Startups

Why You Might Consider Outsourced CFO Services

Perhaps your business has never had a CFO but now seeks to grow and needs guidance. Or maybe the CFO position is in transition. These are a couple of scenarios where you might benefit from using the services of an outsourced CFO. Consider partnering with an experienced, knowledgeable, and reliable firm to provide your company with interim, project-based, or part-time CFO services. Learn commonly outsourced CFO services and reasons why you might consider outsourcing this critical executive role for your small business or startup.

Why Hiring a CFO for Your Business Is Not the Right Approach

As a small business or startup, you have limited cash flow. This cash flow does not cover the cost of hiring and employing a salaried CFO. Compensation varies by industry, company size, private equity, or public status, and location. Pay also varies by the credentials of the individual CFO. Average base salary for CFOs in the United States is about $371,000, ranging from an average of about $291,000 to $462,000. Total compensation, which includes any bonus and benefits such as health and retirement, averages almost $519,000. Smaller companies of less than $40 million pay their CFOs a salary between $153,400 and $257,300. A salaried CFO even at the lower range is well outside most small businesses’ budgets.

Small businesses and startups usually do not need 40 hours of CFO-level services in a typical week. But your business still has fiscal needs and strategic business decisions to make. You could use some high-level services without the high-level price tag. In other words, you could benefit from outsourced CFO services. An example of a great resource for these services is Founder’s CPA.

Other reasons disfavor a traditional CFO arrangement in many small businesses or startups. Staff are more likely to pull an in-house CFO into projects not strictly fiscal in nature. Also, a startup founder CFO might lack the necessary objectivity or the breadth of experience to take the business to the next level.

Why Your Business Needs a CFO’s Services

Keep in mind that an accountant or controller performs day-to-day accounting functions. Accounting staff inputs the figures and manages receivables and payables. They might even prepare budgets or provide preliminary analyses. But do not rely on accounting staff to supply the direction for your company’s financial future. The roles of accounting staff and a CFO differ in fundamental ways:

A CFO asks questions. CFOs direct the movement of large amounts of money. They forecast future performance using financial statements, industry knowledge, and market projections. A CFO’s role is primarily strategic.
An accountant generates statements, records financial activities, and completes day-to-day financial tasks. Accounting staff report on cash flow and plan for transactions in the short-term future. An accountant’s role is primarily practical.

Signs Your Company Could Benefit From CFO Services

There are no clearcut milestones for companies that mark the point a CFO’s services are needed. Circumstances vary across industries and among businesses. Indicators do exist, though. Possible signs that your company could benefit from CFO services include the following:

Your company is experiencing rapid growth at a rate faster than 15 percent.
Growth has stagnated, but you are not sure why or what to do to correct it.
Your company is considering entering into a merger or acquisition.
Your company is preparing to go public.
You need to gain the respect of stakeholders, such as bankers, investors, and customers, outside of the company.
You are considering accepting outside investment or changing your company’s equity distribution.
You are unclear about your tax liability.
You spend several hours each week preparing financial reports or processing numbers.
Your executive management team needs accurate financial information to make timely, important decisions.

Commonly Outsourced CFO Services

Several CFO services commonly are outsourced, including the following.

Raising capital and debt management: A CFO can assist in structuring how to raise capital, as well as how to lower outstanding debt. A CFO can determine how much financing your company needs and the mix of debt and equity financing that best achieves your goals. A CFO can help get bank financing by assisting with negotiations. An outsourced CFO probably will have a network of financiers to whom they can introduce you.
Forecasting and modeling: A CFO can improve the accuracy and reliability of forecasts. More accurate forecasting better prepares your company for likely changes in the market or business. Better forecasts lead to better budgets. Similarly, better financial modeling improves your company’s decision-making abilities. The CFO can help your company recognize the likely impact of certain changes before deciding to make those changes.
Financial report analysis: An outsourced CFO can provide in-depth financial analysis and reporting. This analysis can include cost benefit analysis and profitability analysis by service line. The CFO can interpret financial results on a regular basis. He or she can also help identify your company’s key metrics and determine a reporting schedule for ongoing monitoring. With better reporting, you will enjoy more confidence in your company’s fiscal situation. You can better understand possible courses of action.
Oversight of accounting personnel: An outsourced CFO can train and manage your accounting staff. He or she can help develop comprehensive company accounting procedure manuals. The CFO can also put in place best practices for financial operations. He or she can set up fiscal controls to safeguard funds from employee theft and increase profits.
Budget preparation, reporting, and monitoring: The CFO should manage the annual budgeting process. This includes development of the annual fiscal strategy.
Analysis of capital expansion and equipment purchases: This should include a review of a contract’s term sheets. A CFO can negotiate with vendors for better terms and rates where possible. Capital purchase decisions need consideration and forethought. An outsourced CFO can help staff determine the budget for capital expenses and draft a timeline for purchases or expansion. He or she can direct staff on how to calculate depreciation.
Preparation for mergers and acquisitions: Outsourced CFOs can review the positions of all parties. They can negotiate terms and conditions. They are able to conduct due diligence, and complete other steps in preparation for possible mergers or acquisitions. They can recommend your company proceed with a deal or not. They can assist with obtaining any necessary approvals from lenders. They can help make necessary changes in corporate structure and take other actions to make for a smoother transition.
Cash flow management strategies: Without adequate or timely cash flow, businesses soon fail. You might use outsourced CFO services to suggest possible improvements to your company’s access to cash. An outsourced CFO can assess current cash management practices and recommend changes, such as providing prompt pay discounts or transferring older accounts to a collections agency.
Tax planning: Your outsourced CFO can develop strategies to lessen your company’s tax burden. He or she should review your annual tax filing before submission.
Document preparation: Use CFO services to prepare investment documentation and provide compliance statements. Use CFO services to conduct due diligence and more.
General oversight: Using outsourced CFO services better positions your company financially. A CFO provides oversight of your fiscal operations. This increases the likelihood of catching and correcting issues quickly.
Representation with external stakeholders: An outsourced CFO can attend your company’s meetings with banks, auditors, insurance agents, attorneys, and similar vendors. An experienced CFO can bring a degree of professionalism to your organization. He or she can inspire confidence and enhance your company’s reputation. For example, the presence of a CFO could present a more competent image to potential lenders or make for a smoother audit process.

Founders CPA provides a range of CFO services, including those detailed above. Contact Founders CPA for a free consultation to explore how your company could benefit from outsourced CFO services or other financial services