The proliferation of small businesses/startups, coupled with digitization, has given rise to a new role for VCFOs. When business owners or CEOs delegate a portion of their financial responsibilities to a VCFO, they leverage these professionals’ proactive risk management skills. VCFOs, often the first responders in the event of an internal or cyber-attack, play a crucial role in safeguarding a company’s financial integrity. This article delves into the proactive strategies VCFOs employ to mitigate financial risks through strategic planning.
Strategic Planning
Strategic planning helps you set and work toward goals spanning years or even decades. It focuses on immediate needs and objectives. After all, long-term planning focuses on sustainability and growth over an extended period.
This type of planning emphasises consistent progress toward primary life objectives and typically calls for discipline, patience, etc.
Strategic planning is about more than preparing for predictable milestones. It is also about being ready for unforeseen events. You can retire early, afford your children’s education, and travel extensively. It can be done by saving and investing over decades. This proactive approach can give you control over your financial future.
Who is a VCFO?
A virtual CFO, with outsourced financial assistance, offers a cost-effective and efficient solution. Their expertise, often surpassing that of an in-house CFO, can significantly improve your company’s financial management systems and processes, increasing cash flow and profitability without breaking the bank.
It would help if you employed a VCFO based on your specific needs. But, all VCFOs will assist your company’s financial management systems and processes.
Role of Virtual CFO
A VCFO has a variety of duties within a firm. The essentials involve:
To entice potential investors, they work with the executive team to provide financial estimates, business plans, and investment proposals. By informing current and potential investors of the company’s financial performance, growth plans, and investment prospects, VCFOs foster confidence and trust. Financial decision support is a service. The VCFOs offer this to help organizations make decisions. They analyze scenarios to determine the effects of different strategies, analyze potential investments, and determine the financial ramifications of corporate projects. To optimize resource allocation, assess project viability, and guarantee financial viability, VCFOs work with department heads.
Solid cash flow management is essential for business operations. VCFOs monitor cash flow, examine cash inflows and outflows, etc. They also create plans to maximise working capital. After all, they ensure the business has enough liquidity to pay its financial obligations. This property manages cash reserves and makes wise investments. VCFOs are responsible for identifying business financial risks. They identify potential risks. It includes those related to regulatory compliance, market, liquidity, etc. VCFOs establish internal controls, implement risk management plans, etc. It ensures adherence to accounting rules. They also oversee insurance coverage to protect the business.
After all, VCFOs oversee the processes involved in financial reporting. They create accurate and timely revenue, balance, and cash flow statements, among other financial statements. In-depth economic analysis is another task by VCFOs to spot trends, key performance indicators (KPIs), and areas for development. They offer analyses and suggestions based on financial data to assist decision-making at all organizational levels.
Areas of Risk in a Company
A company operates in a dynamic environment. Thus, it is exposed to different risks. There are some primary parts of business risks. It involves:
1. Economic Risks
The main risk for any business is in its economy. Any mistake can lead to money loss. This is because of microeconomic or macroeconomic factors. Examples involve changes in interest rates, defaults on borrowings, penalties for non-compliance, etc.
2. Operational Risks
Operational Risks involve loss because of the company’s internal inefficiencies, mistakes, or delayed processes. Examples include loss because of default services, poor customer service, personnel incompetencies, etc.
3. IT Risks
Every company has to be technologically viable. With technology comes IT risk. For example, data breaches, hardware or software issues, virus (cyber) attacks, etc.
4. Extra Risks
Risks involve risks that might or might not solely relate to the business. It involves sudden changes in geopolitics, physical environment risks, competitor risks, etc.
How does VCFO mitigate risk?
1. Understanding of trends & challenges
VCFOs mitigate risks by having a deep and thorough understanding of trends and challenges. This understanding is gained through their extensive experience working with different businesses in various industries, making them well-informed and knowledgeable.
For instance, a VCFO might simultaneously work for a service- and product-based company. So, they can adapt their working style to the ongoing trends and challenges.
2. Identify risk
VCFOs stay prepared for expected and unexpected situations. Their wide range of experience and expertise allows them to quickly identify the risks, their potential, and the possibility of their happening.
This reassures the business and instils confidence in the management.
They mark them on crucial software applications by analysing the essential parts of risk. So they can be on their toes whenever risk arises.
3. Analysis of risk
The VCFOs then analyse the risks through some strategic exercises. It involves risk-intelligent strategy, analytical approach, use of data, etc.
They execute a thorough assessment of the depth of risk. This shows its future and present impact on the company. They also map out the upside of risks too. This helps to show their negative impact. It allows the company to have some leverage over any opportunity that might show up.
4. Mitigate risk
The VCFOs have the risk mitigation plan ready in advance. It is based on the analysis of risks. Risk Mitigation is an action according to which examined actions are taken to minimise the loss from the risk.
The VCFOs ensure clear response procedures. These procedures are laid down and followed without any delay. After all, they ensure insurance against risk losses is in place.
5. Connecting risk management and strategic planning processes
The VCFOs involve risk management strategies in the business-planning. Thus, they interlink risk management with the strategic planning task. They ensure that the business considers present and emerging risks very early.
After all, a VCFO works closely with the top administration. It is not reactive to risks. However, it is proactive in response to possible upcoming threats. This proactive approach ensures that the business is always prepared and secure.
6. Use risk analytics to inform strategic decisions & Investment
VCFOs use risk analytics to inform strategic decisions and investments. They present the information based on the anticipated results, expected risks and analytics to the top administration.
So, the risk is considered suitable from the beginning and can be handled more strategically, planned, and controlled.
A VCFO conducts risk-adjusted valuation methods, ‘what-if’ stress tests, etc. It will be done before the finalization of the decisions so that any potential risk can come to the forefront.
Winding Up Note
Strategic financial planning for VCFOs helps move companies toward prosperity. Their cooperation aids the development of startups, enabling them to surmount obstacles and emerge as formidable contenders in the industry. After all, risks are part and parcel of a business, and so should risk management. The VCFOs help the company become more resilient through their high-risk management IQ and competency. They create your company to handle any upcoming disruptions. It also enables us to turn them into opportunities.
We at Startup Fino help businesses handle their economic needs through our expert team of virtual CFOs. Our VCFOs will give insights into the numbers by establishing financial infrastructure, MIS reporting, etc. It also involves budgeting, compliance, risk management, cash flow management, etc. So that your business always remains ready to face any obstruction.
FAQs
1. How does a CFO do risk management?
The CFOs administrate and manage the risk by having a calculated risk-management strategy. It is a laid-down response procedure, a follow-up procedure. After all, a resilient plan for loss coverage from the stake, among others.
2. What is a CFO’s KPIS?
The KPIs for CFOs are cash flow records, bills payable, receivables, elyse them to measure the benchmark for best practices and legged areas.
3. How to be a good VCFO?
A perfect VCFO has expertise and a forward-looking attitude. It works as a strategic partner for the company. VCFOs have management skills, powerful decision-making skills, well-rounded understanding, etc.
4. Who is a VCFO/ Virtual CFO?
A Virtual CFO is a seasoned financial professional. The person who provides strategic insights and financial guidance to businesses. After all, the services are on a part-time or project basis.
5. How does a VCFO work?
A Virtual CFO will remotely perform all the duties of a full-time CFO. They use cloud computing. They enable automation to monitor your business’s financial situation. They also offer financial advice on business decisions.
6. Why does a CFO differ from a VCFO?
An in-house CFO works on the company’s payroll. A VCFO does everything that a company’s in-house CFO would. But it is in remote mode. A VCFO operates as a financial expert on company matters.
7. Role of financial planning in the management of risk.
Financial planning can help SMEs identify potential risks. It allows them to make informed decisions. It also protects their business from unforeseen challenges.
