What Is An Outsourced CFO?
Outsourced CFO services, or virtual CFOs, are cost-effective financial management services provided by third-party companies.
What is an Outsourced CFO?
As a company grows, its needs grow as well, though not all of a company's needs scale at the same rate. This rings especially true for many startups and small businesses.
While the traditional assumption is that small businesses use a cut, shrink, and paste version of the management principles employed by large businesses, we can see time and again that small businesses must overcome a wealth of different challenges to grow properly.
Amid growth, small business owners may ask, “Should I always sell directly to the customer, or pick up retail partners to help distribute our product? Is it viable to sell to a global market, or should I stay local? How do I prepare for financial instability?” In a traditional corporate structure, a CEO may consult with the CFO, the company’s resident financial expert, to field these questions. However, with the median CFO salary in the U.S. starting around $419K, some small businesses may not be in a position to hire one outright. In these cases, a quickly growing business may turn to a virtual or outsourced CFO.
What is a CFO (Chief Financial Officer)?
A Chief Financial Officer, or CFO, is the highest ranking financial-professional in a company and is responsible for the financial strategies and operations. Often reporting directly to the CEO, a CFOs responsibilities span beyond that of a standard bookkeeper or accountant. Rather than maintaining books or preparing financial statements, the role of a CFO is to use their wealth of financial knowledge to help develop strategic initiatives for the company based on financial and operational data. In larger corporate structures, the CFO would also be responsible for building and maintaining the finance and accounting professionals who perform the operational functions.
The duties of a CFO include, but are not limited to, financial planning, investment and taxation, keeping track of expenses and cash flow, and managing financial risks. In addition to overseeing the company’s financial activities, the CFO serves an advisory role to the CEO. Essentially, a good CFO will take complex data through a mix of financial reporting deliverables and provide a digestible financial perspective a CEO can use to help make various decisions from forecasting to scaling, and everything in between.
What is a virtual CFO?
A virtual CFO, sometimes known as a fractional or outsourced CFO, provides all or most of the same services an in-house Chief Financial Officer would. The key difference is that a Virtual CFO (or vCFO) offers their services remotely and often on a part-time or contract basis. vCFOs can operate as an individual or as a team and work separately from the business as a whole. vCFO services are cost-effective ways to get tailor-made financial plans for specific business needs without the cost of an in-house CFO.
Whether a business is undergoing significant changes or the operations are becoming too complex for its current staff, it may be advantageous for a company to contract the services of a Virtual CFO. Additionally, when a company cannot yet afford or has no current need for a full-time, in-house CFO, virtual CFOs can help bridge the GAAP.
Outsourced CFO best practices:
When to contract vCFO services
There are many reasons to need senior-level financial advice or management. When deciding on an in-house CFO and a virtual one, a business must consider its size, goals, as well as its present and future needs. Outlined below are a few reasons a company would need to seek the assistance of vCFO.
- Financial service needs have grown beyond its team’s existing skillset.
- The business needs to raise capital and/or has complicated lending requirements from its bank.
- Needs strategic advice for long-term business goals and requires guidance on planning and implementation.
- The company doesn’t know how to capitalize on and interpret the complex numbers of the business
- A full-time CFO is unaffordable or not needed full-time.
Hiring the Right Virtual CFO
Hiring a CFO with the right qualifications is vital to a business’s future growth. Finding the right partner can be tricky and if help is needed, Decimal can connect you with the ideal partner. Once a business has decided upon a Virtual CFO, it is important to consider the following about potential service candidates.
- Proven comprehension of corporate financial management.
- Alignment with the company’s goals.
- Financial knowledge and expertise in the relevant industry.
- Transparent cost-breakdown.
- An outsourced finance department (if a company needs controller/bookkeeping services).
What to Expect from a Virtual CFO
The purview of a Virtual CFO can be vast and customized to include everything from audit preparation to contract evaluation. Whether a business uses a vCFO for organizing finances or strategic advice, there are a few things we’ve come to expect from most vCFO services.
- Understanding of the business’s long and short-term goals.
- Weekly/monthly meetings and deliverables.
- Comprehensive financial reporting.
- Technological recommendations.
It should be noted that not every vCFO service offers bookkeeping and/or controller services. A business looking for transaction entry, AR, AP, Payroll, or any other similar offerings, should work with Decimal to handle the operations and lean on an outside CFO partner for strategic interpretations.
In-house vs. outsourced CFO
How does a business decide whether to engage an in-house CFO or an outsourced CFO? This is all dependent on an individual business’s needs, current finances, and overall goals. A fractional or part-time CFO is ideal for companies that find themselves in need of insights from an experienced, senior-level financial expert but do not have the budget to hire a full-time C-level employee (especially when including bonuses and benefits).
Outsourced CFO Pros
- Greater Return on Investment - As we stated above, the annual expense of an in-house CFO can be steep. However, an outsourced CFO’s costs will highly depend on the services rendered. This means that a business can cherry-pick the services and only pay for what is needed, letting them control costs and, with the vCFOs assistance, recoup the initial investment through cost-cutting opportunities.
- Flexibility and Customizability - Each business may or may not need the full repertoire of a full-time CFO. Because vCFOs offer the option to pay for the time and expertise on an hourly or per-use basis an organization can be assured it receives the services it needs without having to compromise on experience, quality, or knowledge.
- Mitigation of full-time hiring process - A full-time CFO may be within reach for a business in transition. But to ease recruitment and onboarding, a vCFO can give an organization the breathing room it needs to hire appropriately.
- Diverse experience - Some vCFO services include a team of financial experts rather than an individual. Rather than the single touchpoint you may have with an in-house CFO, a vCFO team can offer the diverse knowledge and experience of multiple industries as well as multi-layered insights.
Outsourced CFO Cons
- Availability - Part-time CFOs are likely working with other clients, splitting their attention and time between businesses. Even an attentive team under proper Service Level Agreements (SLAs) can have trouble providing prompt responses.
- Familiarity with the organization and relevant industry - An in-house CFO that spends all day immersed in a business is in a better position to learn the ins and outs of the organization. When it comes to industry experience, however, it can be a toss-up, as this will vary from individual to individual. This is why it is very important to find an outsourced CFO with familiarity and experience in your industry.
How much does an outsourced CFO cost?
An outsourced CFO can vary greatly depending on the client’s needs. Some services offer fixed rates for set services, while some can completely customize the experience at various hourly/daily/etc. rates. We found fixed rates as low as $1600/week up to variable rates as high as $2500/day. However, an average company, with set goals and expectations, employing a virtual CFO spends at most $12k a month on outsourced financial services. Compared to the minimum salary of $225k for an in-house Chief Financial Officer, a company can save up to 50% by outsourcing to a virtual CFO.
Businesses that outsource CFOs
- Small - As revenues increase and the business expands, small businesses may not be able to evaluate the financial web that further growth requires. vCFOs can assist in analyzing the market and creating financial strategies to help transition small businesses into larger ones.
- Startups - Some companies starting out may entertain the idea of a CFO from the beginning. A startup that is seeking to grow in a partnership may consider contracting a vCFO to keep costs at a reasonable level while gaining the benefits of an experience finance professional in their space.
- Nonprofits - Managing the business of a non-profit tends to be a secondary priority to its cause. Even with experienced financial professionals onboard, matching an organization’s internal operations to its external commitment to excellence can be difficult. An outsourced CFO can help provide direction and financial leadership so that the organization can concentrate more fully on its intended purpose.
- Corporations - Even larger corporations are starting to use vCFOs. Whether the business is in transition or needs additional expertise, corporations are starting to outsource CFOs more regularly.
Best CFO outsourcing firm & services
We’ve compiled a list of our top fractional CFO firms and services. The list ranges from companies specializing in nonprofits, to eCommerce, to SaaS, to tech and more, each offering tailored services for your business needs. When you or your organization decides it is ready for a vCFO, let Decimal connect you with one of its trusted partners and help plan for your financial future.