What is a CFO?
Generally speaking, a Chief Financial Officer or CFO is one of the key leaders of an organization. Along with the CEO, they are responsible for overseeing the growth of the company. However, their specialty is targeted towards maintaining and overseeing the financial aspects of the organization.
They are responsible for keeping track of the company’s financial weaknesses and strengths. With the information they have, they create and suggest plans for improvement. Their input and analysis of the current financial state are crucial as it helps the leadership make projections and big decisions.
Regardless of the industry, type and size of the company, a CFO is an important part of the company. However, many companies, especially new small businesses don’t have the budget in the beginning to hire an in-house CFO.
Companies with less than $10 million in revenue can’t justify the cost of a full-time CFO. That does not mean that they don’t have financial goals and needs that require an executive. The fact of the matter is that they are not yet complex enough to justify top-level involvement every day.
This is the reason why companies seek part-time or outsourced CFOs. Outsourcing a CFO helps companies focus on financial elements that need immediate attention. They can be cost effective and bring outsider perspective.
What is an Outsourced CFO?
Just like a regular CFO, outsourced CFOs are financial experts with the same aptitude for creating and providing financial strategies. The only difference is that they provide their services on a part-time or contractual basis.
Since they don’t work with just one single company during their career, they gain experience working in multiple high-level organizations. They work in a number of private and public companies and assist them through different stages of growth.
Besides that, hiring an in-house CFO means you need to pay an annual salary along with benefits. And since CFOs are c-suite executives, the salary can be costly. Also, there are annual raises. Overall, it can get very expensive.
Before we move on to discuss the services outsourced CFOs provide, let’s take a look at why companies actually make the decision to hire a CFO. This will help you recognize whether your organization needs an outsourced CFO or not.
- They need an interim CFO while they search for a replacement for a full-time CFO. When an organization is still determining who to hire for the position, they might need an interim CFO in the meantime to manage their financial needs.
- Organizations often bring on an outsourced CFO when they are undergoing big changes. For instance, if they are extending a product line or pivoting into a new industry, an outsourced CFO may have the experience to offer advice.
- When a company needs to reduce its costs, an outsourced CFO can help manage them, analyze the risk, mitigate it and maximize margins.
- When a company needs to raise debt or equity for further investment, an outsourced CFO with expertise in raising capital can help. They can negotiate terms and advice on finding the right combination of debt and equity to finance future projects.
- When companies need financial forecasting, an outsourced CFO has the experience and knowledge to provide detailed forecasts based on the company’s goals.
- Companies who have an in-house CFO sometimes lack experience or expertise in a specific area. This can make it difficult to overcome a particular challenge. An outsourced CFO that does have the expertise can consult the existing CFO to transfer valuable skills.
These are some of the basic reasons why a company might need to hire an outsourced CFO. However, the requirements and reach for each company will vary.
What does an Outsourced CFO Do?
Outsourced CFOs have decades of experience guiding and assisting organizations to create and manifest financial goals. If you are considering hiring an outsourced CFO, here is a list of services you can expect to receive.
1. Analyzing Cash Flow
Analyzing and controlling the cash flow is the main service a CFO carries out. An outsourced CFO understands and keeps track of where the cash comes in and goes within the company, and how it’s used and who uses it.
Cash flow is a key financial function for every business. An outsourced CFO helps an organization understand what a company spends and how. It helps the company maintain its integrity when it comes to securities, valuable documents, funds, and more.
With the CEO, an outsourced CFO comes up with new accounting/finance policies and procedures. These include better solutions for credit, purchasing, bill payment, and various other financial obligations. A clear indication of how your expenses are managed makes it easy to monitor and map out a business’s growth. An outsourced CFO helps with that and solves cash flow issues.
2. Creating Financial Strategies
Strategic financial management is expected of all CFOs. An outsourced CFO brings that financial strategy to the organization and focuses on creating long-term plans. Along with maintaining records and bookkeeping, outsourced CFOs analyze the current situation of the company and map out the direction it needs to take in order to grow and improve.
They have access to financial and customer data across the organization and use it to develop actionable plans. Furthermore, outsourced CFOs are third-party hires and provide unbiased opinions while developing strategic alternatives.
Since strategy is the core of the role CEOs and organizational leaders play, an outsourced CFO is well-equipped to provide proactive, forward-thinking assistance and advice. This helps management drive the company in one direction.
3. Understanding and Interpreting Financial Reports
Being a business owner, you will quickly learn the importance of constant financial monitoring. The most current state of finances is imperative for organizations as they direct daily operations. They create an easy way to stay apprised of the company’s financial situation, which is through accurate bookkeeping and financial reports.
One of the core functions an outsourced CFO performs is critical analysis and interpretation of these financial reports. This allows them to get a clear picture of how the organization has been performing. Instead of the CEO, an outsourced CFO sifts through financial statements and creates detailed reports that help the organization make well-informed decisions.
4. Cutting Costs
Cost cutting is a goal many companies have, especially small businesses that also require outsourced CFOs due to budgetary constraints. Outsourced CFOs are also more effective when it comes to cutting costs strategically.
This is mainly because outsourced CFOs are not in-house employees and are unbiased in their opinion. They are more objective in their decisions and use data and experience to strategize.
Outsourced CFOs also have experience working for a number of companies in multiple industries. This provides them with insights and understanding of industry benchmarks that help compare costs.
Forecasting is essential for every business that is on a track towards growth and expansion. Financial forecasting in the most basic form gives an indication of the possible outcomes of a certain decision.
Outsourced CFOs analyze, interpret, and strategize their forecasts to best represent the organization’s goals. They understand both current and future capabilities of the company and aptly create accurate projections.
Forecasting is a 5 or 10-year projection of costs and other operational details that the company can anticipate under specific circumstances. This helps the organization set long-term goals. For more short-term purposes, budgeting serves the purpose.
A budget is similar to a forecast but it is focused on laying out the financial plan for a year at a time. This budget is imperative for planning and carrying out day-to-day business operations. Furthermore, the budget provides short-term financial goals that contribute to overall cost management.
7. Raising and Structuring Capital
Capital on a whole is the source of funding and money that an organization needs to stay in business. An outsourced CFO uses current financial data and projections to determine how much equity and debt the organization needs to uphold its value.
An outsourced CFO can help determine the capital structure a company needs to achieve growth. But their services are not limited to this as they also help raise the capital required. Being outsourced, they have connections with multiple financiers. They introduce their contacts to the company and facilitate the process.
During this time, they do their due diligence and provide financial reports, define the capital structure, and help negotiate the terms. Overall, this is essential for making big business decisions.
8. Maintaining Financial Relationships
Outsourced CFOs build and nurture communications with a variety of professionals in the industries they work in. Besides that, they build relationships with shareholders, investment bankers, financial analysts, and other professionals.
These financial relationships come in handy when the organization decides to administer banking arrangements and raising capital to maintain its value. They connect the management of the organization with lending institutions and commercials banks, facilitating the process.
9. Facilitating Mergers and Acquisitions
While in-house CFOs are able to perform the usual financial operations, they might not have enough experience navigating a company through a merger or acquisition. Outsourced CFOs have experience in that area and can help an organization, regardless of what kind of transaction takes place.
They conduct preliminary analysis to create reports, forecasts, and other relevant documentation. This makes it easy for the company’s management to stabilize financial functions to facilitate the transaction.
The Benefits of an Outsourced CFO
Based on the above services, you can assess whether you need an outsourced CFO or not. However, the benefits of hiring an outsourced CFO can help take your company to the next level. Some of the benefits of hiring an outsourced CFO include the following:
Hiring an in-house CFO doesn’t mean you’ll be only paying their salary. Many new startups fail to realize that along with the salary they have to pay benefits and taxes. Moreover, they also have to provide a yearly promotion.
This all sums up and brings up the cost of having an in-house CFO. This cost is often out of budget for many small business owners. Outsourcing CFOs, on the other hand, are more cost-effective. You only have to pay for the services you need.
With a resource solely responsible for handling the finances, it saves the CEO and everyone else time they would spend on bookkeeping. An outsourced CFO takes on the responsibility of handling finances so they can focus on their own specialties.
A business owner, CEO or in-house employees might not always have financial aptitude required in a CFO. An outsourced CFO has this expertise, which is gained through years of working with various companies.
Besides that, they have access to insights that are not usually available to companies. This helps while setting goals and comparing growth against industry benchmarks.
4. Unbiased Viewpoints
Internal employees and business owners have a bias toward the company and can sometimes lose objectivity while making important decisions. Since outsourced CFOs are independent contractors, they are more objective in their decisions.
Due to these benefits, many companies are now in favor of using the services of outsourced CFOs. If you decide that your organization can benefit from an outsourced CFO, make sure to do your research and look at their industry experience before hiring them. Also, make sure that they get along with the leadership and understand your business goals. This will make achieving those goals much easier.
Hire an Outsourced CFO!
The benefits outsourced CFOs provide along with their ability to deliver valuable skills and insights help an organization to target both long and short-term goals, starting right now. The main services an outsourced CFO can provide an organization can help propel the company toward growth and help make strategic financial decisions. Their analysis of the company’s finances gives actionable insights that the CEO and company leadership can act on immediately.
Vinnie Fisher is the co-founder and CEO of Fully Accountable, an outsourced accounting and finance firm for digital and eCommerce businesses. He discovered a much needed service for business owners and now spends his time serving these companies.