BusinessFocus
Switching on to the benefits of virtual FDs
Once a role rooted firmly in the boardroom, today’s finance directors don’t necessarily need an office or even a permanent desk, as Richard Crump finds out
Alasdair McGill FMAAT is managing director of Ashton McGill
Enabled by advances in cloud accounting and a shift to remote working, many businesses are turning to virtual finance directors.
A virtual FD, also known as a fractional chief financial officer, offers businesses strategic guidance on a flexible, outsourced basis without the need of a full-time salary on the payroll.
Unlike a bookkeeper or compliance accountant, the virtual FD focuses on the big picture: long-term planning, cash flow forecasting, funding strategy, risk management and board-level reporting.
Alasdair McGill FMAAT is managing director of Ashton McGill, an accountancy firm that provides such services to several businesses, including Dundee Football Club [see box]. However, he says very few clients are “sitting googling ‘fractional CFO’ or ‘virtual FD’”.
“Clients don’t really use those labels,” says McGill. “They just know they need more help from us, and they want somebody’s skill and expertise.”
Who uses virtual FDs
Virtual FDs are most used by small to medium-sized enterprises that have outgrown basic accounting support but are not yet ready to hire a full-time FD, such as owner-managed businesses, fast-growing start-ups and private equity-backed companies.
Greg Eaton, managing director at iFD, which provides businesses with fractional and part-time FDs, says the model is particularly valuable for scaling businesses and those undergoing transformation, raising finance or preparing for a sale.
“These organisations often need the insight and experience of a senior finance leader but do not require, or cannot justify, a full-time hire,” Eaton says.
He notes that the services are particularly beneficial for businesses that have raised initial funds to optimise their operations and are seeking additional capital to expand before eventually exiting.
“This is something we have done many times for venture capital-backed tech businesses that were not quite ready for investment,” he adds. “They needed help getting the information in place and someone who can talk to investors, understands the pitfalls and knows the investment terms that might come up.”
Bobby Lane, CEO of multi-disciplinary outsourcing firm Factotum
Flexible friend
Businesses choose to hire a virtual FD over a permanent one primarily for cost efficiency. With a virtual FD, companies can access high-level financial expertise without the salary, benefits or overheads of a permanent role.
A key attraction for businesses is that the model offers the flexibility to scale support up or down as needed, ideal for businesses that do not yet require a full-time FD but still need to professionalise their finance function.
“You get a super-skilled, super-experienced finance professional but at a fraction of the cost of having a CFO in-house,” says Alysha Randall, a fractional CFO and founder of Fast Growth Consulting.
“You are getting that skill and advice into your team, especially with these early-stage start-ups where there is no leadership team.”
Virtual FDs also give businesses the ability to focus their employment budget on hiring people that are going to be generating revenue and facing clients.
“A lot of businesses are trying to build that flexibility into their back office and overhead budget,” says Bobby Lane, CEO of multi-disciplinary outsourcing firm Factotum. “What Covid taught us is that an Armageddon scenario could actually happen when your business can get switched off overnight.”
Popularity
The concept is growing in popularity as cost-conscious businesses, rocked by the economic shocks of Brexit, the Covid-19 pandemic and now tariffs, have turned to virtual FDs while becoming increasingly comfortable with remote working.
People got used to not having their accountant and HR and marketing department sitting next to them during Covid and their businesses didn’t fall over,” Lane says.
Technology, too, has become an enabler to allow businesses to automate some of the processing elements and preparation of management accounts and credit control in certain areas that may have needed a more senior person to take control of.
This, says Lane, has allowed businesses to cut back on that full-time demand for an FD or CFO.
“Early-stage, fast-growth businesses don’t need a full-time FD to do everything,” Lane says. “They can use technology to do the processing, split the financial admin process with the strategic role and use that virtual FD for the strategic work they need.”
Opportunity
For accountancy firms and qualified professionals, this shift presents a growing opportunity to move up the value chain, providing not just compliance services but commercial insight and board-level advice.
McGill is focused on the advisory side of the accountancy profession and delivers performance reporting on a quarterly or monthly basis, which he says serves as a “baseline” service.
He describes the firm’s offering as a pyramid, with most clients on a quarterly rhythm, a smaller number on a monthly rhythm and the “peak of the pyramid” where they require more support.
“That is the pathway in for a client and then, as they grow, we grow with them and the services we provide to them grow to include additional advisory services and the provision of more time and support,” he says.
According to McGill, the peak of that pyramid is only a dozen clients out of its base of roughly 250. “There is only so much you can do,” he adds.
Capacity
One of the biggest challenges for a virtual FD juggling multiple clients is being on hand at a moment’s notice.
The key thing, Lane says, is “accessibility”, which comes with not overtrading and “making sure that you have not got too many clients, and you can’t give them the right balance of time and work”.
Lane’s firm looks after Sassoon globally and the CEO of the hairstyling business says they feel Lane’s team is an “extension” of its own, adding: “They can call us at any point 24/7 and we are always there. That is the key to a successful relationship.”
Lane adds: “That is the key to all of it. It is not acting as if you are an external resource, you have to go into that business and the client and provider must feel they are an integral part of that team and a cultural fit.”
Where it becomes acutely challenging is when multiple clients all need intensive support at the same time. When that happens, says McGill, you need the infrastructure to be able to do that.
“What you can’t do is say ‘I will leave one of you until next week’ because they all need you today,” he says. “Sometimes the world doesn’t wait for you.”
The key is “open, transparent communication with the client and very good planning and systems so everyone is clear on what the deliverables are”, McGill adds.
Image: Alamy
The beautiful game
One of Ashton McGill’s big clients is Dundee FC, where McGill acts as the CFO.
The Scottish Premiership club is owned by a US investment company and the firm acts for all of the companies in which they invest in the UK.
McGill, who is the CFO for all of those companies, says: “One client relationship has led to a fairly large portfolio of work.”
The key to support is sharing the workload. McGill is the “primary point of contact” for the client, but he is “not the guy who is preparing the management accounts, the cash flow and the forecasting”.
He says: “I will be the guy that delivers that information to the client in a board meeting and an investment meeting, but it will be my team that will have done all the work and have been engaging on a day-to-day basis with the operational team of the client.”
Switching on to the benefits of virtual FDs
Once a role rooted firmly in the boardroom, today’s finance directors don’t necessarily need an office or even a permanent desk, as Richard Crump finds out
Image: Alamy
