With more and more businesses going online, is there really a need for a finance officer on your payroll? It's a question a handful of outfits has asked and answered before launching the services of a Chief Financial Officer (CFO) that assists companies remotely -- at a cost that is more than 75 per cent lower.
Thanks to CFO-turned entrepreneurs who started ventures such as CFO Bridge and ixCFO, small and medium enterprises no longer have to lure finance officers with juicy pay packets. These companies offer shared CFO services to companies on a project-to-project or even annual basis.
Asked about the rationale of offering virtual and shared CFO services, Sanjay Gaggar, founder partner and CEO of ixCFO, says, "SMEs are evolving in India and the second generation in family-owned businesses is looking for a professional structure. Existing CFOs too are looking for help. The expanding services sector too has created a need for the shared CFO model."
Accessing A Talent Pool
CFO service providers assist SMEs and other companies with book-keeping, MIS, analytics, business planning, fund-raising, taxation, risk-management readiness checks and other regulatory compliances.
"There are many MSMEs who need financial assistance but are unable to afford a full-time CFO. There are some who have financial talent but they need to groom them. Our services are meant to bridge this gap," explains Srinivasan V Swamy, who founded CFO Bridge in July 2012. "All an SME needs to do is hire a CFO on a consultative retainer basis. The hiring company is basically accessing a talent pool without any commitments. It's like an employment contract on a flexible basis."
At present, CFO Bridge is assisting companies such as Suryoday Micro Finance, OEC Records Management, a substantial life insurance player, an e-commerce entity, CA Coaching Institute, Gama Entertainment Systems, a healthcare firm and a manpower resource firm, apart from an HNI investor.
Gaggar of ixCFO adds, "After six months of feedback and experience, we decided to stick to three major service areas -- virtual CFO, transactions process and control, and financial health management, where we look at inorganic and organic business growth requirements."
ixCFO caters to the trading, manufacturing and services sector with MNCs, family businesses, first-generation entrepreneurs and domestic corporates, both SMEs and large organisations. "We launched in October 2010 and have about 30 clients across metros and in Tier I cities who use our Virtual CFO services," reveals Gaggar.
Isn't A Chartered Accountant Enough?
Many small companies hire the services of a chartered accountant for their finance and tax work. So, why hire a virtual CFO? "A CA doesn't have a larger role to play in the company's finance functions with respect to financial structuring or day-to-day business operations. A CFO, on the other hand, takes a call on what kind of collection practice should be used to meet the financial cycle, and working capital management. Also, in the present currency scenario, a CFO could decide on forex hedging techniques that can be used for risk mitigation," explains Gaggar.
Sharing instances where companies have benefited from their services, Gaggar reasons, "A CFO can also concentrate on the average collection cycle. For instance, one of our clients has reduced their outstanding payments, leading to better working cycle management. Now, the company is making use of internal information in reducing dues, rather than relying on outside funds for business."
Some companies hire a financial consultant to assist them, but Gaggar points out that a financial consultant is usually hired only during the cycle when funding is required. Swamy adds, "With the service like ours, you do not need to deal with multiple practitioners and worry about accountability or delivery losing priority in the multiple handshake process."
There are various types of shared CFO services on offer and clients can pick and choose the nature of engagement with them. So, for instance, an SME need not hire these services on a full-time basis, but can source them on a project basis or even to assist their existing financial team.
But just how much does it cost? "Since we deliver the services as a team comprising a CFO, CA and an MBA, we charge a blended rate. After estimating the time requirement, typically, the blended time requirement works out to 2-4 days," reveals Swamy.
But back-of-the-envelope calculations suggest that a shared CFO would cost between Rs 25,000 and Rs 3 lakh a month. "Charges are based on complexities and time involvement, apart from the partner resources and experienced professional requirements," explains Gaggar.
Of course, add-ons cost more. So, for fund-raising and service mandates outside the purview of the shared CFO contract, ixCFO charges a fee on a percentage basis of the transaction value.
Just How Cost-Effective Is It?
Industry experts point out that hiring a full-time CFO and his team would cost a company Rs 1 crore a year, whereas a shared CFO service would cost roughly Rs 12 lakh a year. Swamy reveals, "Typical billing to an SME is approximately 1/8th of the cost of hiring a full-time CFO."
Putting to rest concerns of confidentiality, Swamy says CFO service providers follow a strict non-disclosure agreement model. "Our confidentiality lasts years after an agreement is terminated. We have similar, back-to-back confidentiality agreements with our employees or consultants," says Swamy, who does not accept multiple assignments in the same sector.
There's one last concern: Since a company's CFO is entrusted with minute financial details of a company, would it be comfortable sharing these details with an outsider? Remarks Swamy, "If you consult a doctor and hesitate to share details of your health, aren't you risking your health."
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