16. 4 ESSENTIAL CFO Services (Part 2 of 4)

Yes. You have decided that it's time for you to start offering virtual CFO services. That's amazing. Congratulations. I'm so excited for you. But if you're anything like me now, you're probably at that point where you're wondering, what services exactly should I be offering as a virtual cfo? Welcome to part two of my four part series on all things virtual CFO services. In this episode, I'm going to cover the four core services that all virtual CFOs should be offering. Let's dive in.

In the first video of the series, I talked about the fact that the job of the virtual CFO is to do the forward looking, more strategic work with their clients. Your job is to help the business owner take their goals and their dreams and their aspirations and put a financial plan in place so that they can achieve those goals. But like I also mentioned, there's no standardized definition of kind of services a virtual CFO has to offer. There's no regulations around it. So you really get to offer whatever services you want. But after running my own firm for over six years now, I've found that there's really four essential core services that a good virtual CFO package should include. So again, you can offer some of these, all of these, none of these, it's completely up to you. But if you want to have clients that are paying you top dollar, if you want to have clients that are with you year in and year out, that you're able to help help them achieve real growth, I think that you're going to find that you've got to have these four core services in place. So the first core service that I think all virtual CFOs need to offer, you need to offer a review of the financial statements. And what I'm talking about here is going over the P and L, the balance sheet and the statement of cash flow. And more importantly, as you go through those reports, you need to be providing your perspective on what you're seeing in those reports. How. How are their gross profit margins trending? How is their cash from operations trending? How are their debt levels relative to those goals that we talked about earlier? Your job is to show the client not just what is happening, but to share with them your perspectives on the good and the bad and the ugly. You've got to talk about it all. And I would encourage you to hit on all three of those things. The good, the bad and the ugly. Let them know what they need to keep doing. Let them know what they need to stop doing. Let them know what they need to change immediately. Now, during this conversation, this is a 30,000 foot conversation. This is not the time to get into the nitty gritty financial details. For example, this isn't the time for you to talk about it. If a particular expense should be categorized as meals and entertainment or travel, that's bookkeeping work. We want to stay 30,000 foot view here. Now, it's also important to point out that while virtual CFO services are more of the forward looking services, a review of the financial statements, you're probably saying to yourself, well, that's more rear view mirror looking. And you're absolutely right. But I think that before you can get into some of the other services we're going to talk about, it's really important to have a conversation with the client to ground them on what's happened so far and where they're at so that you can better guide the conversation on what needs to happen in the future. The second service that I think all virtual CFOs should be offering is cash flow forecasting. And cash flow forecasting is really not that complex, but it's a really, really effective tool. At the core of it. All you're doing is saying, okay, how much cash do you have in the bank? Today we're going to add the cash that we is coming in, then we're going to subtract the cash that is estimated to come out and that's going to leave us with a future bank account or cash balance. And you can do this weeks into the future or years into the future. But it becomes such a powerful tool because you and your clients should use it to answer questions like, can I afford to hire this new operations person? Check the cash flow forecast. Can I afford to up my marketing budget? Check the cash flow forecast. Can I afford to pay myself more as the CEO of my own business? Check the cash flow forecast. It really should be a tool that you and your clients are using on a regular basis. The third tool that all virtual CFO services should be offering are budgets and projections. Now let me be really clear here. I'm not talking about AICPA projections. I'm talking about internal use, management use only types of projections. And this is kind of what it looks like. We're basically recreating forward looking P and L and other financial statements. We're looking to say, all right, business owner, based on what you've told me, your plans are for the upcoming quarter or months or years, this is what your financials are going to look like. Maybe on a monthly or a quarterly or an annual basis. And this is such a powerful tool because it helps business owners understand how the decisions that they're looking at making impacts profitability. And so maybe they're looking at a major new marketing initiative and they think it's going to change revenues by this much, but there's going to be some increased SG and A as a result. We put those into the projections and we say, look, if you hit your revenue goals and you stay on budget with that marketing spend, this is what your estimated profitability is going to look like. And when you combine that with the cash flow forecast, this gives the business owners a level of visibility and a level of perspective that most of them have never had before. And they're so grateful for it because it helps them to make smarter decisions. Because what most business owners are doing without a virtual CFO with the best of intentions and with the best of planning that they know how to do, they're just making decisions kind of willy nilly and they're hoping that those decisions are profitable for them. And it's because they don't have a tool or a framework like this through which to look to say, oh my gosh, even if I hit those goals, I'm still going to lose money off of this particular initiative. And so you have this ability to give them the cash flow forecast in the budgets and projections. And now they can sit down and game plan and strategize and understand timing and magnitudes of their decisions and how it's going to impact their business in the short term and in the long term. All right, the fourth and final service that I think all virtual CFOs just have to offer. You've got to help your entrepreneurs with goal setting. Now, I know this might sound silly because you're like, of course they have goals. But what I'm here to tell you, after working with and coaching hundreds of business owners, the reality is that many, if not most, multiple six figure, seven figure, even some multiple eight figure, business owners, they really struggle to put goals in place. Now they understand kind of the big things they're trying to do in their personal life, but they have a hard time translating that a lot of times into what that means for their business. And so you have this unique ability to do that, to put some legs under these big goals. Here's an example. Maybe you have a client and one of their big goals is that they want to pay off their house in the next five years. And maybe they still owe $200,000 on that house. You could say all Right. In order for you to do that, we need to increase your distributions by $200,000 over five years. You can math that out to figure out what that translates into per month, and then you can say, all right, we need to increase your distributions by X amount per month. And in order to do that, what do we do next? Well, let's work backwards through the P and L to figure out how we can increase profitability by that much. And so you can do backwards math and say, all right, based on what I know about their margins and what I know about their products, we could say you need to increase your revenues by, I'll make up a number, $30,000 a month. And you need to maintain a gross profit percentage of 62%. And you need to maintain or increase your net profit margins to 23%. And that will give you 20 the extra cash that you need in order to increase your distributions and pay that home off in the next five years. And you really just start to lay out this month by month plan where you keep them laser focused on, like one thing in their financials so that it will work to maintain those margins or increase those margins or increase their revenue so that they can see the extra distributions and pay off their home. And when you become that person on their team that's helping them understand how to achieve their goals and you're putting those plans in place and you're helping hold them accountable, you become invaluable. Because like I've said before, there's nobody else on their team and there's certainly no other vendors on their team that are helping them put plans in place like that, both strategic and tactical, so that they can see a clear path to their financial goals. So once again, every single virtual cfo, I think you gotta have these in your arsenal. You've gotta be able to review financials and include your perspective on the good, the bad and the ugly. You gotta help them understand their cash flows. You've got to help them understand their projections, that estimated future profitability. And you've got to get really good at helping them take their goals and put plans in place to achieve those goals. Next week, we're going into the third part of the series. I'm going to give you some kind of behind the scenes good and bad and the ugly, the pros and the cons of offering virtual CFO services. You might find that it's not all glitz and glamour like you think it is, but we're going to go into the details on what's good and what's bad you and help you determine if the virtual CFO world is right for you. In the meantime, if you found this video helpful, please smash the like button below or share it with a friend. See you next week.