With borrowing costs high, private equity markets remaining cool, and inflation making every single dollar count, the CFO’s cost-saving contributions to small businesses are more valuable than ever before. 

So, how does a CFO contribute to SME business performance, including productivity, cash flow and growth for small to medium enterprises?

SME Strategic Financial Performance

Small to medium business founders or CEOs are often too busy working in the business to strategically work on it. Here’s where a CFO offers SMEs with critical clarity on cash flow, profitability and balance sheets. 

The CFO will prioritise healthy competitive performance and align financial strategies with organisational goals. This includes strategic budgets and optimising resource allocations to achieve growth targets without unnecessary overheads. It may also include preparations for investment or selling part of the business.

A CFO will save the SME money with strategic financial levers such as:

• Restructuring the business or optimising operations to boost efficiencies
• Build & maintain financial budgets aligned to organisational goals
• Establish the organisational assets required to secure investment
• Review operations to improve bottom-line performance

SME Cash Flow Management & Cost Reductions

Traditional bank lending conditions for Australia’s SMEs are particularly tough. Therefore, healthy cash flow is king for SMEs.

Here, a CFO’s conscientious monitoring of budgets and cash flow drives cost savings. This includes identifying any financial bottlenecks or issues with liquidity. They’ll save SMEs money by working to improve the business's runway, avoiding expensive financing solutions.

Indeed, the CFO is an expert financial detective, capable of saving significant capital commonly lost to hidden or unnecessary costs. By reviewing SME operations with a financial lens, the CFO uncovers potentially surprising realities regarding the truly profitable areas of the business, including unprofitable customers, and why certain business areas aren’t financially sound. 

Addressing these cost factors can improve an SME’s financial performance, corporate culture, and employee engagement.

Further cost-reduction strategies that may improve business performance include:

• Margin analysis to inform pricing strategies and improve profits
• Building new financial reporting and analysis capability, improving department transparency and accountability
• Negotiating better vendor contracts or alternative suppliers
• Optimising operational processes through new software applications or workflow, including financial systems automation
• The introduction of performance management structures to improve staff productivity

Financial Risk Management, Avoiding Expensive Mistakes for SMEs

As a CEO or founder of a small business, it is often hard to see the forest for the trees. Meanwhile, a CFO’s role is to translate the current economic environment, financing conditions and competition into financial risk factors for your business.

Having a CEO assess relevant risks and develop mitigation strategies to protect business assets, ensure regulatory compliance, or preserve credit ratings improves the company’s value. It prevents expensive mistakes in the form of:

• Higher interest loans
• Loss of valuable IP
• Legal action
• Regulatory fines

Tax Planning & Optimisation

Taxes often have a significant impact on the Australian SME’s bottom line. 

With deep knowledge and experience in various organisational, financial and tax structures, the CFO saves the SME money by:

• Minimising tax liabilities
• Maximising legitimate deductions
• Ensuring compliance with tax laws
• Eliminating ‘tax bill shock’
• Avoiding expensive penalties

Strategic Scaling

If significant expansion is part of the organisational strategy, a CFO can be critical in supporting SME growth targets. 

Complex financial planning and forecasts are required to win new customers, enter new markets, or merge with another business. The CFO will provide the SME with forecasts whilst considering legal frameworks and regulations alongside budgets required to run profitable operations.

Further, startups and scale-ups will benefit from a CFO’s experience developing governance structures and financial and company data that makes the critical difference between gaining investment or not and, ultimately, a company’s valuation.  These financial and company data assets include:

• Cap Table
• Term Sheets
• Shareholder Agreements
• Market analyses

Improving Returns on Equity for SMEs

McKinsey & Company has found a CFO’s objectivity directly contributes to improved overall business performance, boosting company earnings by as much as 25% or more.

Indeed, a CFO is often known as a ‘steady pair of hands’, translating the SME founder’s lifelong passion or the CEO’s vision into a financial framework that underpins organisational health now and in the future. 

However, according to seek.com.au, Australia’s average CFO salary is currently $215,000-$235,000. Therefore, while many SMEs know the value of a CFO, they can’t find their ideal hire or afford their full-time salary.

This makes the option of a virtual CFO a practical alternative for SMEs. VCFO involvement provides SMEs direct, near and long-term cost-savings at a significantly reduced cost even on a fractional basis.

Moreover, the flexibility to bring a VCFO on for short-term projects, and to dial up or down on their time at certain points of business growth or financial year also adds to the appeal of a VCFO for SMEs. 

For more on our virtual CFO services, contact our team today at enquiry@primefinancial.com.au.