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Not all entrepreneurs are numbers people. A startup founder could be effective at doing pitches to get funding from venture capitalists or a construction contractor could be good at closing projects…
At some point, however, these businesses would need financial advice from a higher standpoint. In this case, engaging with a Chief Financial Officer (CFO) is a sensible approach.
A CFO is an integral part of a company’s management. They are responsible for overseeing the financial activities of a business, including its past and present financial health. Unfortunately, a small business or a startup may not yet afford a full-time CFO.
Outsourcing CFO services might make more sense for growing businesses, as a fractional CFO costs substantially lower than hiring a full-time, in-house employee. But before discussing the benefits of having an outsourced CFO to your business, let’s clearly define what it is.
What is an Outsourced CFO?
Many companies have seen the advantages of outsourcing — save time and money, flexibility, efficiency — with IT, bookkeeping, and marketing being some of the most outsourced services.
What many business owners and startup founders do not realize is that they could also outsource their finance function, which could bring tremendous value to their business.
Hiring outsourced CFO services gives businesses access to high-level financial experts who have a wide range of experiences from various industries.
These finance leaders are external employees that provide top-level financial strategies to organizations, whether on a part-time, short-term, or per-project basis.
What’s the difference between a Full-time vs Outsourced CFO?
As your business experiences rapid growth, there will come a time when you will need vital information to allow you to make timely and critical decisions.
With a CFO in your team, you can rely on them to provide you with accurate data to help you make these decisions.
If you do decide that you need a CFO, the question you need to answer next is whether to hire an in-house CFO or outsource a third-party CFO.
Evidently, the main advantage of having an in-house CFO is that you have someone looking over the company’s financial health in a full-time capacity.
They don’t have other clients to cater to, so they are focused solely on your business.
For a small business, however, a full-time financial officer might not be an economical option. According to Investopedia, the average compensation of a CFO in the U.S. as of May 2021 is $393,377 per year, which is eight times more than the average full-time worker.
The alternative solution would be outsourcing a CFO, who can work for your company either on a part-time, short-term, or as-needed basis.
Outsourced CFO services can range from $1,000 to $12,000 per month, which is much more cost-effective than hiring a full-time CFO.
In addition, most outsourced CFOs provide their services virtually, which means they manage and oversee the well-being of the company remotely using cloud technology.
This is particularly an advantage to businesses, given the current situation where workplace flexibility and cloud-based tools are necessities.
What are the Responsibilities of an Outsourced CFO?
Typically, when a company engages with CFO services, the main objectives are: 1. improve the business’s financial strategy through accurate forecasts and efficient systems; 2. overcome issues, such as poor cash flow; and 3. assistance to raise capital or prepare the company for an exit.
With this in mind, you can expect the following services from a high-level outsourced CFO:
- Financial planning and forecasting
- Report facilitation and interpretation
- Cash flow forecasting
- Management reporting
- Preparation of financial board reports
- Ongoing business review
- Yearly budget preparation
- Assistance in raising capital
- Facilitate mergers and acquisitions
When does a business need an Outsourced CFO?
Whether you’re hiring a CFO during the early stages of the business or you need expert advice on managing your company’s finances, the bottom line is having a CFO on board brings a lot of benefits to the company.
But to help you make a decision, here are some indications that it’s the perfect time to hire an outsourced CFO.
Your company is going through rapid growth – Venturing into new markets and launching new products involves a lot of financial risks. Outsourcing a CFO who has extensive knowledge in similar products or industries can provide you with strategies and help you manage these risks.
In addition, rapid growth requires additional capital, and a CFO is best suited in assisting you to acquire the funding that you need.
Your business transactions are becoming more complex – Having a bookkeeper and accountant can help you stay on top of your finances. However, as your business grows and your transactions become more complex, you will need a team member with a higher level of knowledge, like a CFO.
Your company is preparing for a merger or acquisition – If your company is selling or is looking to acquire smaller businesses for growth, a CFO will play a huge role at every stage of this process.
This is where hiring an outsourced CFO comes to an advantage as you can engage with them only as you need them.
Reasons Why Your Business Needs an Outsourced CFO
With so many challenges that businesses face today, having the skill set of an experienced CFO at your expense is an advantage. Here, we listed the top reasons why you should use outsourced CFO services for your company.
- Access to top-tier advice – As a startup or a small business begins to grow, it will require the skills of a financial expert to navigate through challenges that are inevitable in an expanding company. An outsourced CFO can deliver this expertise at the fraction of the cost of a full-time employee.
- Increase revenue – A CFO can do more than preparing financial statements and balancing books – they also help businesses increase revenue. For example, a CFO can negotiate with vendors on your behalf to lower costs, identify unnecessary expenses so you can avoid them, provide advice on investments to increase efficiency, and many more.
- Improve cash flow – In a study by U.S. Bank, it revealed that poor cash flow management was one of the top reasons why the majority of businesses in the U.S. fail within the first five years. Hiring an outsourced CFO can help improve cash flow as they will provide you with projections and strategies that will ensure that you have adequate money to keep the business running.
- Streamline processes – Another advantage of using outsourced CFO services is that they can identify your pain points in your current processes then provide solutions to streamline and improve the business’s performance.
- Get accurate and timely financial information – To steer your business in the right direction, you need to have credible and up-to-date information as a basis for your decisions. A CFO will ensure that you receive accurate data and they will also provide you guidance to help you take your company to the next level.
- Gain new perspective – Some owners may be hesitant about the idea of outsourcing because it meant hiring an employee outside of the organization. On the contrary, an outsourced CFO can come into the job and bring in a fresh perspective and objective solutions to the company.
- Increased credibility – Especially when a business starts to seek funding, VCs or lenders will look for management reports, which a founder with no financial experience will find hard to prepare. An outsourced CFO can assist startups to prepare all the necessary documents, forecasts, plans, etc. to raise capital and gain the confidence of investors.
Is an Outsourced CFO the right approach for your business?
Besides reliable bookkeeping, Akuracy provides Outsourced CFO services, giving support to our clients where they need us — whether regularly preparing financial statements, budgeting, forecasting, implementing controls, raising funds, and more. Get in touch with us if you want to know how we can help.