Startups

What are Outsourced CFOs?

As the name implies, an outsourced CFO service is a third-party service that’s hired from outside the company, on a contractor basis, to provide the same services as a CFO — or so it would seem. In reality, however, there’s a lot more to it than that. In fact, an outsourced CFO service can actually provide an advantage over an in-house staff CFO. I’ll explain how it works, and along the way, I’ll provide links to a few websites that can explain some of these components a bit more in depth.

For many small and mid-sized companies, it makes sense to use outsourced CFO services because they can’t afford a full-time CFO on staff. For these companies, it might not be quite enough to have a staff accountant, controller or bookkeeper — but it’s not financially viable to pay the minimum $360,000 that a CFO will typically demand. These companies are in something of a quandary because they need the expertise of a CFO in order to grow, but they can’t afford to pay for that expertise on a daily basis — and that’s where an outsourced CFO can help.

Of course, an outsourced CFO can also provide help on a per-project basis — such as when a company is trying to raise capital or restructure its financial infrastructure in some way. Likewise, an outsourced CFO service can also be valuable for a company if the full-time staff CFO leaves and the position is vacant. In this case, the outsourced service would fill the gap until a full-time CFO is hired.

In many cases, however, an outsourced CFO service is used on a regular basis by companies that either isn’t large (or successful) enough yet for a full-time CFO, or simply can’t afford one.

Outsourced CFOs can provide the same expertise as a C-suite executive but on a part-time (or as-needed) basis. As this post from Cadence Bank discusses, a CFO can provide a much higher degree of strategic and analytic skill than a staff accountant, bookkeeper or controller.

Likewise, according to Smart Business magazine, an outsourced CFO can bring in strategies that can result in greater financial efficiency and, ultimately, profits, especially when a company is in growth mode. Typically, a CFO will help these companies identify fresh financing options (such as asset-based lending or private equity). Plus, an experienced CFO will have the necessary networking skills and contacts you might need for raising capital or garnering investors.

According to Founder’s CPA, here’s a look at commonly outsourced CFO services that many companies use:

• Debt management: Outsourced CFOs are often called in to structure a settlement for lowering outstanding debt.

• Raising capital: An outsourced CFO can provide strategies for raising capital and financing and can help with bank negotiations. In addition, a reputable outsourced CFO should have access to a network of financiers you can solicit for help.

• Financial analysis and forecasting

• Budget preparation and monitoring

• Management/analysis of expansions or equipment purchases: An outsourced CFO can provide objective analysis on the wisdom of expansion and/or major purchases.

• Cash flow management: An experienced CFO can provide suggestions to help you access cash when you need it, and can also provide you with better cash management practices (such as discounts for prompt payments from vendors).

• Document preparation

• Tax management and strategies: Outsourced CFOs are well-versed in accounting strategies and current regulations when it comes to filing your business taxes.

• Representation with bankers, auditors, and stakeholders

• General financial oversight: A weekly, bi-weekly or monthly meeting with an outsourced CFO can help you maintain better financial control of your company.

An outsourced CFO can also help protect your company from fraud and embezzlement. In addition, a CFO service can help you when it comes to compliance with today’s constantly-changing regulations, whether they involve taxes, fees or Internet privacy. In fact, the more you want to branch out with your business (especially when it comes to website presence), the more necessary it is to have this type of service to protect you from non-compliance issues and new international regulations.

How do you know if an outsourced CFO is right for your company?

The answer depends a lot on how successful you currently are — and how successful you want to be. If you’re making as much money as you want to and you have no plans for expansion, it’s still a good idea to bring in a CFO service to see if there’s any loose change slipping away in your financial infrastructure — and if so, to help you stop the leak.

However, if you have plans to grow, and possibly expand into other venues (such as online sales), then you definitely need the services of an experienced outsourced CFO service to help you get the financing you need. Likewise, if you’ve got the money but you want to invest it wisely, a good CFO will help you get the best ROI for your dollar, whether you’re buying equipment or leasing/purchasing new space. In addition, an outsourced CFO will help you manage your spending, control your inventory/overhead/staffing costs and handle your financial documents, so you can spend more time managing your business instead of managing your finances.

All in all, what’s not to like about an outsourced CFO? As long as you don’t need one on a full-time basis, you get all the services that you’d get from a staff CFO, and at a fraction of the price. For many small and mid-sized businesses, it’s the ideal situation.