In the modern economy, companies of all sizes need to think about modeling financial concerns. This involves analyzing past and current numbers to determine how to respond to present and future issues.
People at smaller firms, startups, and even larger ones without a focus on analysis may wonder how they'll tackle the job. Fortunately, you can ask an on-call outsourced CFO to lend a hand. However, you should know what to expect when you hire an on-call CFO to assist you with financial modeling. Be aware of these four items.
You'll need to gather data for the CFO to analyze. This requires a long-term commitment to building the needed infrastructure. If you run a local retail business with stores in several neighboring counties, for example, you can collect data from inventories, purchase orders, payrolls, and sales.
An outsourced CFO can then use the data to construct a balance sheet for your business. From there, they can use algorithms to project where your operation is likely headed.
Generally, an on-call outsourced CFO won't provide a single set of projections. They'll usually project high, low, and middle scenarios.
Suppose you want to look at how supply chain issues will affect inventories in a furniture manufacturing business. You need to know how lumber inputs will drive your costs next year. The on-call CFO will want to look at scenarios where things improve or deteriorate very quickly and very slowly. You can then look for signals next year of which scenario is playing out. Acting on those signals, you can make purchasing decisions early enough to lock in prices for next year's orders.
Ultimately, the goal is to put data into a financial model so it can spit out forecasts. If you're applying for financing to cover your company's next 5 years of growth, you need to be able to provide credible forecasts to lenders. They use asset-liability models and their own forecasting tools to assess your projections. Your ability to speak their language and show your homework will be critical to convincing them you can use the financing to produce the results you project. An on-call outsourced CFO can be invaluable in bridging this gap for folks who aren't fundamentally numbers nerds.
As you move forward, you'll collect more data. More importantly, real-world results will overlap previously projected periods. An on-call CFO can help you assess how well projections performed, what might have been off-target, why, and if you need to adjust.
For more information on how an on-call outsourced CFO can help you, contact a professional near you.Share