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How outsourced CFO services can save you time and money

Posted by Shivali Anand

May 17, 2022    |     9-minute read (1809 words)

Managing your company's finances as a self-made entrepreneur can be highly stressful, especially when you’re just starting out. And even once you’ve found a measure of success, remembering to keep dotting all the i's and crossing all the t’s of your finances continues to bring a layer of complexity to running the business, which in turn takes time away from revenue-generating tasks. 

While you may not be in a position to hire an in-house chief financial officer, an outsourced CFO service can be an ideal solution. If you’re considering outsourcing the CFO role, know that you’re in good company. Many startups and even well-established businesses hire an external CFO at some point. 

This is because an outsourced CFO service provides the same benefits you’d expect from an in-house CFO, but with more flexibility. Most outsourced CFOs work on an as-needed basis and can scale up and down as the business requires. 

To help you better understand how an outsourced CFO can save you time and money, below we delve into the details.

What does the term "outsourced CFO" mean?

An outsourced CFO is a finance expert, external to your company, who delivers top-notch financial, business, accounting and operational counsel to your company. An outsourced CFO can be hired on an hourly, part-time, temporary or long-term basis.

An outsourced CFO typically has experience in financial roles at private or public firms in all phases of growth. They work with companies of varying sizes on every concern, such as strategic planning, scenario modeling, unit economics and financial predictions.            

What can an outsourced CFO do for your business?

CFOs have become a crucial player in today’s organizational structures, largely due to advancements in finance and accounting. One of the central roles of the CFO is to serve as an adviser to the company's management team on strategy, risk management and succession planning. 

An outsourced CFO taps into their years of experience to help you achieve your business goals, working on a more flexible engagement model versus an in-house CFO. Their services can be adjusted to suit the needs of your company, based on its stage of growth and size.

Among the most-common services provided by outsourced CFOs are:

1. Internal controls and risk mitigation – Doing business entails some level of risk. To produce value, one must first identify and then mitigate risk. Reduce your company's risk factors by establishing a solid control environment and utilizing risk registers and other tools.

2. Analyzing financial gaps – A CFO's financial gap analysis is an in-depth examination of the company's finances. A detailed analysis of the risks and opportunities in your present finance department and a plan for dealing with them are provided.

3. Dividends and profit maximization – Helping investors get the most out of their risk when starting or investing in a business. Building recurrent profits into routine operating operations by utilizing some of the most profitable tools and methods available to companies.

4. Budgeting and managing cash flow – A company's cash flow is its essence. As a company's founders, you must have a solid grasp of cash flow. An outsourced CFO can help you plan and anticipate your company's cash flow with the best tools and techniques available.

5. Making financial decisions – When you run a business, your decisions about money directly affect your resources and success. An outsourced CFO who understands the statistics can help you make the correct decisions.

6. Post-investment finance – An outsourced CFO can also take on the role of post-investment finance management when dealing with VCs or other external investors—reducing stress and maximizing value for everyone involved.

7. Valuations – When a company's stock is traded, its value must be established. An impartial valuation assessment helps identify the correct price whether you intend to issue additional shares to an investor, buy out a shareholder or sell the firm.

8. Fundraising – Entrepreneurial businesses can rely on various fundraising assistance services to ensure a successful business campaign. For this, you need a professional who can maximize the fundraising efforts quickly.

9. Financial predictions – There must be a clear strategy for future growth and knowledge of your firm for financial models to be effective. Boost the self-assurance you need to wow your next investor with the assistance of an outsourced CFO.

10. Incorporating management accounts – Your management reporting must keep pace with the changing needs of your stakeholders. Improve the quality of your board and shareholder reporting by creating clear dashboards, defining and tracking important KPIs, as well as implementing these strategies.

11. Automation and financial technology – Advanced technology has made it possible for small and medium-sized businesses to administer their finances with the level of knowledge previously reserved for giant corporations. An outsourced CFO brings the most up-to-date financial technologies to your company without you losing extra money.

12. Providing accounting and audit support – An audit closeout, reports to prepare for the audit and dealing with auditors may put a financial team in the red. Hiring an outsourced CFO can increase your accounting capacity to meet all your deadlines without overworking your staff.

Why it’s worth investing in an outsourced CFO

Many small business owners don’t have the budget to support a full-time CFO. Although the CFO’s role is integral to a business, your business’s needs may be fulfilled more economically through an outsourced CFO, anyway. Why have a CFO on your payroll if you’re not going to completely exhaust their skills?

Outsourcing CFO services is a viable option for many businesses, from startups to private equity-backed firms and everything in between. Circumstances in which an outsourced CFO presents a great business solution include these examples: 

• When you are a startup owner. As your firm takes off, you may not have the time to budget, plan and analyze finances.

• When you own a small- to medium-sized company. Even though you likely have a thorough understanding of your customers and your products or services, you are less concerned with the financial aspects of your business than with growth and maintaining customer service. So, instead of relying on data such as financial statements, you rely on your gut more often than you’d like to.

• When you received venture capital to grow the business. You need to keep your investors up to date on the business’s profit margins, customer acquisition costs and other key performance indicators, but you are unsure how to do so.

• When you have a bookkeeper or a controller but need more. You may not be able to properly interpret and leverage the financial statements these professionals create.

• When your firm’s performance is lagging. To see where the business is going wrong, and what must be done to fix it, you may need the support of a neutral third party with finance expertise.

How to select an outsourced CFO service

Just as you wouldn’t hire an in-house CFO who wasn’t a good fit for your business, you need to find an outsourced CFO who is a good fit. Here are a few factors to take into consideration:

Experience: Different business models, marketplaces and verticals necessitate different parameters and planning skills from a CFO. Look for a CFO who has expertise that corresponds with your business’s needs. For example, if your firm provides software as a service, your outsourced CFO should understand SaaS business models and critical indicators such as annual recurring revenue. If your business expects to fundraise quickly, hire an outsourced CFO who has proven skills as a fundraiser.

Service team versus consultant: You might prefer to hire an independent consultant CFO or a services team comprising CFOs who work together to assist you in achieving your goals. A single consultant may be less expensive, but a group provides you with more specialists and a faster turnaround.

Your goals: To get the most from an outsourced CFO, consider the issues at hand and your goals. These goals might be as precise as a detailed analysis from the CFO or as varied as advice from the CFO on critical benchmarks. Knowing your goals before hiring an outsourced CFO can help you ask the right questions and better evaluate candidates.

Recap: Outsourced CFO services provide a slew of advantages

The following are some of the biggest benefits of engaging an outsourced CFO service:

1. Flawless financial reporting 
Outsourced CFOs have the experience and skills to fulfill all of your business’s financial reporting obligations. They will also review all financial papers and reports before a tax or audit period. Additionally, outsourced CFOs excel at helping businesses to use their funds to build their business in unexpected ways.

2. Time savings
Entrepreneurs already have a lot on their plate and lack the time to perform complex financial tasks and continually ensure compliance. In truth, there are situations when a single individual cannot meet deadlines, and this is where the services of an outsourced CFO service come into play. 

3. Skills and experience
Among the many advantages of hiring an outsourced CFO service is the unmatched skills, knowledge and expertise they bring to your business. Even financial setbacks can be better navigated under the guidance of a seasoned CFO. 

4. Human resource assessment
The outsourced CFO can assess what percentage of your profits are related to your employed workforce This can inform your decision to hire superior personnel and let go of underproducers. 

5. Risk management
CFOs have vast expertise in dealing with fluctuating markets and sectors. Tap into this experience with the services of an outsourced CFO whenever you want. They can assess the risk of new financial improvements or investments and help you make informed decisions. 

6. Company expense budgeting
An outsourced CFO can build a good budget for your business expenses while also keeping track of costs and helping you to avoid overspending. 

7. Financial forecasting and planning
The financial reports you’ll obtain through CFO outsourcing also confers insights about the business’s future. The CFO can tell you how to grow your numbers or sustain development to maximize potential, based on the particulars of your business. 

8. Compliance with tax laws and regulations
Tax compliance is an ongoing concern for business owners and is not a one-and-done responsibility as such laws continue to evolve. An outsourced CFO service tracks the tax landscape to ensure compliance.

9. Product portfolio 
With the extensive financial knowledge conferred by an outsourced CFO, you may want to expand your firm, perhaps by broadening your product range. An outsourced CFO service can help identify your strengths, weaknesses and target markets to support such endeavors.

10. Growth 
Finally, and most importantly, an outsourced CFO is responsible for your company's development. Without the guidance of a CFO to oversee revenue, it is more challenging to determine the business’s efficiency and decide how to improve income and boost development.

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