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The landscape of financial services is changing. Developments in technology are allowing us to obtain services that were previously expensive at more affordable prices.
Accounting services have undergone a massive digital transformation over the past decade thanks to cloud computing. You no longer have to see your accountant in person to get things done. Another recent innovation in financial services is the transformation into digital CFOs which uses data analytics to track and analyse financial performance.
That’s right, you can now become your own ‘Digital CFO’
A traditional CFO is responsible for the financial oversight of the business. A CFO differs from an accountant in terms of their job scope. An accountant manages the day to day transactions, generates financial reports and ensures a business is compliant with tax regulations. A CFO focuses on the availability of finance, the short-term and long-term cash needs of the business and helping the business owner set and track financial goals.
Simply put - An accountant will tell you how much profit you are making. A CFO will tell you what you need to do to increase your profits.
A digital CFO provides all the same services and insights without the need to hire a CFO.
Well, for starters, being able to visualise your financial performance is a great way to tell how well you are doing at a glance.
Here’s an example of how you’d make use of CFO style knowledge in your business:
That’s exactly when you need CFO style financial analysis!
You’ll need:
The average annual salary for a CFO in the United States is just under $400,000. That might make sense if you’re a $200 million dollar company looking for a CFO to help manage the finances of your company. How can you hire a CFO when you’re a small business or still in the startup stages? You don’t have access to that kind of capital yet but you need the financial expertise of a CFO.
That’s when you harness the power of cloud based financial analysis software!
As business founders and entrepreneurs, it’s all about staying up to date with the market and improving your product or service to fill a gap in the market. Financial services are just the same and have seen a digital transformation in recent years. Now, there are tools that help leverage data and turn them into strategic insights using financial modelling and forecasting presented in an accurate, efficient and easy to understand way that can guide better business decisions in a timely manner.
This doesn’t only improve the day to day operations but it provides insights into long term strategic planning that is necessary when it comes to scaling a business. A digital CFO can provide the relevant information to help founders make the best decisions at the right time.
Running a business is tough. You’ve got to juggle client commitments, staff responsibilities and your own workload all at the same time. It’s hard to keep those plates spinning. As a small business owner, your main focus would be on the operations side but according to a study conducted by the US bank- 82% of small businesses fail due to poor cash flow management. You may not always have time to look at the finances or maybe you just don’t want to but understanding your financial position is a fundamental skill every founder must have.
The key is to keep it simple. Use digital CFO software to generate a short-term cash flow forecast for you!
Think of your business like an aeroplane.
For an aeroplane to take off, it needs a runway. The bigger the aeroplane, the longer the runway it needs to build up enough speed and momentum for take-off.
In business terms, your ‘runway’ is not tarmac. It’s cash. The more cash you have, the longer runway you have to take-off. Bigger ideas need longer cash runways. If you are a tech start-up, this will be very important to you.
Using digital CFO software, you can work out what your forecasted expenses are. This includes current operating expenses and additional must-have things like:
It doesn’t matter if you are a tech startup or a regular small business. Funding is a crucial part of getting your business ideas off the ground. Funders can range from banks, to government bodies and venture capitalists. They are all looking for the same thing:
Maintaining good financial records and summarising them in an easy to understand format is good practice. It shows that you are committed to running your business. More importantly, it shows your business performance.
Broadly speaking, having 12 months worth of financial data is a good place to start. Very few (if any) start-ups receive funding on the basis of a ‘Killer Idea’ alone. You need various financial models and forecasts to back your claims and to show your business can grow and make a return from this funding.
Using your short term forecasts and cash runway you can calculate how much funding you need. This gives potential funders clarity on what exactly you need to run the business.
It’s not good enough to say ‘I need about $1,000,000 to start’. You need to justify the funding amount. You also need to have contingency plans available should you not meet that funding target. This is why financial modelling and forecasting is so important.
This one is subjective. You can forecast demand and sales growth all you like. You can forecast a return on investment for your investors. Ultimately, it boils down to how clearly you communicate your ideas. In that respect, having a well developed set of financial models and forecasts goes a long way in building investor confidence.
If you are looking to borrow from a bank, having good finances will give them a strong assurance. Your business will be able to pay off the loan that you take from them.
Financial systems are important! Especially if you are a startup!
