The Chief Financial Officer at a small-cap or mid-cap publicly traded company has to be good at much more than just addition and subtraction. The CFO role involves wearing many hats: in addition to deep proficiency with numbers, he or she must be comfortable with GAAP accounting and reporting, capital raising, interfacing with Wall Street and investors, and doing calculus—which is required to determine the value of derivative instruments such as options or warrants. Even an individual who excels at all these tasks is bound to be stretched too thin at certain times.

Of course, not every CFO can “do it all”. Although the vast majority of CFOs may excel at most aspects of their jobs, there may be other tasks at which they are not quite as qualified. For example, one CFO might be a whiz at crunching numbers or managing a company’s bookkeeping requirements—but fall short at public speaking. Meanwhile, another CFO may be wonderfully eloquent during every single meeting—but lack crucial mathematical skills.

On top of this, small-cap and mid-cap public companies are faced with a wide array of accounting challenges on a regular basis. It would be nice if these companies’ auditing firms were always available to help out, but the law dictates that this is not the case. The fact is that regulatory and independence restriction requirements may keep auditing firms from stepping in during a crisis.

As a result of these kinds of situations, CEOs are faced with a dilemma: let their CFOs do the best job possible and simply hope for the best, or supplement their activities with outside help? Increasingly, companies are leaning toward the latter option.

Once they make this choice, companies may opt to work with an advisory firm with solid financial expertise. If such a firm boasts leadership and personnel with sufficient skills, it allows a small-cap or mid-cap public company to outsource on a project basis the accounting needs it lacks in-house. This outsourcing can be accomplished much more cost-effectively than if staff were hired by the company full-time. A good advisory firm should have the expertise to assist companies with 10-K’s, 10-Q’s, reverse mergers and converting financial statements to GAAP. In addition, such a firm can introduce companies to sources of financing and potential board members. And if the firm is sufficiently comfortable with a client company, its financials and its management, the firm may sign the company’s financial statements as its CFO.

Myriad real-world examples illustrate the fruitful nature of this type of relationship. For example, for a restaurant company merging into a public shell, one external firm implemented a cloud-based accounting system; prepared the financial sections and pro-forma financials for the Super 8-K; prepared the responses to the SEC comment letter; implemented the Sarbanes-Oxley controls; helped raise a friends and family financing round; and made a successful introduction to a strategic partner. For a public biotech company, a firm was able to assist in the preparation of the June and September 10-Q’s for the first timely filings in the company’s history; acted as outsourced controller and bookkeeper; assisted in the preparation of S-1 and S-3 filings; and performed a valuation of restricted stocks and warrants in exchange for the extinguishment of debt.

For another public biotech company, an external firm prepared an accounting analysis related to convertible debt with detachable warrants including citations from the current literature to support complex financing utilizing warrants; evaluated all complex debt/equity instruments for imbedded derivatives; and prepared journal entries for the transactions. For a public consumer marketing company, a firm prepared the 10-Q’s and 10-K’s for two years of delinquent filings, and evaluated complex accounting issues related to discontinued operations, preferred stock and acquisition of intangible assets.

For reasons such as these, companies may be well served by choosing to partner with an external advisory firm with the ability to act as CFO.

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About the Author: Dave Horin, CPA is President of Chord Advisors. which provides targeted solutions to public (small-cap and mid-cap) and private small and mid-sized companies who could benefit from an experienced and seasoned CFO/team without the associated costs of a full-time position.