What is an Outsourced CFO? Why should you use them?
Explore how outsourced CFOs offer expert financial strategy, cost savings, and flexible growth without the expense of a full-time in-house executive.
According to Salary.com, the average annual salary of a Chief Financial Officer (CFO) is about $457,885 but typically ranges between $351,061 and $586,210. Hiring such a professional in-house may be a far-fetched dream, especially in a country where 82% of businesses fail due to cash flow problems. Even if you have the money to employ an in-house CFO, finding a highly experienced and trustworthy professional can be daunting, thanks to the shrinking number of candidates in the job market.
Despite these challenges, the need for advanced financial leadership is non-negotiable, especially for businesses seeking to scale from startup mode. This is where outsourced CFO services come in. With an on-a-needs basis budget, your business can tap the high-level expertise of fractional CFOs without breaking the bank and develop sound financial strategies for growth and maximum profitability.
But that’s not all. There is more to outsourcing CFO services than meets the eye. Explore this guide to learn more.
What is an Outsourced CFO?
Also known as a fractional Chief Financial Officer, an outsourced CFO is an individual professional or a reputable firm hired to provide expert financial services and strategic advice to businesses on a full-time, part-time, interim or contractual basis. Unlike in-house chief financial officers, outsourced CFOs don’t work exclusively for one company and may serve multiple clients simultaneously. Their commitment to your venture is on a need-basis, saving you from everyday employee-related expenses.
It’s also worth noting that while a fractional Chief Financial Officer may serve your business on an interim basis, there is a distinction between an interim CFO and an outsourced one. The former is hired temporarily to replace an in-house departing employee. In contrast, the former is an external player who joins your business and may stay on for an indefinite period.
What Are CFO Services?
CFO services include comprehensive financial management solutions that provide businesses with high-level, valuable insights for proactive risk management and informed business decisions. These services extend beyond traditional accounting and bookkeeping roles to oversee a company’s financial activities, meticulously document them and generate analysis to manage debt while maximizing profits.
Prevalent Chief Financial Officer services that can help maintain smooth operations and foster long-term business stability include tax planning, cash management, financial risk management, capital structure, and financing. Others are financial planning and analysis, acquisitions, and financial strategy and growth.
Why Outsource Your CFO?
Now that you understand what is outsourced CFO, why should you work part-time with an external financial executive instead of hiring one in-house? By outsourcing a CFO, your company can tap high-level expertise at a fraction of the cost, allowing you to lower labor costs and still compete favorably against businesses with in-house chief financial officers.
At the same time, an outsourced CFO combines a wealth of experience from multiple companies, allowing you to benefit from specialized knowledge, advanced financial strategies, and best practices, which may not be available at an in-house level. Also, outsourcing gives you the flexibility to scale up or down depending on the prevailing needs while freeing up the C-level team to focus on core business functions instead of crunching numbers endlessly.
Have Questions About Outsourced CFO?
What Does an Outsourced CFO Do?
Reputable fractional Chief Financial Officers often go above and beyond to provide a range of services tailored to meet the specific needs of the underlying business, such as growth and financial. These services include:
1. Financial Planning and Analysis
One key role of an outsourced CFO is developing and overseeing a company’s financial plans, forecasts, and budgets to steer it toward growth and prudent decision-making. As a knowledgeable professional, the external C-level partner will create detailed financial models to estimate future revenue, expenses, and cashflows to help your business allocate resources effectively and mitigate potential financial pitfalls.
2. Identifying Strengths and Weaknesses
Chief Financial Officers are trained to identify well-performing business areas and opportunities that require improvement to align the company’s finances with its overarching goals. Besides highlighting strengths that can be leveraged for growth, such as efficient processes and highly profitable service or product lines, a CFO can benchmark your business’ performance against other players or known industry standards to identify weaknesses in revenue streams, operations, and cost structures. This allows the expert to provide actionable advice on how to capitalize on opportunities and optimize performance.
3. Financial Viability Assessment
Businesses trust outsourced CFOs to evaluate their financial health and sustainability in the long haul, paving the way for the implementation of strategies that can foster growth and business continuity even during uncertainties. These professionals will analyze a company’s liquidity, solvency, and profitability metrics to gauge whether it can sustain its long-term and short-term goals while recommending mitigation strategies for identified financial risks. Additionally, they can help assess the feasibility of new investments or business lines to ensure they align with your financial goals.
4. Pricing and Cost Analysis
The goal of any business is to remain profitable, whether during peak seasons or market turmoils. Outsourced Chief Financial Officers can further this goal by conducting perioding pricing and cost analyses to optimize product or service pricing and ensure that it aligns with market conditions and business goals. In addition to recommending suitable pricing strategies, they can analyze cost structures to pinpoint areas for efficiency enhancement or cost reduction, depending on the underlying business needs.
5. Financial Reporting
Outsourced CFO services include comprehensive, accurate and timely financial reporting to foster transparency and support results-driven decision-making. By preparing financial documents, such as income statements, balance sheets, and cash flow reports, on time, fractional CFOs ensure that businesses are compliant with accounting standards and regulatory requirements. They can also track financial metrics and key performance indicators in real-time to present the true financial health of the underlying business to relevant stakeholders, including the management staff, investors and board members.
6. Negotiation
According to recent data, less than 4% of business managers in the U.S. reach a “win-win” outcome after negotiating. In another study, researchers found out that businesses in the UK and other parts of the world could enhance their profitability by as much as 7% annually if they had good negotiation skills. In other words, negotiation is a must-have business skill that many executives lack.
Fortunately, Chief Financial Officers can act as strategic advisors on behalf of businesses to help them strike better deals with lenders, investors, or vendors, ultimately leading to favorable financial outcomes and stronger ties with external parties. These professionals also have the skills to advise on agreement terms and conditions to safeguard your company’s interests during negotiations.
7. Merger and Acquisition Opportunities
Outsourced chief financial officers have the skills and technical know-how to identify, evaluate, and execute merger and acquisition opportunities while safeguarding the business interests of your startup. They can conduct due diligence to assess the v
8. Regulatory Compliance
Another key role of a fractional chief financial officer is ensuring business compliance with federal and state financial regulations. This professional can implement internal controls to mitigate fraud and foster accurate financial reporting while staying abreast of dynamic tax laws and industry regulations to foster ongoing compliance. Besides boosting your company’s reputation, this role saves you from unnecessary non-compliance risks, such as legal action and penalties.
9. Strategic Collaboration
An outsourced CFO is a C-level business partner who can foster strategic collaboration with other leaders within the company to jointly develop financial strategies that support growth and expansion. In addition to serving as a trusted advisor to the CEO and board of directors, the chief financial officer works closely with other department heads to create and monitor budgets, ensuring that they align with the company’s overall vision and goals.
Advantages of Outsourced CFOs Over In-House CFOs
Generally, outsourced Chief Financial Officers provide significant advantages over their in-house counterparts, especially when it comes to flexibility, cost efficiency, and access to expertise. With this in mind, here is a comprehensive comparison highlighting how your business could be better off outsourcing its financial services rather than building a full-time, in-house team to oversee the same.
Aspect
Outsourced CFO
In-House CFO
Cost
Lower pricing and flexible pricing with no overhead costs.
Expensive fixed salary and employee benefits, such as allowances and insurance cover.
Expertise
Diverse experience and specialized skills earned from working with multiple businesses across various industries.
Experience is limited to the talent’s background and individual qualifications.
Flexibility
Provides on-demand and scalable availability with no commitment.
Services are based on an upfront commitment, and the talent may be slow to adapt to changing business needs.
Technology
Has access to advanced, industry-recognized tools and resources for prudent financial management.
Has limited resources, and the availability of these might vary from one business to another.
Transitional Support
Has the skills to provide interim leadership in the event of major changes at the company.
Might not be able to fill in gaps in leadership during key transitions.
Speed
Hits the ground running to implement proven strategies and immediate impact.
The onboarding processes might take longer, depending on the talent’s location or the company’s resources.
How Outsourced CFOs Support Business Growth
Look at outsourced CFOs as dependable business partners who can provide expert financial leadership and operational guidance to support your company’s growth in many ways. Besides helping you navigate challenges and seize opportunities, fractional Chief Financial Officers can perform the following roles to stimulate business growth:
- Develop a viable financial strategy: Outsourced financial gurus have the technical expertise to build a robust financial strategy based on various growth scenarios, such as market expansion or new product launches, ensuring your company doesn’t fly blind into the future.
- Optimize operational costs: Chief financial officers can implement the latest technologies to streamline operations and cut down unnecessary costs. They can also conduct expense analysis to identify cost-saving opportunities or negotiate with suppliers to strike better deals that save you money.
- Help fundraise and build strong investor relationships: Fractional CFOs can prepare compelling financial reports to help raise capital and inculcate strong relationships with existing investors. This ensures that your business can access additional funding to finance its growth initiatives.
- Monitor performance and track KPIs: Outsourced financial experts have the knowledge to identify key performance indicators and track performance in real time via intuitive dashboards. This allows the management to access insights based on KPI analyses to drive the business toward its growth goals.
- Manage risks proactively: These experts can conduct financial, operational, and market risk analyses to develop strategies for addressing potential pitfalls that might impede growth. Besides implementing contingency planning, they can ensure your business has adequate insurance coverage and is compliant with all the necessary regulations.
What Makes a Great Outsourced CFO?
Hiring the best outsourced CFO services takes more than intuition and good luck. If you’re going to get a bang for your buck and keep the business on track during trying moments, you might want to consider a professional who exhibits certain qualities, such as:
Strong Financial Expertise
The first quality to look out for when engaging with a potential fractional CFO for your business is the level of their financial expertise and whether it’s relevant to your unique financial needs. For instance, someone with experience in financial analysis and modeling can help you improve decision-making. At the same time, an expert in tax and compliance can assist with accurate reporting and proactive regulatory risk management.
Relevant Industry Experience
Industry-specific skills and knowledge allow outsourced CFOs to provide customized services that are uniquely targeted to the underlying business. Watch out for a professional who has worked with businesses in industries similar to yours, especially if you’re dealing with specific challenges and regulations that demand a certain level of expertise.
Good Communication and Collaboration Skills
Find a fractional chief financial officer with good communication and collaboration skills to represent your business adequately during negotiations. By being able to communicate clearly and collaborate closely with relevant stakeholders, the professional will ensure the company’s financial needs are understood and supported across the board, ultimately fostering trust and transparency with key players.
Strong Technology Proficiency
In addition to being familiar with modern financial tools, such as accounting software, an outsourced CFO should be eager to seize opportunities presented by emerging technologies like AI to automate processes and enhance financial management. By partnering with a tech-savvy financial expert, your business can also improve accurate financial reporting and leverage real-time data for prudent decision-making.
Problem-Solving Abilities
A great Chief Financial Officer should be able to think on their feet and find solutions to unique problems, allowing your business to run smoothly without unnecessary interruptions. For instance, the expert should demonstrate abilities to solve prevalent financial challenges, such as a cash flow crisis, regulatory roadblocks, or cost overruns. At the same time, they should be able to maintain their calm and make informed decisions under pressure without jeopardizing business goals.
CFO Services for Different Business Sizes
Outsourced Chief Financial Officers are highly adaptable experts who can provide tailored services for businesses of all sizes while addressing the underlying unique needs of individual clients. These businesses include:
Startups
Startups might need the services of an outsourced Chief Financial Officer more than businesses in other phases of growth. This is because they must build a strong financial foundation, manage cash flow effectively and leverage debt or other financing options to support rapid growth. That said, outsourced CFOs can help startups with a range of customized services, including financial modeling and forecasting, fundraising support, budgeting and cost control, cash flow management, and compliance.
Small Businesses
Small businesses must maintain profitability to explore new growth opportunities and sustain continuity in the long term. Tailored CFO services that can help small business owners achieve these goals include profitability analysis, which entails identifying high-margin products and optimizing pricing strategies, scalability planning, financial reporting, and cost optimization. Additionally, fractional CFOs can help businesses at this stage secure additional funding or equity investments to finance growth ambitions.
Medium-Sized Businesses
Outsourced CFO services for medium-sized businesses include strategic financial planning to guide expansion and innovation initiatives, as well as performance monitoring to track KPIs and provide actionable insights for seizing growth opportunities presented by major transformations. Moreover, fractional financial experts can also negotiate for potential mergers and acquisitions if the business seeks to scale into a large enterprise with locations across multiple regions or beyond borders.
Large Enterprises
Bigger enterprises that have just graduated from medium-sized businesses can leverage the expertise of outsourced CFOs to optimize financial operations across multiple locations or departments, comply with complex regulatory provisions, and manage large-scale capital allocation effectively.
Fractional Chief Financial Officers can also provide corporate governance services to these businesses by helping them strengthen internal frameworks and controls. This, in addition to supporting strategic initiatives, ensures financial efficiency and overall compliance with dynamic regulations.
Wrapping Up
The benefits of working with an outsourced CFO are immense, especially if you’re just starting a business or undergoing massive transformations, such as mergers and acquisitions amid rapid growth or financial distress. By working with an outsourced professional, you can save hiring costs and tap high-level financial expertise without rigid commitment, allowing your business to be flexible and profitable to seize new growth opportunities as they arise.
