This post was originally published on January 19, 2016, and extensively updated on February 01, 2021.
The role of a Chief Financial Officer (CFO) is to oversee the financial operations of a company. CFO is an important job, and yet many small and medium-sized businesses don't have one. They handle finances themselves or delegate them to employees.
At CMP, we work with businesses largish ($100m) and small every day. One of the recommendations we make frequently to our clients is to consider an outsourced CFO. In this post, we will explain what outsourced CFOs do and provide guidance to help you decide whether to outsource a CFO for your company.
Our clients often ask us, "What is an outsourced CFO?" An outsourced CFO is a CFO who provides services on a contract basis. The person who handles CFO responsibilities will be a contractor with your company, not an employee.
They are also called:
CMP's CFO Services are customized to help each and every business we work with. The business needs will determine the amount of time and hours.
Outsourcing is a great choice for companies whose budgets do not allow for a full-time CFO. If you hire a contractor, you are not paying for benefits. Even if the outsourced CFO's hourly rate is high, it may be significantly less expensive than hiring someone full-time.
The duties and responsibilities of an outsourced CFO are the same as those of a full-time CFO. The CFO of a small-to-medium-sized company is responsible for the review of financial results and the interpretation and presentation of results to the management team.
Other crucial CFO responsibilities include:
In addition to day-to-day financial management, CFOs must be forward-thinking. It's the CFO's job to take the economic, industry, tax, governmental regulation, and social issues into account as they direct the strategic financial objectives of the business. Accurate financial information is critical to business owners, the management staff, and external stakeholders such as banks, investors, and tax authorities.
Before researching outsourced CFO services, you’ll need to decide whether outsourcing a CFO is the right decision for your company. Here are some questions to ask.
If the answer to any of these questions is yes, you may want to work with an outsourced CFO service to find a part-time CFO.
When we bring up the topic of CFO services, some of our business clients wonder if their businesses are big enough to justify paying for a CFO. The answer depends on many factors, but most importantly the complexity and transaction volume of the company.
A company generating $5 million in revenue may be ready for a CFO while a company generating $20 million may not. One business could sell a product for $1.5 million but sell only five units in one year, while another might need 48,587 transactions to reach $10 million with an average transaction of $206. The complexity of the transactions themselves is a factor in determining the need for a CFO.
There is no one answer to the question about the company size and the need for CFO services. A small company with cash flow issues or complicated financial transactions might need a CFO more than a larger company with less complexity. The CFO role is important but in some cases, it may not be necessary to hire someone.
In some cases, an interim CFO may be all you need. If your company is headed for a merger, or acquisition, or struggling to find investors, you may need a high-level financial person to help you. In that case, a fractional CFO may be the right solution.
The need for a CFO is not always clear to business owners. In some industries, a CFO is a necessity. Examples include banking, finance, and insurance. When a company has a fiduciary responsibility to clients, having an experienced in-house CFO is essential.
In other industries and businesses, the decision may not be so clear. Regardless of your industry, here are four key factors that indicate you need an outsourced CFO to handle financial decisions and strategy.
The best way to determine whether you need outsourced CFO services is to be honest about your company's current financial situation, ongoing challenges, and long-term goals. If you recognize that you need guidance, then CFO services may be necessary to ensure your financial health and growth.
There are significant benefits to outsourcing CFO services instead of hiring someone in-house. These benefits include:
There are significant benefits to using outsourced CFO services for your company. Outsourced CFOs are less expensive than full-time CFOs and they bring some much-needed skill and perspective to the companies who use their services.
Business owners are sometimes confused about which type of financial assistance they need. In some cases, a CPA may be required while in others, a Controller or CFO is better suited to the job.
A Certified Public Accountant or CPA is licensed by the state where they do business. They are qualified to handle day-to-day financial tasks including bookkeeping, payroll, and taxes.
A Controller is a financial manager whose job is to supervise a CPA or in-house accounting staff. They may also handle some big-picture financial tasks such as creating budgets.
A CFO is the highest-level financial job in a company. Outsourced CFOs are typically responsible for overseeing financial decision-making and management, including long-term financial planning.
You should evaluate your financial needs to determine what your company needs. You may need both a CPA and a CFO, or you may need to fill all three positions.
Some companies may need an in-house Chief Financial Officer, while others can benefit from outsourced CFO services. The primary benefit of hiring an outsourced CFO is, as we mentioned above, the financial savings. It is significantly less expensive to pay for contracted services than it is to hire an employee who receives both salary and benefits.
If you're worried about the bottom line or you want the outside perspective you can get from someone with diverse experience, you may want to consider an outsourced CFO.
According to Salary.com, the average salary for a full-time CFO is $393,412 as of the end of 2020. That works out to $32,784 per month. At the low end of the scale, you can expect to pay about $299,000 on an annual basis.
By contrast, a smaller company might need someone only one day per week, which could cost between $1,200 and $2,500 per week or between $5,000 and $10,000 per month. By outsourcing a CFO, you can put the money you save into your business.
It may take time to find the right CFO. You will want someone that understands the latest financial and accounting practices, and you also need someone you can trust.
Due diligence is essential. Ask candidates these questions:
Make sure you contact all references and verify any claims the candidates make about the results they have delivered for their clients.
Outsourcing a CFO may be the right solution for your company. The information we have provided here will help you evaluate your needs and decide whether outsourcing is the best choice.
Do you need help with financial management and planning for your business? Contact us today to learn how CMP CFO services can help.