An outsourced CFO is an experienced financial expert, outside of your own company structure, who provides strategic, fiscal & operational guidance. An outsourced CFO should exhibit both a strong financial background and leadership skills.
The role has a variety of titles (Virtual CFO, Part-time CFO & Fractional CFO) but each provide the same solution; complete strategic guidance at the fraction of a full-time CFO salary.
What does an outsourced CFO do?
As the highest ranking financial professional in the organization, a fractional CFO responsibilities include:
- Optimizing Cash Flow
- Tracking revenue from sales, investments, interest etc. and how much cash is flowing out to cover costs and expenses.
- Determining how to maximize liquidity and profitability while maintaining high levels of customer service
“To have a full-time CFO, we didn’t think that we could attract the right caliber of talent to be able to do that, being that we’re a small business. So this is the absolutely right fit for us right now. [Kim]’s helping us really understand our cash flow. We’ve set a big revenue goal this year, and we want to make sure that we are on track to meet that.
I feel like we have an additional member of the team that has given me back my focus so I can help grow the business, I can help service the clients,” Wilson says. “If we’re working with these big clients, we need to also be just as big and fortified. So by partnering with ORBA, that’s one more way to fortify our services and our offerings.”Lindsay Wilson, Ink Factory
- Short and Long-term Financial Planning
- Preparing for expansion or an exit is a common reason why fast-growing companies need to increase their financial insight with an outsourced CFO
- Helping prepare for fundraising
- Financial Modelling & Financial Analysis
- Scenario planning and forecasting
- Searching for areas of financial strength and weakness in the company.
- Analyzing what investments had the best and worst ROI
- Offering modelling for both stakeholders and lenders
- Regulatory Compliance
- Managing the relationship between day-to-day financials and your tax accountant or auditor
Advantages of an Outsourced CFO
The obvious answer is cost savings, but there are more benefits to hiring an outsourced CFO:
Because outsourced CFOs work with a number of clients at once, they bring cross-industry experience that offers a unique approach to your business.
For example, one client in the health and beauty industry needed to consolidate financials across sales streams and their outsourced CFO was able to confidently recommend the move to NetSuite because of their experience working with another consumer products company with big inventory management needs. Even though this client wasn’t in the same industry they both had large inventories and a need for consolidated financials because they sell across the USA and have varying revenue streams, multiple 3PLs and warehouse locations.
Related Read: What is an outsourced controller and what do they do?
It’s faster than the typical hiring process. For example, while many people refer to a CFO’s “First 90 Days,” our clients can move through the contract phase to be fully onboarded within two months. (With weekly and day-to-day accounting being handled within the first week the contract is signed).
This provides a more immediate solution than hiring internally, plus outsourced CFOs are self-managed and any HR needs are normally looked after by the company taking the onus off of you.
Fresh eyes can recognize issues others, internally, are blind to which leads to unbiased strategy for your books. One of our clients that had an in-house CFO when they first started using our services, were missing a huge profitability issue. They thought a well-known distributor was one of their top sales channels, but it was, in fact, a difficult customer who was eating into their profitability and ultimately their bottom line. Once they began using our outsourced CFO services, we were able to identify the customers with the highest profitability and their revenue increased by a whopping 120%!
For many high-growth companies the option to outsource rather than build in-house teams is a huge value. And of course, for most business owners, the cost to outsource a CFO compared to hiring an in-house executive is huge:
The average salary of a full-time CFO in the United States is $415,000. When you hire ORBA Cloud CFO’s fractional CFO services the monthly fees start at $4,000 per month. That means you could see up to a 90% savings depending on how complex your financial requirements are.
Why is the difference so dramatic? The reality for many businesses in the $5-$50 million in revenue range is that when it comes to their accounting needs, most of them only need strategic financial insight 10% of the time. What they need the rest of time is someone to look after the weekly accounting needs and the financial reporting.
A fractional CFO on their own may only offer the strategy piece, but is not willing to roll up their sleeves and do as much of the review or day-to-day bookkeeping. The flip side of this is an outsourced bookkeeping service that might cover the day-to-day, but cannot offer the strategic analysis. So, having just enough of each of those levels is something attractive and unique.
In Deloitte’s Global Outsourcing Survey, 65% of respondents said outsourcing helps them focus on core functions. 63% mentioned cost-cutting as a key benefit of outsourcing.
The option to outsource a CFO lowers overhead.
ORBA Cloud CFO can replace the equivalent of one full-time employee (plus, we often see an additional 20-30% savings in the finance department). For example, we also work with in-house CFOs, but recently one of our client’s CFO left and we simply increased our scope of work with the client to absorb the CFO’s former responsibilities. This was a win for our clients considering the current economic climate.
Related Read: 6 things to know when you’re about to hire outsourced CFO
When is it time to hire an outsourced CFO?
Here are some common situations that drive a company to hire a fractional CFO:
- Rapid Growth
- New product launch
- Influx of funding without financial direction
- Behind on financial reporting or a lack of access to financial data
- Issues with profitability
- Growth has plateaued and/or need to identify key growth drivers
- Unexpected cash flow issues
- Lack of financial input in overall business strategy
- Outdated accounting practices
- Compliance issues
Skills to look for in an outsourced CFO
An outsourced CFO should be able to offer:
- Business insights from raw financial data
- KPIs that have been retargeted to matter
- Strong leadership and coaching skills
- Cross-industry knowledge
- Technological solutions
- Collaborative communication with an understanding of internal politics
- Economic trends
- And drive discussion around financial analysis, outstanding and recurring questions
The Bottom Line:
If your needs aren’t overly complex and your finance plan is costing you more than 2% of your revenue, ask yourself why? Outsourcing a fractional CFO may be the answer.