Accurate financial forecasting is crucial for small businesses, but developing and updating forecasts can be time-consuming, frustrating, and ultimately inaccurate. Precise forecasts provide the roadmap for future growth, but most small companies spin their wheels developing and maintaining forecasts. That’s why more and more are turning to virtual CFO services for forecasting.
What are the benefits of using outsourced CFO services for financial forecasting?
The biggest advantage of Fractional or Outsourced CFOs is affordability: while a full-time CFO may cost $250k per year, a Fractional CFO can develop a forecast for less than $10k. Outsourced CFOs bring other advantages including:
- Forecasting Specialization
- A Team Approach
- Broad Outside Perspective
- Unbiased and Independent Advice
1. Forecasting Specialization
Outsourced CFOs are specialists who develop and update dozens of financial forecasts each year. This high volume of work hones their skills, making them exceptionally efficient and precise. Unlike in-house teams, which handle a broad range of financial tasks and rarely see other financial models, outsourced CFOs build forecasts for a variety of businesses. This diversification leads to an expertise that is difficult for a generalist in-house controller or finance team to match.
For instance, an in-house team might update the same forecast repeatedly for years, never questioning the basic assumptions or verifying the formulas. This also limits their ability to identify business risks and contingencies.
Outsourced CFOs spend years learning the essential business forecasting methods. This makes them adept at identifying patterns, trends, and anomalies quickly. Experience translates into more accurate and reliable forecasts, providing businesses with a clearer financial outlook.
2. A Collaborative Team Approach
Budgeting and forecasting services are typically performed by a team comprising a CFO, an FP&A (Financial Planning & Analysis) manager, and/or an analyst. This collaboration creates a powerful and diverse brain-trust that enhances the forecasting process. Each member brings a unique perspective and expertise, contributing to the development of a superior model.
Team-developed forecasts are also more robust. The CFO offers strategic oversight and experience, the FP&A manager performs sensitivity analysis, and the analyst provides in-depth data scrutiny. This multi-faceted approach ensures few errors as team members review and refine each other’s work. The result is a robust, well-vetted forecast that benefits from multiple layers of expertise and scrutiny, reducing the risk of errors and increasing accuracy.
3. Broader Business Perspective
Virtual CFO services work with various businesses across different industries, providing them with a broad perspective on the business landscape. This exposure helps them distinguish between specific business performance issues and broader macroeconomic effects.
Was your recent drop in revenue due to macro-economic forces or an under-performing sales team? An outsourced CFO’s broad exposure allows them to contextualize your business’s performance within the larger market environment. Better interpretation means better decisions as you weigh the risks and rewards of different initiatives.
4. Unbiased and Independent Advice
Optimistic sales managers and entrepreneurs often put pressure on finance employees to juice the forecast and improve the outlook. Although in-house teams can be influenced by these dynamics, Fractional CFOs, outside the political sphere of management teams, bring an unbiased skepticism to balance optimism.
A fractional CFO’s impartiality hedges against over-forecasting, providing a true reflection of the business’s financial health and prospects. Unbiased forecasts are critical for making informed decisions, securing financing, and managing stakeholder expectations.
Forecasting through outsourced CFO services
For small business owners, CEOs, and executives, accurate financial forecasting is not just a necessity but a strategic advantage. By leveraging the expertise of outsourced CFOs, businesses can achieve more precise and reliable financial forecasts, paving the way for informed decision-making and sustainable growth.
If you’re looking to enhance your long-term financial planning, schedule your consultation to see if CFO services are right for your business.
This article was written by a CFOshare employee with assistance from generative AI for rhetoric, grammar, and editing. The ideas presented are a combination of the author’s expertise, original ideas, and industry best practices.
