Thinking About a Business Idea? A Virtual CFO Might be a Great Sounding Board

Ideas are essential whether you’re growing your business or just getting started, but at some point, practicality has to enter into the picture. Sometimes you need a second opinion to assess whether your idea makes good business sense.A Chief Financial Officer (CFO) would specialize in taking a realistic approach to your ideas, but you probably can’t afford to have a full-time, high-paid executive sitting in the office next to yours. And, if you’re acting as your company’s own CFO, you may have issues when trying to debate with yourself about ideas versus reality.This is one benefit of having a relationship with a Virtual CFO (VCFO). These professionals may have never met you in person, but their understanding of everything from your numbers to your goals can help them provide level-headed answers to important questions.

Is the Idea a Likely Winner?

You may know your industry and its markets very well. You can easily predict that a new offering, such as a never-before-invented flying widget, would fly off of your shelves, as long as you properly patent it to avoid immediate competition. But, does that mean that it will make money? And even if it will eventually create massive profits, how long will you have to wait before the money starts rolling in?Bring your ideas to VCFOs, and they will ask lots of questions to project the future of your new idea. They already know your current financial status, but they will force you to look hard at other information, such as the following:

• Expected market size (and how long it will take to get the market to buy)
• How often will customers have to repurchase the product or ancillary supplies, or is it more of a one-and-done purchase?
• Costs associated with invention and testing of the new product or service
• Anticipated startup costs, including things like tooling, the purchase of materials, special marketing costs, and more
• A realistic projection of what you can charge for the new product or service

Of course, I’m not a CFO, so I can’t even begin to arrive at a full list of necessary data. But, a data-loving CFO knows what to ask in order to create a reasonable forecast. The right information tells you how much cash you need up-front, how much you can expect to make — and whether you can expect to repay the costs and move to profits within a reasonable time period.

Does the Idea Make Financial Sense?

Just because an idea is the greatest thing since sliced bread does not automatically mean that you should pursue it. However, assuming that VCFO analysis has put your idea in the future win column, then they can take the  next steps to figure out if you’ve got the funds to get started. Perhaps you’re simply not in a financial position to pursue it right now.But, right now does not mean forever. VCFOs are not in the business of striking down good ideas. They see more than just profit and loss bottom lines. They dig deeply into your numbers to identify business areas that need your attention so you can afford to take greater risks.By honing in on those areas, they can often find fixes to improve them so you can realize your longer-term potential. They can help you map out a financial strategy that will allow you to pursue your idea in the future. Or, they might just recommend other approaches that will let you get started very quickly.

Is the Time Right to Seek Funding?

Don’t assume that financial gurus automatically see all debt as bad. When ideas have impressive financial upsides, they may recommend that you seek outside funding, which can be anything from bank loans to venture capitalist investments.Of course, any type of outside funding requires you convince someone that your business is a worthwhile risk. VCFOs  typically put funding advice writing (complete with supporting numbers). That written advice provides a foundation for SBA loan applications or other compelling documentation that will open the wallets of capital or equity investors.

A Good VCFO Interview Helps You Choose the Support That You Need

When you begin your search for a VCFO, you are likely to quickly discover that they all price services based on different sets of criteria. You can’t be sure that you will be paying for basic services like financial reports and taxes, or whether strategic advice falls into the mix.It’s generally not prudent to choose a VCFO based solely on its website. Look for companies that allow you to conduct phone interviews to make sure that you know what services you can expect — and what you will pay for them. If they will not talk to you, continue your search elsewhere; there are plenty firms to choose from.In other words, just because you don’t work with a VCFO face to face, it doesn’t mean that you can’t do due diligence. Prepare a list of questions and concerns, and then schedule enough time to conduct a thorough interview. Don’t forget to consider your ability to communicate clearly during the interview. A VCFO who insists on using financial terminology when you’re a plain talker is likely to lead to misunderstandings in your working relationship.Once you feel ready to make a choice, check references if possible, and do whatever is necessary to thoroughly review the contract before signing. You need a high level of trust to rely on advice from any firm. Try to get it right the first time.