Whether you're running a small-to-medium-sized business that is experiencing rapid growth, or you’re planning expansion and money is tight, you may feel it's not viable to hire a full-time chief financial officer (CFO). However, that’s also when your company is most vulnerable, and even the smallest financial lapse can set you back — sometimes beyond repair.
The good news is that you can outsource your CFO services without compromising your business’ bottom line. An outsourced CFO can help you overcome a number of impediments to business growth through various key responsibilities that are tailored to your individual needs. Check out this list of what a CFO can do for you:
- Create or modify a financial roadmap to ensure you reach your business goals
- Pinpoint problem areas in your current strategy and help you alter your course of action
- Implement systems for reporting different financial functions that provide strategic insights
- Oversee financial controls to avoid errors and fraud, and ensure compliance
- Offer strategic insights into your product performance, customer demographics and the like
An outsourced CFO is a financial expert that you engage as a consultant for your company, and who is available as a part-time resource based on your needs. They provide financial strategy services, help make big strategic decisions and work within your budget.
An outsourced CFO can offer several services, including operational optimizations within your company; systems analysis and design; raising capital; fixing cash flow issues; developing pricing strategies; implementing more efficient processes and systems; and preparing for growth.
An outsourced CFO could be someone running their own financial services organization, or they can be from an organization you recruit to provide the same consulting services.
Why You May Need Outsourced CFO Services
Your company may need an outsourced CFO for a number of reasons, beginning with the newer challenges related to the coronavirus pandemic. Given below are some of the top reasons why a company may need to engage an outsourced CFO:
- The company is growing, and a scalable reporting structure is required. And looking at how businesses are increasingly moving toward remote work arrangements, the system must be set up for remote management when necessary.
- Chief operating officers (COOs) or chief executive offers (CEOs) no longer have enough time for forecasting, budgeting and analyzing financial results; or the intricacies of the business require more specific skillsets.
- Financial documents are not well understood or properly documented.
- Small- to mid-sized companies do not have the valid expertise to make decisions based on data and objective inputs, and are instead relying on sentiment.
- Venture capital has been raised for expansion, and performance indicators and financial results have to be delivered to investors.
- Remote work cannot be appropriately supported due to a lack of digital information and automation.
- More financial planning and analyses are needed, but specific requirements are ambiguous.
- The company is not growing as quickly as it should.
- Additional information is needed in a reduced timeframe to manage production and the supply chain when faced with customer demands and changing lockdown orders.
What an Outsourced CFO Can Do for You
Here are some of the top services an outsourced CFO can provide a company:
1. Offer seasoned, strategic insights: Balanced, long-term growth requires a sound business model that takes into consideration factors such as internal and external resources, industry outlook, a detailed financial plan, customer demographics and behavior, and competitive positioning.
It’s not enough to look at previous year’s data and come up with a 12-month plan — the current speed of business demands that essential metrics are assessed continually and acted upon promptly.
According to Tyler Sloat, CFO at Zuora, the CFO must have a clear understanding of what influences change, what the key business drivers are and the business metrics. The evolution of the traditional financial planning and analysis (FP&A) group within the CFO’s function into more of a financial data and analysis (FD&A) group further enables the CFO to help steer other functions based on financial benchmarks deeper within each function. The availability of data and the capability to analyze that data with accuracy and speed allows for much more granular action items. The CFO must be able to understand those takeaways and then train the executive staff to help them make the right decisions to move your business forward.
A CFO can put in place various accounting and reporting systems to ensure business units have full visibility into the core metrics required to make those decisions quickly and efficiently. Some such systems are:
- 360-degree view of accounting data: Lets the CFO view real-time procurement, invoicing and cash flow simultaneously.
- Improve controls: Systems that include financial oversight and audit tracking to reduce financial errors and ensure the accuracy of all accounting data.
- Financial planning: Data from several operational components of the company provide business cases for borrowing, cash management, equity raises, restructuring and so on.
- Real-time compliance: Enterprise resource planning (ERP) reporting offers an investigative platform that helps ensure tax compliance and remediate issues.
2. Save time and money: The cost of finding, interviewing and recruiting a full-time, in-house CFO can be unnerving, especially for a small- or medium-sized business owner. According to salary.com, the average salary for a full-time CFO in the U.S. is $385,412 (as of October 28, 2020), depending on such important factors as education, certifications, additional skills and the number of years spent in the profession.
With an outsourced CFO, they can leverage the knowledge of a full-time CFO with the reduced cost of having a full-time CFO on staff. As they help their business grow, business owners can then scale up their involvement with their business as needed.
An outsourced CFO also allows entrepreneurs to save time by providing the financial oversight of processes they were handling internally, including processing payroll, paying bills, budgeting and handling financial paperwork, among other tasks.
3. Financial management and forecasting: A CFO can oversee the accounting and financial functions for an organization by providing regular financial reporting and guidance, developing internal accounting controls and ensuring there are proper checks and balances in all accounting issues.
Companies with dynamic business models benefit the most from financial forecasting and projections. A CFO can develop rolling forecast tables and financial statements that project up to 12 months out so that resources can be allocated to meet future goals.
4. Cash flow management: A CFO can help prepare cash flow statements that include long-term assets, net income, liabilities and stockholder equity. And through regular assessment of cash flow statements, they also help develop cash improvement programs.
A CFO can also attend business meetings with investors and lenders to raise capital for growth.
5. Scale the business: When a business owner is ready to scale, a CFO can put them in the right direction and come up with a healthy game plan. They can support the scaling of a business by performing financial forecasts and financial risk assessments, ensuring that the financial infrastructure is ready, helping obtain financing and applying for loans, determining the most cost-efficient tax structure and applying for multi-state registrations, if applicable.
6. Tackle financial challenges: A CFO can help set things straight when a business is struggling financially. They can help remedy the following challenges: inability to raise capital, high business overhead, poor cash flow and profitability, high client churn, and debt management and loan repayment, among other challenges.
Are There Any Potential Downsides?
While there may be certain potential drawbacks to outsourcing, as given below, most of them can be overcome by using an outsourcing firm that has a proven track record.
- Less control: When you receive finance- or accounting-related queries, it can sometimes be easier to communicate with an in-house accountant. This may not be the case with an outsourced CFO handling your finances, because you may not have direct control over how things are being handled. However, this issue can be resolved by setting up policies and procedures during the initial stages of the partnership itself.
- Additional costs: Sometimes, there may be hidden costs when dealing with an outsourced financial firm. These costs may be in the form of additional tasks that weren’t specified in your arrangement and so on. To avoid this risk, you can ask about any hidden or additional fees and anything else you may have concerns about, and settle the cost of service right at the beginning.
- Risk of selecting the wrong company: When outsourcing a job function, there’s always a risk of things not going your way, and in the case of finance and accounting, errors being made. To prevent this from happening, ask your chosen outsourcing firm for references and contact those companies to get their opinions.
How to Vet CFO Candidates
Like any service that a company uses, the one question that comes up often when looking for an outsourced CFO is: “Are they qualified enough?” However, before you even begin to find an outsourced CFO, you must determine what your goals are and what you wish to accomplish by outsourcing CFO services.
Here are four steps that you can follow to find and vet potential CFO candidates before bringing them on:
Step 1: Identify business goals: To employ the right person for the job, you need to figure out where you want your company to go. While some entrepreneurs want to earn significant income every year, others wish to sell their businesses for, say, five times the revenue. Whatever the goal may be, it needs to be defined clearly.
Step 2: Determine what needs to be accomplished: Next, you must decide the end goal of hiring an outsourced CFO. Is it assistance you are looking for in understanding financial statements? Do you need help with managing your cash flow? Do you want the CFO to handle all strategic financial analyses?
Answering these questions and mapping out what is expected from the outsourced CFO service will help you make a better decision on who to hire.
Step 3: Do an internet search: Once the goals have been identified and the needs have been established, the next step is finding a qualified individual or company to outsource your CFO function. Apart from asking for references, the internet can offer plenty of options. When searching online, consider using these search keywords: outsourced CFO, CFO services, fractional CFO, virtual CFO, interim CFO and contract CFO.
Step 4: Check for qualifications and experience: No one wants to hand their accounting services off to just anyone — they want to make sure that the people taking care of their balance sheets are industry experts. Therefore, as a business owner, you must check the credentials of the CFO and their team members to ensure that they have all appropriate certifications and licenses, that they are up to date on all laws and compliance issues and that they have handled the CFO services for businesses their size in the past.
You must also confirm that there will be a fixed point of contact (POC) rather than just dialing an 800 number and getting CFO advice from whomever answers the phone. You must speak directly with the person who will be your POC and ensure that your communication styles are in sync so you can be sure you will have a synergistic relationship if you do choose to sign with that company.