What Is an Outsourced CFO and Do You Need One?
The question of when a start-up company should hire a Chief Financial Officer (CFO) is one we often get from customers. Although every company has its own unique set of circumstances and needs, financial insights will become an increasingly important aspect of your growth. If you're planning to take your business public within the next few years, it’s worth considering the hire of a full-time CFO. If you don’t fit that description, you may be better to consider the help of an outsourced CFO.
What Is an Outsourced CFO?
Before we explore the role of an outsourced CFO, let’s first review the value a CFO will bring to your business. Your company's Chief Financial Officer will be responsible for everything financially related. On the managerial side, they will oversee the teams responsible for data collection and reconciliation, covering the likes of accurate bookkeeping and tax liability obligations. On the strategic side, your CFO will monitor the financial wellbeing of the company and provide detailed guidance to achieve financial objectives, including:
- Monitoring, tracking, and reporting on financial metrics
- Reviewing and assessing Key Performance Indicators (KPI’s)
- Building and reviewing budgets
- Creating financial forecasts
- Building guides for future growth
- Evaluating your financial health and recommending action plans
An outsourced CFO (sometimes referred to as virtual or fractional CFOs) will manage the same duties as a traditional CFO, the core difference being that they’ll perform them on a contract basis. A majority of the outsourced CFO services available to start-ups will be at an hourly or subscription rate, granting access to as much or as little support as you need based on your growth stage.
Why Should I Outsource My CFO?
There is no alternative to expert financial support for a business in the midst of growth. This statement remains even truer for companies with founding teams that aren’t well versed in finance. Certain businesses will thrive with full time CFO’s, whereas others may be better suited for outsourced. Here are a few decision-making differences to consider:
1. An outsourced CFO will save your business money
Full-time CFO’s are expensive. Like, $300,000+ per year expensive. For most start-ups, that type of an investment in financial support is going to be unfeasible, and even for those who can afford it, the investment may not always be justifiable.
When every dollar invested in your company has a meaningful impact, finding affordable CFO support is important. That’s where outsourced CFOs come in. The hourly and subscription-based pricing models allow you to pay only for the support you need. This opens your team up to expert insights and guidance, without opening you up to a cost strain.
2. An outsourced CFO will save your business time
Keeping a full-time CFO busy in the early years of your business may prove difficult. Since an outsourced CFO operates under a contract basis, they’ll only conduct work for your business when it’s needed. This means that you won’t be paying for support you don’t require and can invest all of the additional dollars into growth initiatives.
3. An outsourced CFO is easily scalable
As your business grows, so will its reliance on financial analysis and guidance. In most cases, outsourced CFO services will give you access to a full team of professionals dedicated to helping your business grow. You’ll be able to add or subtract services as required, and never overcommit to support that isn’t needed.
4. An outsourced CFO provides an external perspective
There is no better way to assess the current state of your business than by bringing in a professional that bears no biases. An outsourced CFO has only one objective – helping your business grow – and they won’t be clouded by the day-to-day items that can often prevent teams from critically assessing their own performance. As most outsourced CFOs will be assisting several similar businesses at a time, they’ll bring with them a wealth of insights into how your business can succeed based on a much wider range of experience.
How to Choose the Right CFO Service Provider
Bringing in an outsourced CFO is much like hiring a full-time employee. You’ll want to ensure that they are a proper fit for the team, which the following items may help you determine:
- Professional Experience. Not all outsourced CFO solutions are built the same. You’ll want to bring on a team that is well versed in your industry and is capable of accurately assessing past trends and forecasting future opportunities. If you’re an E-Commerce business, for example, you’ll want an outsourced CFO that has experience in that specific space.
- Objective Alignment. It’s most likely that you’re looking for CFO support due to specific business objectives. Having an understanding of what those objectives are and explaining them to prospective virtual CFO solutions will allow you to gauge their level of experience in that area and determine their fit.
- Service Type. When hiring an outsourced CFO, you’ll have the ability to choose between independent consultants and service teams. Independent consultants will often be more affordable. However, service teams will grant you access to a wider range of expert support and often deliver faster results. Both are reliable solutions, but you’ll need to determine which better fits the needs of your business.
Bringing in financial expertise to help your business grow doesn’t need to be difficult. To learn more about our outsourced CFO approach, get in touch with our team!