As a fast-growing small or mid-size business, it’s hard to know when the perfect moment is to expand the C-suite. In the case of a chief financial officer role, the analytical financial expertise that a senior finance leader brings to the organization elevates operations, optimizes cash flow, aligns business goals, and lowers business risk.
However, hiring a CFO before the strategy and compliance needs of the business are complex and abundant enough to match is expensive. As of August 2022, Salary.com reported that the average CFO’s salary in the U.S. was $416,649 and CFO salary range fell between $316,757 and $532,369. Those are steep prices to pay for a job that might not require full-time coverage. CFO services—also known as CFO outsourcing—is a flexible alternative for businesses in high-growth stages where CFO guidance is critical, but a full-time hire is too much.
What Does an Outsourced CFO Do?
With CFO services, a business outsources the operational, compliance, and reporting responsibilities of the CFO office to an expert financial services firm. Those financial responsibilities can include:
- Setting up financial infrastructure, from systems to teams to best practices
- Assessing and improving compliance and pricing strategies
- Establishing meaningful financial planning, financial reporting, and KPIs
- Addressing cash flow management with internal controls
- Analyzing product performance
- Forecasting growth
- Managing and mitigating risk
- Assessing and vetting business opportunities, such as M&A prospects and strategic partnerships
- Guiding long-term, strategic business decisions and financial management
- Supporting leadership in raising capital or refinancing debt
- Providing optimization guidance to accounting teams on day-to-day operations
The Cost Advantage of Outsourcing CFO Services
In most cases, outsourced CFO services are leveraged on an hourly basis. For example, smaller businesses (those with revenue between $1 and $20 million) might require 8-20 hours per month from a CFO outsourcing company. Mid-size businesses (often with revenue between $20 to $50 million) that are outsourcing CFO services are more likely to need 20-35 hours depending on their stage of growth.
With CFO outsourcing, businesses pay a fraction of the cost of hiring a full-time executive. This approach conserves capital for payroll and accounting functions and growth-focused endeavors without sacrificing critical financial expertise and guidance.
The Scalability Benefits of the Fractional CFO Approach
It’s hard to overstate the value of flexibility when a business is growing. CFO services allow organizations to ramp strategic financial support up or down based on current needs. For example, as a business approaches an important transaction, they may scale their hours up to get more CFO support. In quieter times, hours can scale back and be held in reserve for business opportunities ahead.
The Exponential Resources of CFO Outsourcing
When a company hires a CFO, they gain lots of experience. Nevertheless, it’s still only the expertise and network of one person. Outsourced CFO services provide businesses with a team of highly and diversely experienced financial experts who partner in supporting the business, working to ensure the best financial outcomes and operations.
Exponentially increasing financial resources and networks, this team-based approach puts a brain trust of experience and an arsenal of funding resources behind a growing business, such as:
- Referral partners
- Banks and other financial institutions
- Venture capital firms
- Private equity firms
It’s an infusion of knowledge and industry connections which can accelerate information sharing and decision making. It also ensures business leaders will not hear, “I have never seen that before in my financial experience.” Instead, they hear, “we know just the team member to ask.”
Lowered Risk, Upgraded Output
Leadership teams at SMBs and fast-growing firms take on a lot of responsibilities and can be stretched thin. That can be risky as businesses look to grow and gain market and customer trust.
If Uber can make a $50 million dollar accounting mistake and Bank of America (that’s right, a financial institution) can lose track of one billion dollars, any organization is susceptible to accounting mistakes and confusion. And that’s especially true for businesses with finance and accounting teams that are short staffed or inexperienced. Infusing veteran experts, even for a few hours per month, can help businesses address their financial opportunities and responsibilities with practices precision and increased quality.
More Time for Strategy and Growth
As with most outsourcing opportunities, outsourcing CFO services, even fractional CFO outsourcing, is a time boon for busy leadership teams and overstretched accounting departments. An outsourced CFO can quickly identify inefficiencies and areas for improvement that will win the entire business more time while also transforming the financial health of the business.
Is It Time to Try Outsourced CFO Services?
For businesses looking to determine whether fractional CFO outsourcing or a CFO hire is the right approach, here are the telltale signs that an outsourced solution could be the right path:
- Leadership and accounting teams are regularly running into strategic financial questions they cannot answer and/or work they’re ill-equipped to manage.
- Business teams and leaders are unable to leverage financial data for forecasting, modeling, and reporting.
- Accounting systems like QuickBooks, Zoho Books and Xero cannot provide the custom reporting and analytical insight needed.
- A lack of internal controls has created cash flow issues.
- Pending transactions require strategic financial expertise
The next consideration for businesses confronting these financial challenges is one of scale. If the work requires 80 or more hours per month, hiring a dedicated CFO (and potentially some support staff) is the way to go. CFO outsourcing becomes cost prohibitive. If the work required can be handled in less than 80 hours per month, CFO services are a cost-effective and resource-rich way to expand financial capacity. In addition, outsourcing provides the agility and time a business needs to build towards the next stage of finance team expansion: an in-house CFO.