Is an outsourced CFO right for your small business?
There’s no question that small businesses and startups need an airtight financial plan to successfully launch, grow, and overcome new challenges. At established companies, a chief financial officer (CFO) is responsible for providing fiscal guidance, long-term strategy, and data analysis.
But when the average CFO salary is $384,643 before benefits or bonuses, hiring a full-time, in-house CFO is off the table for most small businesses. Startups that are growing rapidly may not even have time to launch a full-scale search for their ideal CFO. What’s more, rushing your CFO search could result in a poor hire that jeopardizes growth and productivity.
The good news is that companies in need of a cost-effective alternative to a traditional CFO have another option: outsourced CFO services. In this article, you’ll learn what an outsourced CFO is, how they fit into your management team, which services they offer, and how much they cost.
CFO vs. outsourced CFO
Generally, a chief financial officer (CFO) is a senior executive who oversees a company’s financial operations, including budgeting, financial goal setting, cash flow management, debt management, fundraising, and financial reporting for shareholders, lenders, and regulatory bodies.
One of the CFO’s most important tasks is to ensure a company can always meet its financial commitments. A CFO manages, optimizes, and forecasts a company’s cash balance and working capital, such as accounts payable, accounts receivable, and inventory. CFOs often act as a liaison with banks, creditors, and investors, and nurture these relationships on behalf of the company.
CFOs may also be responsible for assembling and leading the accounting and finance departments, including controllers, accountants, bookkeepers, and tax preparers. They provide high-level leadership and focus to these teams, and ensure they comply with company policies and applicable laws.
With that in mind, an outsourced CFO can provide all of these financial services for any length of time you require. It’s essentially an executive-as-a-service program offered by accounting firms.
In this context, “outsourced” takes on many meanings. Your outsourced CFO may work in your physical office location, at a firm in your city, or be in a different state entirely. In addition, they can be hired on an as-needed, short-term, part-time, or full-time basis.
Outsourced CFO services are highly flexible, so you may encounter many different titles that describe similar roles. Here are some common terms:
- Part-time CFO: An outsourced CFO who works on a part-time basis
- Fractional CFO: An outsourced CFO who works on a part-time basis
- Interim CFO: An outsourced CFO who’s hired on a short-term basis while you search for a permanent CFO
- Virtual CFO: An outsourced CFO who works remotely, either part-time or full-time
- Contract CFO: An outsourced CFO who works on a contract basis
A part-time, fractional, or contract CFO is a smart solution if you need to tackle a specific obstacle. For instance, if you’re thinking of launching a second product, a contract CFO can provide deep financial analysis on pricing, margins, and costs first. On the other hand, an interim CFO can make sure your financials are under control while you’re looking for a full-time CFO.
That said, outsourcing has disadvantages, too. First, many outsourced CFOs work with multiple clients. Without a signed contract in place, there’s the possibility your outsourced CFO could unexpectedly end their services to pursue another client. You’ll need to come to a clear understanding of when you’ll have access to your CFO and how they balance client priorities.
Second, some companies worry that an outsourced CFO is more likely to disclose their sensitive financial information to other interested parties. One of the best ways to prevent this — and have a legal response ready if it happens — is to have your outsourced CFO sign a nondisclosure agreement (NDA) before they start.
4 core outsourced CFO services
If you’ve determined that you need a CFO, the next step is to understand when, where, and how an outsourced CFO can help. Let’s review four of the most commonly outsourced CFO services that you can take advantage of:
1. Financial reporting and analysis
A CFO’s principal role is to understand and improve a company’s financial standing, and financial reports are key to doing so. Outsourced CFOs prepare and present standard business financial statements, like the income statement, cash flow statement, and balance sheet.
More importantly, they’ll analyze this financial information and summarize it into actionable takeaways. Your part-time CFO can also develop special reports and suggest new metrics you should track to gauge the effectiveness of your business spending and activities.
2. Strategic planning and financial forecasting
The best CFOs don’t just analyze the past — they look ahead to the future. One of the most valuable services outsourced CFOs provide is data-driven strategic planning.
First, CFOs can ensure you have the financial infrastructure, roles, and software tools in place to support your current operations and future business growth. This includes your bookkeeping and accounting software, payroll software, and other financial systems.
While these resources will supply helpful metrics, trends, and predictions, CFOs have the aptitude, experience, and industry knowledge to funnel them into a realistic strategy. They’ll act as an expert in your corner for business decision-making, from a single equipment purchase to crucial mergers and acquisitions.
3. Cash flow monitoring
Cash flow is one of the most common business challenges. In fact, one often-cited study showed that 82% of businesses failed due to poor cash flow management. But achieving a healthy, free cash flow isn’t just about improving monthly revenue. You also have to reduce expenditures — this is where an outsourced CFO can help.
A CFO can recommend the best methods to maximize your bottom line, including auditing your expenses, renegotiating vendor contracts, extending payment terms, and optimizing your supply chain. Furthermore, an experienced CFO will have years of experience making deals and securing better terms with bankers, vendors, and lenders.
4. Fundraising guidance
Raising funds isn’t a walk in the park for any startup or small business. But filling your CFO role — whether temporarily or permanently — can help you navigate the process with fewer bumps along the way.
CFOs play a vital role in fundraising, managing the due diligence and financial preparation needed to attract investors. Leading up to your pitch, they can ensure that you’re putting the capital you currently have to good use. They’ll draw out the most important insights from your financial statements, and help you get the best mixture of debt and equity when it’s time to strike a deal.
Altogether, having a CFO on board signals a higher level of professionalism, and instills confidence in your team and investors. It’s important to note that not every outsourced CFO will offer fundraising services, so double-check before choosing one.
How much does an outsourced CFO cost?
As we’ve covered, you can outsource a CFO on a full-service or project basis. Your executive may focus on a single project, or fully take charge of your company’s finances and accounting.
Ultimately, the nature of their work and skill set will determine the cost, but most outsourced CFOs charge an hourly rate or agreed-upon monthly retainer. While hourly rates are convenient if you have short, specific tasks, a fixed per-service fee makes it easier to anticipate costs and compare rates as you search.
It’s not uncommon to see monthly costs of $1,000 to $12,000 for an outsourced CFO. This may or may not include a team of supporting accountants, bookkeepers, payroll specialists, tax professionals, and financial consultants. But if we circle back to the average salary for a CFO — $384,643 — you can see that outsourced CFO services are available for a fraction of the cost.
Many individuals and firms offer a free consultation, so both parties can do their due diligence and see if there’s a match. That said, always ask whether there are any setup fees or other special costs.
Choosing an outsourced CFO for your business
Hiring an outsourced CFO for your business can ensure both short-term survival and long-term sustainability. Whether you need help building your financial infrastructure, understanding a change in cash flow, or preparing for your next funding round, a CFO can help. Get started with Brex’s free outsourced CFO and accounting firm search tool to find the right fit.