A U.S. subsidiary of a global manufacturer of specialty chemicals and gases had a challenge: the CEO, who was based at the parent company and primary supplier in Germany, had been using an outside accounting firm for financial advice, but the services were inadequate and didn’t justify the cost. The CEO had established the business, enlisted a sales force, and had adequate back office support, but needed to supplement the back office with a solid finance team. The U.S. subsidiary’s accounting practices were also in disarray.
Understanding the financial workflow and the general business processes of any company is the first step toward correcting problems. A full analysis of the U.S. subsidiary’s financial statements and monthly reporting to the parent company identified several issues: overstocked inventory, slow collections, and improperly booked capital acquisitions. In addition, the company was required to pay for its inventory in euros but hadn’t been tracking their unrealized foreign exchange obligation. They were leaving a significant amount of money on the table.
Rather than undertaking the arduous task of searching for and hiring an internal CFO and finance team, the company decided to partner with a fractional CFO (also known as an outsourced CFO or virtual CFO). This person would assist with financial challenges, including finding and correcting the errors in inventory purchasing, collections, and the booking of capital acquisitions. Using a fractional CFO rather than an overseas in-house accounting team was more strategic and cost-effective, and the advice and skills offered led to improvements in generating reports, more streamlined processes, stronger budgeting, and more accurate forecasting.
The company’s fractional CFO also resolved foreign exchange issues by helping the company establish a procedure for calculating and booking this liability on a monthly basis. Fractional CFOs are highly adept at working with a company’s existing banking professionals and, in this case, established sweep accounts, cash management tools, a bank line of credit, and foreign currency hedging as solutions to mitigate the foreign exchange issue and get the subsidiary back on track.
Over time, as the comfort level of working with a fractional CFO increased, the company requested that additional services, including annual budgeting and audit support, be managed by their fractional CFO.
Since partnering with a fractional CFO, the client has time to focus on growth rather than worrying about their accounting practices – they’ve nearly doubled their gross revenues since deciding to work with a fractional CFO – and the CFO seamlessly integrates into their reporting process, using technology to access the accounting systems remotely. This significant knowledge and understanding of the company’s overall goals and financial history make the CFO a vital part of their business strategy, especially budgeting and financial planning.