What is an Outsourced CFO?
A question we hear often from startups is when to hire a CFO. Every company is different, of course, but for many of our startup clients the answer is the same: if you aren’t thinking about going public in the next 1-2 years, consider working with an outsourced CFO.
What are Outsourced CFO Services?
Let’s take a step back first, and talk about what a CFO does.
Your Chief Financial Officer is responsible for everything related to your company’s finances. From a managerial perspective, the CFO usually oversees the teams responsible for tactical issues like keeping accurate, timely books, and correctly meeting your tax liabilities. On the strategic side, your CFO will keep tabs on the company’s wellbeing and provide guidance to achieve your financial objectives:
- Track and give regular updates on your financial metrics
- Review and analyze your KPIs
- Help build your budget
- Create forecasts of your financials
- Guide plans for future growth
- Board deck review and financial slide creation
- Regularly evaluate your financial hygiene and recommend best practices
- Make recommendations to improve your financial position
An outsourced CFO will fulfill that same strategic role – but instead of joining your company as a corporate officer, they will work with you on a contract basis. Most outsourced CFO services (sometimes also called fractional CFO or virtual CFO services) are available at hourly or subscription rates.
Why Should I Outsource My CFO Services?
There’s no substitute for having a knowledgeable and experienced finance professional to help guide business decisions, especially at startups whose founders don’t have a finance background themselves. So why might outsourcing be the right option for your startup or small business?
Outsourcing CFO Services Saves Money
Hiring a full-time CFO is expensive. The average CFO makes over $300,000 in annual salary, plus additional compensation in bonuses, equity, and perks. For many startups, that kind of hiring investment simply isn’t possible. Even if the company can absorb the expense, the opportunity cost can be prohibitively high – that’s money that isn’t going into the rest of your business.
That’s where outsourcing comes in. Paying for a certain number of hours with a fractional CFO allows you to get the benefits of working with an experienced finance leader, at a much lower cost than hiring a full-time CFO. For small companies like startups, this can mean having access to a resource you otherwise wouldn’t be able to afford.
Outsourcing CFO Services Saves Time
There’s also the question of what your company needs. For many early-stage companies, the need for a CFO is more around needing expertise for specific activities like forecasting, budgeting, or fundraising – all areas that could be well-handled by engaging outsourced CFO services. For these companies, hiring a full-time CFO would be overkill.
Advantages of Outsourced CFO Services
- Affordable Growth. A full-time CFO is out of reach for many small companies. Virtual CFO services let your company tap into CFO-level expertise and growth strategies, for a fraction of the cost.
- Greater Flexibility. Startups move fast, and what you need today could be irrelevant tomorrow. Outsourced CFO services allow you to adjust your engagement as your company evolves.
- Outside Perspective. An outsourced CFO brings a new voice to the table. Since they aren’t involved in your day-to-day, they’re able to take a fresh look at your numbers and evaluate them objectively against your market’s benchmarks. And since fractional CFOs usually work with a number of clients in their area of expertise, they can also apply insights to your business derived from a wider range of experience.
How to Choose the Right CFO Services Provider
Just like an in-house hire, it’s essential that your fractional CFO be a good fit for your company. Here’s a few things to keep in mind:
- Relevant experience. Different company types, in different markets and verticals, might have different metrics to prioritize and different challenges to plan for. Look for a virtual CFO provider with experience at companies similar to yours. If your company is a SaaS provider, for example, then you’ll want your fractional CFO to be familiar with SaaS business models and key metrics like ARR. If you’re planning to fundraise soon, get an outsourced CFO who has successfully raised money in the past.
- Your objectives. CFO services providers usually offer a range of services – for example, our team at Pilot can help with budgeting, forecasting, KPI analysis, board deck advice, and more. To make sure you get the most benefit from your fractional CFO, think about the problems you’re trying to solve and the outcomes you’re hoping for. It might be as specific as needing certain analyses done, or as general as just needing guidance on what key benchmarks you should aim for. Knowing your objectives before you engage a fractional CFO will help you know what questions to ask, and what criteria/experience to look for.
- Consultant vs. service team. Virtual CFOs come in a variety of shapes and sizes. You might engage an independent consultant who works with you one-on-one, or a CFO services team comprised of a group of CFOs who work together to help with your objectives. A single consultant may be less costly, while a group gets you the benefits of multiple experts and faster turnaround times.
Bringing in a finance expert doesn’t have to mean hiring an expensive corporate officer. As your company grows, consider leveraging an outsourced CFO to get the guidance you need, at a price your company can afford.