If you’re considering a shift to outsourced CFO services, you aren’t alone.
Research suggests 60% of small business owners feel they don’t have adequate knowledge about accounting and finance. That’s why many of them are considering—if they haven’t already—outsourcing the Chief Financial Officer (CFO) role.
Today, small business owners can recruit for high-level and low-level roles based on merit. They can find the best CFO service without worrying about a candidate’s ZIP code or physical proximity.
This also begs an important question: Would hiring a CFO outsourcing service provider make sense for your business?
In this guide, we’ll discuss outsourced CFO services in more detail and explore whether your company would benefit from working with an outsourced CFO.
What Are Outsourced CFO Services?
First things first: let’s understand the job of a Chief Financial Officer or CFO.
A CFO is responsible for everything related to your company‘s finances and keeps constant tabs on its well-being. They provide you with finance, accounting, business, and operational guidance to help you achieve your objectives, including:
- Tracking your key financial metrics
- Budget building and financial hygiene evaluation
- Creating forecast financial forecast
- Reviewing and analyzing KPIs
- Creating future growth plans
- Making insightful suggestions to improve your financial position
- Helping you acquire another business
Note this isn’t an exhaustive list. You can always adjust your CFOs responsibility based on your requirements, but the general job description is a mix of managerial and strategic tasks.
An outsourced CFO has a similar role, but it’s more focused on strategic tasks. Instead of joining your company physically, they work for you as a contracted officer on a full-time, part-time, or as an interim for the duration of a specific project.
Why Should You Consider Outsourcing CFO Services?
There’s no substitute for an experienced, knowledgeable finance professional who can guide your business towards growth, especially if you don’t have a finance background. Even if you do, outsourcing CFO services is still worth it.
For a company doing around $15 million in revenue, a CFO is going to make more like $180-200k. For over $100 million in revenue, the salary will be $200k+.
That’s some serious amount of money, and that’s before accounting for bonuses, perks and incentives, and equity. Many startups don’t have this kind of money, and even if they can absorb the expense, the opportunity cost is incredibly high, where a huge chunk of the revenue doesn’t go back into the business.
Contrarily, working with an outsourced chief financial officer will cost you nearly $2,000 for a very light financial coaching relationship to over $20k/month for some serious in-the-weeds work. Most providers will give you a custom rate based on your specific requirements and scope of the job, and charge either by the hour, day, week, or month.
On top of this, an Entrepreneur article, When to Outsource, highlighted that “most small companies might only need a CFO’s service for one day per week,” which translates to even more savings for your business if you bill hourly.
In a nutshell, you get the benefits of working with an experienced finance leader at a much lower cost than hiring a full-time CFO.
Time is an equally (if not more important) resource for small business owners.
Outsourcing CFO services will enable you to delegate critical forecasting budgeting, and reporting activities to an experienced professional. This way, you’re assured of top-quality work in a shorter time period.
Let’s not forget the valuable insights and suggestions that only a finance niche expert can bring to the table.
3 Situations When Outsourcing CFO Services Makes Sense
When’s the right time to outsource CFO services? Outsourcing makes sense when you want to lower costs while still getting access to the expertise and experience of a financial officer. But there are a few other situations, too.
Situation 1: When You Want to Focus On Business-Critical Tasks
We aren’t claiming that looking after your business’s finances isn’t an important task—it is, but it isn’t your core business.
Adding a full-time CFO to your team involves hiring, onboarding, training, and several other processes that will use up valuable resources—resources you would have otherwise used to focus on your business-critical.
Timing is everything to scale a small business to a medium-sized business. If you don’t make the most of available resources, you’ll find yourself falling behind your competition. So the fact that outsourcing allows you to concentrate on your core offering, scale your operations, and get more business.
Situation 2: When Your Company is Growing—Fast
When things finally start rolling, you also need to keep pace.
Ramped-up production, a growing customer base, and large-scale projects are an SMB owner’s dream. But it also means more financial responsibility and effective strategizing to support growth and viability—things that an outsourced CFO can help with.
An outsourced CFO identifies and evaluates opportunities and builds strategies around your products, target markets, geographies, pricing, and competition. All these efforts work cumulatively to validate strategies for long-term growth and viability.
Another consideration when scaling is hiring. Attracting and onboarding talent is a time-consuming process that can stall operations in other aspects of the business. Admittedly, you still have to familiarize an outsourced CFO with your internal policies, but the overall process is much, much faster.
Situation 3: When You Need Seasoned, Strategic Insights… On a Budget
There comes a time when every business will find itself making critical decisions—decisions that‘ll directly impact its long-term survival. It’s why your decision-making process should be backed with sophisticated insights and advice that go beyond what a bookkeeper or even a controller can give.
Luckily, an outsourced CFO can help you better understand information and data to proactively steer your business towards success without breaking the bank. With their fresh perspective into your systems, they can create sound accounting and reporting models after considering factors, like:
- Financial projections
- Industry realities
- Competitive positioning
- Internal and external resource availability
- Key business drivers and business metrics
Thanks to outsourcing, bootstrapped businesses can take advantage of a valuable resource they otherwise wouldn’t have been able to afford.
Outsourcing CFO Services Is Good for Every Business
Startups don’t need a full-time CFO. Neither can they afford it due to budget constraints, nor is it a viable decision. But outsourcing allows them to hire financial talent that can give them the strategy and expertise needed to grow while staying under budget.
Growing Mid-level Companies
A growing company has dramatically changing needs, and accurate financial modeling and planning are critical to support this growth.
An outsourced CFO can take on projects and tasks as needed to accommodate these dynamic changes. This way, you can save money on used hours while working with an experienced professional to complete the job.
Large businesses have more long-term needs when compared to startups or smaller businesses. But even in this dynamic, outsourced CFOs can help by being short-term consultants or filling in CFA requirements on a fixed-term basis—or both.
In addition, an outsourced CFO can step in during the interim to help the new CFO transition smoothly into their role.
5 Tips to Evaluate Different CFO Outsourcing Services to Find the Right Fit
Let’s take a quick look.
1. Ask Them About Their Service Package
Often, outsourced CFOs service providers act as a full-fledged finance department, handling bookkeeping, controlling, and fractional CFO responsibilities. While there’s nothing wrong with this, you need to figure out whether your business would benefit from more of these services.
Here are two instances when opting for comprehensive CFO services would make sense:
- You’re unsatisfied with your current bookkeeper or controller or don’t think they can keep up with the process changes suggested by your outsourced CFO.
- A recent Deloitte survey found that CFOs work 12 to 15 hours a day. They spend all this time on higher-level tasks, and expecting the same person to do menial tasks like making monthly reports or fixing errors doesn’t make sense. If you don’t have a bookkeeper or a controller, you should consider getting a more integrated solution to fill in these low-level roles in your company.
At Rhapsodi, we hire staff to take care of your bookkeeping and lower-level financial activities. All you have to do is pay the fee, and we’ll take care of everything.
2. Choose Service Providers That Have Worked With Other Companies in Your Industry
Many CFO professional service providers hire specialists from mid-size larger companies or an academic field. Although these specialists certainly know all the theories, there’s no substitute for on-the-job experience.
Make sure your outsourced CFO understands the real-world implications of running and scaling a small business and has experience navigating competing priorities within a company with limited resources.
You also want to ask industry-specific questions.
Every niche has its own quirks, and working with a CFO with intimate knowledge of your industry can save you a lot of time, money, and headache when anticipating industry trends and developing effective strategies in their response.
3. Cross-Check Whether They’re Comfortable Preparing Customized Reports
Any good outsourced CFO service provider should be able to adjust to various types of businesses and prepare customized reports based on the information required to process the presented data. For instance, if you aren’t comfortable with tabular data, the provider should be willing to present it in a graphical format.
The CFO should also help you identify the right KPIs or metrics so you can understand how to navigate current business challenges, opportunities, and goals.
4. Be Sure They Understand Your Team’s Perspective
Your stakeholders or board of directors communicating with your outsourced CFO is a likely event. That’s why you need to ensure the prospective service provider is skilled at understanding your team members’ perspectives and communicating the information they need.
When evaluating prospects, ask them about what kind of reports boards and investors will want to see. Generally, teams like to see projections with a balance sheet and cash flow, plus a base case and upside/downside scenarios, highlighting key assumptions between the two scenarios.
5. Set Expectations on the Event of Contract Expiry or Termination
A competent CFO service provider should document all processes properly when working on the job and ensure that the team is cross-trained to cover during emergencies. Of course, this may not be applicable for very small companies, but it’s a good practice to maintain data hygiene.
Before hiring, be sure to ask the prospective provider to explain how the documentation and cross-training will happen at your company. The service provider should be able to identify opportunities for risk mitigation, too. If the prospective service provider isn’t doing this for their own business, it’s better to look somewhere else. After all, mitigating risks is a critical aspect of their job description.
The main takeaway here is to fearlessly ask the hard questions. Contracting CFO services isn’t only about finding the provider with the most credentials at the lowest cost. You also want results. Don’t ask simple yes or no questions; ask for real-life examples, explanations, and stories.
Reading testimonials and case studies can be handy to not only find the right CFO but also work with a human you can trust and build a relationship with.
Ready, Set, Outsource
Working with an experienced finance professional doesn’t mean shelling out the big bucks. As your company grows, you can outsource CFO services to get the expertise and guidance you need at the budget you can afford.
With Rapsodi, you can leverage top-level part-time CFOs and fractional CFOs to gain greater financial visibility and facilitate sound decision-making within your budget. Get in touch with us as your first step to achieve more, faster.