The Growth of the Virtual Finance Director by Julie Heaven published in JEP

Monday 06 March 2017

The Virtual Finance Director service aims to bridge the gap between having an in-house bookkeeper and the need for more strategic direction and support which a finance director can provide


Much has already been written about the development of cloud technology and how this has helped shape the accountancy industry and more specifically the accountant-customer relationship.

Xero, the UK’s leading cloud accounting software, has invested more than £70 million into product development since 2013 and now boasts more than 100,000 UK subscribers as well as many local businesses in Jersey. With the use of such software becoming mainstream, the accountant-customer relationship has become more collaborative, allowing the accountant to provide more frequent insights into businesses to help monitor performance.

However, going beyond the developments in the technology, there are a growing number of accountants who are taking further steps to differentiate their practices and are moving towards offering value-added services and business skills to help and support their clients. Production of annual accounts and tax computations will always form part of the role of the accountant, but it doesn’t have to be the core offering and if business owners want to grow and gain more insight into their businesses, they should be demanding much more of their accountant.

Purpose recognised the shift in the needs of local businesses a number of years ago when it launched its Virtual Finance Director (VFD) service, which aims to bridge the gap between having an in-house bookkeeper and the need for more strategic direction and support which a finance director can provide. Through this service, the traditional accountancy role has morphed into that of a trusted business advisor where the VFD is seen much more as a member of a management team and less as a supplier of services.

One of the areas where we’ve seen that a VFD can demonstrate added value is around discussions on pricing. This is always a tricky area where most businesses will argue that there is little or no scope for putting up prices. Every situation is different but discussions are normally centred around the value proposition of the business and how that translates back to customers. Having an objective viewpoint here is critical. With one particular business with whom we have worked closely, a discussion and pricing workshop, backed up with job level financial analysis, brought about a change in their customer pricing structure which has in turn doubled their gross profit margin with no customer dissatisfaction or defection.

Similarly, helping to establish and monitor key predictive indicators (KPIs) is also key to business growth. Few businesses make the time to do this themselves and it would normally fall outside of the remit of a traditional accountant who would typically track only lag measures and report on financial results months after the event. There are a number of well documented examples of how monitoring and focus on KPIs has been instrumental in business success – one of our own is our success rate in hitting deadlines, focussing the whole team on customer service metrics. With our customers, we’ve seen notable improvements in performance by helping business owners to identify lead indicators specific to their sector and more importantly ensuring that performance on these measures is reviewed and challenged on a regular basis.

Virtual Finance Directors get to know the business very well over the first few months and this helps them understand the shareholders’ own personal financial position and enables them to devise simple tax planning structures for reinvestment of profits or strategies to reduce financial risk. The outcomes are often financially significant and really help with pension pot growth and planning for when retirement comes. Also, by working more closely with the business, it is often the case that more opportunity to save arises before transactions are completed or cash raised. With all of these added value services which can be provided by a VFD, I am often asked whether it would be more beneficial to recruit an in-house professional and in some cases, for larger businesses, the answer would be ‘yes’.

However, for many SMEs on the Island, a full-time finance director would be overkill and the cost of one, which can be upwards of £80,000 per annum, would quite often be more than the business owner’s own salary. The benefits of the outsource model go beyond pure cost though – if you fail to recruit the right person it can be a costly mistake. We have seen a number of examples in recent years where the in-house accountant has failed to provide any strategic financial direction and in some cases, has made mistakes which have only been uncovered after independent financial review. Indeed, it’s not just in accountancy where we have seen the outsource model proven as being an effective solution, marketing, IT and HR are other areas where we see professionals taking a place on the board to give business owners a full complement of expert advice and strategic direction.

I read recently that ‘choosing an accountant is a little bit like choosing your life partner – someone who is there for the long haul who will take the journey to success with you’. I agree with this to an extent, in that the accountant–customer relationship works best when it is a collaboration, as opposed to it being a transactional relationship. However, it is key to remember that even long-standing relationships can come to a natural end at times and changing accountant is not as difficult as many might perceive. Business owners do have a choice in the type and level of support they can expect from an accountant and there are exciting times ahead both for business owners and for those providing VFD services.