What is An Outsourced CFO – Everything You Want to Know
Financial management is one of the most critical aspects of any business, but it is especially vital for small-to-medium-sized enterprises. A chief financial officer or CFO is a professional responsible for handling the financial aspects of your business. These include but are not limited to bookkeeping, financial reporting, making a financial strategy, and maintaining accounting records, among other things.
For a small business, however, it may not always be financially feasible to hire a full-time CFO due to the high costs involved. A better alternative is to hire an outsourced CFO due to the host of benefits they offer, including flexibility, affordability, and fresh skills.
What is an Outsourced CFO?
An outsourced CFO is a finance leader outside of your company who guides in areas of finance, accounting, and operations management. Outsourced CFOs are not the same as interim CFOs, who are essentially hired temporarily. Conversely, outsourced CFOs can be used full-time, part-time, or as interim for the length of a particular project.
What Does an Outsourced CFO Do?
When you hire an outsourced CFO, you can expect them to take care of a wide range of responsibilities, including but not limited to:
Optimizing Cash Flows
An experienced CFO will track revenue sales, interest, investments, and other important components of a company’s financial strategy. Moreover, they carefully study how much cash is coming in and going out to cover expenses and costs, so there are no unexpected financial crunches. Lastly, an outsourced CFO also determines how to maximize profitability and liquidity while maintaining high levels of customer service.
Short and Long-term Financial Preparation
Financial planning forms the basis of any successful business and is, therefore, a high-demand skill. It requires a solid understanding of various financial documents like P&L accounts and balance sheets and different accounting software. If your business is a startup, an outsourced CFO can help prepare short-term and long-term financial plans. This will prevent the business from going off track and spending more than it is earning.
Remember that financial projections play an important role in helping your company grow and not go bankrupt in its initial years. Compromising in this area can deter your business success both in the short and long term.
Financial Analysis and Financial Modeling
Financial analysis and financial modeling are important tools required for the success of an enterprise. An outsourced CFO can help take care of scenario planning and forecasting so the company can capitalize on its opportunities and steer clear of threats. They will also assess which investments have worked best in the past and which ones generated the worst ROI. By creating models for both lenders and stakeholders, outsourced CFOs can create a better understanding of the company.
Legal Compliance and Tax Assistance
Outsourced CFOs are financial experts. One of their main responsibilities is to ensure that your company is always closely following the law and abiding by the set standards. This can help you design and implement systems for collecting tax data to undertake tax compliance activities. Moreover, they also assess it so that the business never misses a deadline related to tax filing.
Reasons to Hire an Outsourced CFO
Is your business in need of a helping hand to take care of its financial aspects? If yes, then look no further than an outsourced CFO who can bring great value to the company and also offer flexibility. Listed below are the top 5 reasons explaining the benefits of outsourcing CFO services.
Cross-industry Experience
Since outsourced CFOs work with an array of clients at a given time, they introduce cross-industry experience to your business. This can consequently provide valuable guidance in different areas of your business, including financial analysis, management, and strategy.
Faster Onboarding
The process of hiring outsourced CFOs is much quicker than a typical hiring process. This offers a more immediate solution than hiring internally. Plus, you can hire their services on an on-demand basis without having to spend money to hire a full-time CFO.
Specialized Experience in One-off Projects
Some financial problems are very complex and best tackled by someone who has the appropriate experience and training. For instance, acquisitions and mergers are tricky business endeavors that require careful coordination with the finance department and meeting stakeholder expectations. Bringing in a professional to handle such projects may be a necessity.
Scalability
Outsourced CFO services are very beneficial for small to medium-sized businesses due to their lower cost. Another reason why they are a better option than hiring a full-time CFO is that they can be scaled up or down. Depending on your company’s needs, growth, and recent changes that it has undergone, you can outsource CFO services accordingly. Moreover, the services can be customized to your company’s unique needs, thereby providing tailored support and solutions.
Added Value
For many high-growth businesses, the option to outsource CFO services is better than building an in-house CFO team. This is because full-time CFOs charge on an hourly basis per day. Moreover, they require a separate office space, employee financial and non-financial benefits, and other expenses such as insurance, office equipment, etc. All this can quickly add up to be very expensive, especially for small businesses or those working under a tight budget.
On the other hand, when you can hire a part-time CFO, you only pay for their services on a short-term basis. Additionally, you won’t have to worry about the added expenses that are unavoidable with hiring a full-time employee.
6 Signs Your Business Needs an Outsourced CFO
From startups to multinationals, almost every business can benefit from outsourcing CFO services. If you are unsure whether your business needs an outsourced CFO, the following signs will help you get a better idea.
Your Business is New
New business owners are often dealing with a lot on their plates, and have a hard time managing the rapid growth. If you have a lot of balls in the air, it might be time to outsource a CFO. Doing so will take the weight off your shoulders, and allow you to delegate the complexities of making business decisions to a professional.
You Don’t Want to Commit Long-term
Hiring a long-term CFO when you don’t need their services can be quite wasteful. A better solution is to outsource a CFO during high-growth times so they can manage your accounts and assist with day-to-day activities. They also allow you to determine your nature of engagement, scope of work, and working hours.
You Have a Small-to-Medium Sized Business
Small to medium-sized businesses usually don’t have a budget to hire full-time CFOs. As a result, owners and management may sometimes make decisions based on instinct rather than objective inputs and financial data.
Your Business is Rapidly Expanding
If your company is growing exponentially, you will have a hard time managing your finances, irrespective of your experience and expertise. During such a time, delegating your responsibilities to a fractional CFO will ensure that the company can keep up the pace. This will ultimately help in avoiding severe financial problems later on.
Your Business is Experiencing Financial Trouble
Every business experiences financial hiccups from time to time, and that’s normal. However, if your business is going through frequent financial issues then outsourcing a CFO may help. Whether you’re dealing with liquidity issues or are tired of your balance sheet never tallying, it may be time to hire a professional.
If you feel like your company’s financial health s wavering, a CFO can figure out the root cause of the issue. Moreover, they can prepare you for future threats and opportunities.
Your Business Requires Funding
If you aim to grow your business, you will require funding from external sources, such as private investors and financial institutions. Expanding a business requires accurate financial reporting, careful planning, and a shift in your company’s existing strategy. Outsourced CFO services can help you effectively manage these changes and get your company looking as financially sound as possible to attract potential investors.
Important Features to Look for in an Outsourced CFO
- Money management Skills – This is a no-brainer, but anybody who would be managing your finances should have good money management skills. Moreover, they should be aware and experiencedwithin your industry so they can deliver the best results.
- Relevant degree and experience – An outsourced CFO must have a Master’s degree in accounting, business administration, or finance, and relevant experience specific to your industry. It is best to choose a candidate who has worked with businesses similar to yours to minimize room for error.
- Good at communication. When you outsource CFO services, you should convey your expectations and requirements. They should, in return, communicate with you frequently and transparently. Make sure that the person or entity you choose values communication, and gives regular feedback.
- A strong network. The outsourced CFO you hire should be well-connected with other industry professionals. They include tax consultants, finance and corporate lawyers, insurance agents, and company auditors. This will allow you to receive detailed financial guidance and insights.
Final Thoughts
An outsourced CFO provides the services of a full-time CFO but on a flexible basis. Hiring them can bring a host of advantages for all businesses, regardless of their age and size. But before you hire one, be sure to do your research and ensure their personality is compatible with yours.
