making VCFO and tasks its own product away from tax compliance and being able to make clients understand the importance. Being able to structure a fee for the service
8. Client expectations and delivery, finding appropriate resource to carry out services, value added services, managing costs to provide additional support as per client requirements.
9. With numerous directors in the firm, developing a base product and price guide that they are all happy with is has been challenging.
10. For existing clients who have previously been receiving this advice on an adhoc basis convincing them to move to a more structured (and costly) service
11. Distinction between paying for transactional or bookkeeping services and expecting strategic advice as part of those lower priced services
12. That within my firm I am the only one ready to take on this next level of advisory, so want to do a great job with limited time constraints.
13. Timely Communication with clients, ensuring client is understanding reports correctly
14. Pricing is the biggest challenge because every client has different needs, so working out the scope and pricing needs to be done on a case by case basis. This is where a structured package(s) will help get the bones right and then minor tweeks to keep it relevant to the client.
15. Managing client expectations regarding what falls in and out of scope, particularly for those who are moving from inhouse support to an outsourced solution.
This feedback represents a small cross-section of responses from 100 accounting firms that are keen to develop their vCFO service offering. It’s not surprising that the transition from a data collection and processing role to a data analysis and advisory role is quite difficult for many firms. Being able to structure a service offering that can be leveraged and then to deliver the service to clients on a consistent basis remain the key challenges.
What are the options for firms looking to develop a vCFO service?
CPD for Accountants runs a self-paced eLearning course “How to set up a vCFO service – A guide for accounting and advisory firms” for managers and partners in public practice. All of the challenges identified above are addressed in this comprehensive course.
CLICK HERE for further information on the vCFO course.
Firms of Tomorrow has launched a new online action group for firms keen to develop and implement virtual CFO services. Group members will be guided through an ongoing process to engage business clients financially beyond tax and accounting.
CLICK HERE For further information on the Virtual CFO Action Group
Dale Crosby | Director | High Tech Soft Touch Pty Ltd | firstname.lastname@example.org
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