One of your first jobs as a fractional CFO will be to understand the inflows and outflows of the organization. But what lies behind your client’s revenue and expenses? In a word, contracts. The business world no longer runs on handshakes, but on lengthy, complex, written documents that you should review.
Understanding contracts is just one of the things you’ll need to do to make an impact with your client. You’ll find other great tips from our webinar, Top 10 Outsourced CFO Quick Wins. As a fractional CFO, you’ll find this webinar an ideal way to prove your value quickly.
What Types of Contracts Should You Review?
Chances are your client has signed more contracts than they remember. The CEO, current and former executive team members, and department heads may all have signed business agreements as an agent of the company.
Leases, financial instruments, vendor purchase agreements, insurance policies, customer contracts, employment contracts, and consulting agreements are just a few of the types of legal agreements that may exist. Collecting copies of these agreements is a first step, but may prove challenging if they are hidden in file cabinets throughout the office.
Contracts impact operational revenue and expenses. While it may seem like a wild goose chase, these documents have a critical impact on your client’s operations.
What Should You Look For?
In your first 30 days, focus on the largest contracts. Make a spreadsheet that lists the parties, terms, payments, expiration dates, and termination details. This will give you a quick overview of how these agreements are impacting your client’s operations.
You should also identify missing contracts. What large payments are being made monthly or quarterly for which you don’t have documentation? In addition, identify if there is an authorization policy in place. Who is allowed to approve and sign contracts, and for what limits? If no policy exists, it may be time to put one in place.
Finally, look at the terms and conditions. Is your client getting what they paid for? Do the fees seem high? Is there a vendor who has frequent Service Level Agreement (SLA) infractions, but no contractual complaints have been raised? And worse - is your client paying for contracts that have already expired?
Contract “detective work” can lead to big gains for your client and a big win for you.
Will You Need Legal Guidance?
Possibly. Employment contracts can be complicated and are governed by numerous federal and state regulations. For that reason, you may need an employment lawyer to make sure your current employment agreements meet compliance standards. Legal counsel may advise you to implement additional agreements like confidentiality, non-disclosure, or other legal documents that protect the company, including their intellectual property (IP) and reputation.
What happens if you do uncover contractual issues? Depending on the severity, you may be able to take care of them with a simple phone call or short meeting. Other issues may require legal help. So have your documentation in place and be an advocate for your client. Keep your client and executive team informed since they may have vital background information and serve as a source of support.
Ready to Learn More?
For more tips on how to make an impact as an outsourced CFO, watch the webinar recording “Top 10 Outsourced CFO Quick Wins.” And leave us a reply below with any comments you may have.