Navigating complexity through an outsourced CFO model

Rebecca Archer
Welcome to Navigating the New Normal – Grant Thornton’s podcast exploring trends in business and the marketplace.

I’m Rebecca Archer and today I am joined by National Managing Partner – Consulting & Private Business Tax and Advisory, Michael Pittendrigh, and Partner and National Head of Technology, Media & Telecommunications, Jace Gawne-Buckland.

Today we’re discussing what businesses can do to leverage external advice through an Outsourced CFO model, and what industries work best with this type of advice.

So, with the current economic climate and innovation moving faster in certain industries, is it time to rethink the traditional finance function model and engage with more outsourced services?

Welcome Michael & Jace!

Michael Pittendrigh
Thank you, Rebecca.

Jace Gawne-Buckland 
Thank you, Rebecca.

Rebecca Archer
Let's start with the basics – what exactly is an Outsourced CFO?

Jace Gawne-Buckland
Yeah, thanks Rebecca. I guess I get asked this question quite a lot, and it's really important to explore the definition and the concepts of an Outsourced CFO service, as I think that there's sometimes confusion as to what it is and how it differs from other services in the market, like Virtual CFO or Virtual Bookkeeping.

Basically, an Outsourced CFO is a professional or a team of professionals, as it is in our case, that delivers the services of an in-house CFO, or delivers the services that an in-house CFO would usually have responsibility over. This includes services such as strategic services, so assisting the CEO or the COO or the owners of a business in the strategic planning and coming at that from a financial perspective; performance reporting and financial analysis, so that includes detailed financial variance analysis, KPI tracking, benchmarking that sort of performance reporting; three way financial forecasting and modeling, having control over the quality of the internal management accounts and ensuring accuracy and timeliness; and then project managing such services as compliance requirements, capital raise projects, cash flow improvement, M&A strategies, and those sort of services, but being a project manager internally.

So, as you can see, a full Outsourced CFO service, it encompasses nearly everything that a business's finance function, internal finance function or department would include, and can be accessed either in full or in a ‘pick and choose’ model. So, the in full outsourced finance function obviously works really well for quick scaling, dynamic businesses and international businesses looking to establish a presence in Australia, whereas the more bespoke service looks to fill the gaps in a finance team or provide additional expertise to an overloaded in-house CFO or financial controller.

Now, as I said, it's important to distinguish the service from some of the other services we see in the market, especially where you hear the term Virtual CFO. So, we've been very deliberate in using the term Outsourced CFO as opposed to virtual as we can, and in most cases actually prefer to deliver our service face to face and be there as a true part of the business.

Additionally, we see a lot of firms in the market as well offering a Virtual CFO service, but when you dig a little deeper, it's actually really just virtual bookkeeping. Obviously, the duties of a CFO are significantly wider and more technical than completing the bookkeeping requirement of a business, and so that CFO term is very important.

And so I'll give you an example – a couple of years ago, I was approached by the two owners of a scaling technology consulting business initially to assist with simply their accounting and their tax requirements – their compliance requirements. There was a number of things happening within that business, and they were scaling pretty quickly. We ended up engaging them in more of an Outsourced CFO manner, and we assisted them in cleaning and organising their management accounts, refining their growth plans and their strategic ambitions, focusing on the right performance reporting and KPIs, and pairing that to their strategic plan. We identified and assisted with areas of improvement in their timetables for delivery and ensured all tax compliance, and then, as is often the case, we then assisted the owners in interviewing and appointing an in-house CFO.

And so, you can see that we sort of acted as a CFO for a temporary period of time and then helped them bring in a CFO. Then we assisted the owners and that CFO in preparing for a due diligence process, and then we assisted them in a successful trade sale as well.

So, you can see that although we're not part of the internal finance team, we play a major role in assisting owners and leaders of businesses in achieving some pretty amazing improvements and lofty strategic goals.

Rebecca Archer
Why would you say that there is a need for this model now? Or perhaps has there always been a need?

Michael Pittendrigh
I might answer that one there, and Jace covered a lot of territory there. But look, I think the need's always been there. I think business is complex and I think, as Jace just alluded to, there are many functions within a finance role or requirement that a business needs to cover. You're asking one person, in many instances, to do all of those things, and that of itself is very challenging. I think where it has become more of interest and heightened for people at the moment, is simply there's a couple of things that have changed or are changing in our world – and one of those is complexity. The world is just getting more and more complex, particularly around governance, regulation, and changes to law, which are just making things more challenging for the internal financial person to get across everything. How do you get across all the complexity of tax law, through superannuation, through changes in reporting, that are required for financial statement preparation?

So, there's no doubt complexity is increasing – with that comes challenge. How do you find the right one person who can do all those sorts of things? And so that's one of the things we're finding in the marketplace at the moment. How do you find the perfect person who can do everything? And we know that's not possible, so we think a teamed approach certainly helps. Other thing too is – being nimble is important to business, and I think again with change in technology and we're seeing lots of AI coming to fore and change in products and other, again, businesses have to move fast, they have to be quick, they need to be nimble. And again, having one person locked who's thinking about these things and have to resolve those things can be a little challenging.

So, bringing a team approach to it allows you to move relatively quickly, allows you to create a solution that works for the business and gives them some ability to tackle that complexity and that growth that they're looking for.

Rebecca Archer
What about current economic conditions? Do they have an impact on what businesses are seeking? Are they seeking to outsource financial services or is it the actual opposite?

Michael Pittendrigh
Yeah, I think we're seeing some increased activity. I think it comes back to this uncertainty, not just change in regulation, but uncertainty about business climate, what's going to happen? And we certainly have a number of organisations who've reached out to us in some industries that are going through more of a focus on cost, are reaching out to say, is there another way we can do this?

And so, there's no doubt that economic conditions are having impact of can we do things differently? Can we change our own cost structure? Can we bring skills or resources to help us to fight against economic change or downturn? How can we actually look at things in a very different way? And I think what happens with change in economic circumstance, people do step back, business owners step back and think I just can't keep doing what I've always done, what can I do that's different?

And so, this is an opportunity to say well, do you need to do something about your finance function? Can you do something to actually improve it, to navigate through challenging times, if that's where we're headed.

Jace Gawne-Buckland
Yeah, I think there's some really important things here as well. Accessing the resources and the experience and the expertise of a full-service firm at the price or sometimes even cheaper than employing people in house is something that's really attractive to those sort of scaling businesses in this current economic climate.

I think that pairing together the duties of a CFO, but with the resources of a full-service accounting firm, it creates some real efficiencies for businesses, and it sort of lightens the considerable load already of a CEO or the owners of a business. Having one team sit across both the internal and the external financial requirements for a business is really attractive, and it really eliminates single person risk in an organisation.

I was talking to a client the other day that said that one of the reasons why they utilise us is because they're worried that if they had someone internally, and with the market at the moment around attracting and retaining talented people, is that if one person left the organisation internally, they'd lose so much IP and knowledge that went with that person, and having an outsourced function sort of reduces that risk considerably.

Rebecca Archer
What can you tell me about the kinds of industries that are perhaps best suited for an Outsourced CFO model?

Michael Pittendrigh
I think any industry really can use this and the conversation we had around complexity and one person risk and all those sorts of things, it applies to all industries. Look, I think from my own experience, what I have seen though, there's more the activity or the change in business that triggers to look at a Virtual CFO or an Outsourced CFO, so things could be the whole scale up style operation. You have an organisation who's wanting to scale from startup through to investment and other, and you see that happen in sort of technology businesses and media type companies – you see a lot of that sort of scale up activity. So that works really well in that area where you're not ready to go and commit to a heavy resource internally, but you do need to access great capability. So how do you turn the tap on and off so to speak? Scale up works really well.

I think organisations that are very cost conscious and I know in this environment at the moment, the manufacturing and retail clients we deal with are very conscious about how do they continue to drive their margin or deliver cost down projects. Again, if they're looking through that, is this the time to actually explore? Do we run our finance function in a different way?

Complexity – again, we've spoken about that before a few times, but complexity. Any organization that is going through challenge or change and one that comes to mind we've done a bit of work with, is a professional services firm who's going through their own conversation about well, how do they attract clients or do things differently? And again, we've been able to give them some insights to the way we can help them with the whole reporting structure and function.

The other classic one is expansion. If any organisation is looking to expand, we see a lot of inbound foreign subsidiaries, organisations from overseas who will be setting Australia as either a base or a platform into Asia. We find that is a really great service where we can step in, they can rely on a reputable firm to be able to deliver finance function from the other side of the world, and so we find it very effective for that type of organisation. Also – on expansion – anyone that is really looking this scale piece of I can't get one person to do everything, how do I actually add different people with different skill sets to it to be able to create a better solution?

So don't think it's industry specific but hopefully I can give you a bit of insight of some of those that are responding to the different needs of a changing world and how they can accommodate and work with an outsourced solution.

Jace Gawne-Buckland
Yeah, I agree Mike, and I think that it's very much, as you said, more type of business than industry or position of a business than industry, and you can imagine that there are businesses that sit across many different industries that need the same sort of services from time to time.

So as an example, high growth manufacturing business or retail business – they're going to need assistance in pricing products and a capable finance function that allows leaders or owners to make timely decisions and measure performance. The ability to forecast the financials into the future and align that to strategy, engage with corporate finance experts in capital raising or trade sale preparation, engage with an expert in employee remuneration structures and implementation of employee share schemes, expertise in accessing government grants or tax concessions or structuring or restructuring or expanding to international markets.

So it is very much the type of business or the situation that the business is in rather than industry, but I must say that one industry we do see a lot of interest from, and one that's close to my heart is the technology, media and telecommunications industry, and that's just given the generally high growth and dynamic nature of businesses in that space.

Rebecca Archer
And Jace, what broader trends are we seeing in the technology sector right now?

Jace Gawne-Buckland
Well, there's so many I could talk about this for hours. Digital transformation and adoption is a big one. So, this is a key focus point for businesses in every industry and this can revolutionise or evolve a business to the next level, but it also requires careful planning and risk protection and financial management. So artificial intelligence and the use of artificial intelligence in a business is a good example of this.

Digital innovation – so in a lot of industries, technological innovation is producing a competitive advantage for businesses. In some industries, it's actually just a requirement to survive. So digital automation is a good example of that. Cybersecurity is a red-hot topic at the moment, and so appropriate monitoring and protection mechanisms are a must in the current landscape, and we're hearing more and more stories of data breach and theft in organisations that store important customer data such as insurance firms and law firms and telecommunications organisations.

And then some key challenges facing businesses in the technology industry are, as I said before, attracting and retaining talent. That's a competitive landscape for good people in this space. And then raising capital and funding growth is a big one. We all know the valuation challenges that have been in the media quite a lot for tech businesses over the last 18 months and specifically sort of after the major period of COVID and the lockdowns.

And so, as you can imagine, all of these trends in the tech industry have an effect on the finance function. And so, the finance function of a business and specifically the CFO of a business, they're critical in the adoption or defense of these trends. And so, if you think about it, financial management is a big one here. Funding any project and then monitoring the costs relating to that project. Digital Transformation innovation adoption can be really expensive undertakings and if they're not done correctly, large write offs can hurt a business's cash flow.

So, planning and controlling the funding of these projects is a key requirement of a good finance function. Strategic planning – so, the ability of the business to fund any strategic objectives around these trends is a key consideration. Accessing funding – so that includes debt equity and government grants. A CFO and a finance team needs to be able to identify debt funders and projects and position the business to obtain that funding, or seek capital investment in the business, or identify and apply for the appropriate government grants.

As I said before, remuneration packages to attract and retain the talented people in the industry and optimise those remuneration structures and incentive programs like employee share schemes or share option schemes. And then just accessing and applying the appropriate tax concessions such as small business entity concessions, asset write off concessions, technology investment boost – that was up until 30 June 2023 – the patent box regime, accessing the R&D tax incentive.

So, you can see that the finance function CFO are really, really vital in making sure that you either adopt or defend against those trends in the tech space.

Rebecca Archer
Should businesses that are operating in the tech sector have anything on their radar when it comes to perhaps triggering the need for an Outsourced CFO?

Michael Pittendrigh
I was going to tackle that one more broadly around that whole trigger space. I think change is one of those things that is a trigger for either looking or starting to think, and change is either something that's done to you or it's something you're going to introduce yourself.

And so, we'd say with all organisations as part of driving better performance, better outcomes, it's important to look at all aspects of anything from your strategic plan all the way through your operations, looking at your whole finance function to determine are you getting the very best out of what you need, and is it really supporting where you want to go as a business is really critical. And so, I would say for all organisations that are looking to grow or change or expand or do other, is to really have that on their radar, to say, are we getting the very best of our finance function? Are we getting all the proactive support and guidance that we actually need to make right decisions, right time, and to be able to act and respond accordingly?

And so, I think it's a necessary thing for business to be exploring all aspects of their business, turning over every stone or rock, so to speak, to look under it, to say, hey, are we doing things the best way? But clearly, it's about business change, but it's also about personal change, and it's very hard to lock people into roles for the longer term, and particularly these days, I think we see a lot more movement, a lot more change.

And so, it is important for organisations to keep an eye on, well, what happens if we lose a key person out of our business? If we can't access somebody else who could replace them quickly, what do we do? And so how do we continue to drive the objectives that we've set for our business? How do we continue to grow and build etc? How do you do that if all of a sudden, you've lost a key person?

And so, we'd highly recommend to all organisations is make it as part of your plan and your review of your business, where are you going? What do you need to do to support, to grow and to strengthen what you're doing? And have you covered all bases in case something unforeseen happens?

And so, I really encourage business in the technology space as much as other to keep their eye on, are they getting the best outcome from their finance function to support the growth of where they're headed?

Rebecca Archer
Now, I wonder if you think that the Outsourced CFO model lends itself to accountants perhaps moving away from compliance work into a more advisory space?

Michael Pittendrigh
Look, I think they work together. I mean, that whole compliance space that we do is such a necessary thing, and look, it's actually the thing that clients value highly because it creates the trust and the protection they need from regulators and others. So, we create a very much a support function for them that's built on trust and relationship – so, it's a necessary.

What we say that see though is that clients do want advisory services. They enter business with great objectives of where they want to be within a time frame – we want to grow, we want to reshape, we want to build. They need support and we can offer that support through our advisory offering. So, it does require both.

I guess what we're suggesting is it's very hard to find one person who can do both. So, it does require the different skills to be able to bring them all together, and we've stepped through a number of those today. But how do you access and bring all these different people together in a way that they act as one seamless team who work with the internal team to create one solution – and that's the key to it all. How do you bring it together as one team to support a client?

And so, I think it's really important that, yes, accountants do – some love the advisory space, some love the compliance space. It's important to bring them all together to make sure that they're creating the end-to-end solution that supports business.

Jace Gawne-Buckland
I agree, Mike. My firm belief is that you can't provide experienced holistic advice unless you can incorporate the appropriate considerations around compliance and then also lived experience and experience of your own clients or your own business or your own journey. A truly valuable advisor is one that has expertise in compliance, as most decisions will need to consider compliance in some respect, but then also has the right experience and asks the right questions and focuses on the right things for your business.

Rebecca Archer
Now I'm wondering, is there potential, given we've talked about an Outsourced CFO model, for then outsourcing roles like the CMO, the CTO, the COO of a business, do you think that's going to be more prevalent as the business world continues to become more complex?

Michael Pittendrigh
I think if you look at it from across all businesses and all needs, if you cast your mind back, I think historically we used to always have one relationship. You had one banker, you had one finance person – you kind of trusted one person. I think, as we said, with complexity and everything else that's happening in the speed of change and particularly around technology and other things are moving so quickly that I do think you need to access all the capability you can get your hands on, but you just can't afford to put it all on internally – it’s just not viable for many organisations.

So, absolutely, I think all of the functions that you've mentioned there do need to be bought in a piecemeal way, in a way that makes sense to the organization, and clearly not all of them will need that deep sort of capability, but some will. And so, I think all services need to be considered into how do you access them in a more effective way to get the bits you really need that add to what you're trying to achieve as a business. So, I think they're all scalable and I think they should all be looked at in an outsourced capacity.

Rebecca Archer
Now I'm wondering, is there anything else that either of you would like to cover that we haven't perhaps touched on in too much detail so far?

Jace Gawne-Buckland
One question I often get asked is what to look for in an Outsourced CFO when you're looking to engage an Outsourced CFO? So, the question usually is, if I was engaging an Outsourced CFO, what would I be looking for?

In the first instance, it's a person or a team that you get along with. You're going to be working very closely with your Outsourced CFO and therefore you need to have a good and trusting relationship. Secondly, I think that it's useful to have a firm behind the person or team that offers the resources and scalability of services that your business requires. So, each business is different and has its own complexities. Your Outsourced CFO should be able to understand these complexities and have the ability to not only assist with them at that time, but then also scale its offering with your business. So, whether that's into more technical areas of analysis or international expansion. Choosing the right person or firm that can scale with you is really important.

A person that I guess asks the right questions in those initial conversations, you'll get a feel for whether the person is knowledgeable in your particular business or industry.Those knowledgeable sort of questions that focus on what your business does – the revenue model, the customers, the growth strategy, even your personal objectives and your personal requirements – asking the right questions is a sign of, I guess, experience and expertise. And then one added bonus, I think, is an expertise in, or the ability to access expertise in your specific industry.

So, for example, I'm in the Technology and the Media and Telecommunications Industry Group at Grant Thornton, but if I was to engage with a manufacturing business, I would lean heavily on the expertise of someone in our manufacturing group and use the IP that we produce to really make sure that I'm focused on the right area for that manufacturing business.

And so, I think that if you sort of keep those things in mind when you have your initial discussions or you're looking for your Outsourced CFO, you're going to be able to find the right person or team. Very good.

Michael Pittendrigh
The only thing I would add to that is just even looking at the solution for a business – it's tailored, it's really looking at what their needs are, and then when you overlay the pricing with that, we often find that it's not a more expensive exercise for clients because they're really just accessing what they need at the right time.

So, it's very much about a tailored solution for a business to see what their needs are and accessing, as Jace mentioned, expertise that they may not be able to access any other way – either people, but also technology. When it's done in an outsourced fashion by an outsourced provider like ourselves, we have economies or efficiencies that we get from actually be able to provide the technology across multiple. So, it's a solution worth looking at from a service delivery, but a value creation perspective as well. So, it's something businesses need to explore.

Rebecca Archer
Michael and Jace, you've provided such invaluable insights today. Thank you very much for your time. If people are wanting to get in touch with you who are listening today, and they're interested in hearing more about what it is specifically that you do and how you could possibly even help them, how should they find you?

Michael Pittendrigh
Certainly, on the Grant Thornton website, within our private business offering, we'd love to connect through. So, we've got a number of partners and people across our organisation who specialise in providing this service, and so, we can support businesses across the country and even introductions through Global as well through our networks.

Certainly, we are accessed through LinkedIn as well as our website. So, we'd love to make contact with anybody who would love a conversation simply to understand where they're at and for us to be able to explain how we could potentially tailor something that suits their needs and helps them with their business objectives.

Rebecca Archer
If you liked this podcast and would like to hear more, you can find and subscribe to Grant Thornton Australia on Apple Podcasts or Spotify.