Does the Cost-Effectiveness of an Outsourced CFO Outweigh Other Factors?

Does the Cost-Effectiveness of an Outsourced CFO Outweigh Other Factors?

Over the last decade, some of the biggest household names in the U.S.—from Circuit City to Toys ‘R Us—have shuttered their doors for good, liquidating company assets in the face of bankruptcy. At the heart of each of these riches-to-rags stories lie some serious financial and marketing missteps that could perhaps have been avoided through prudent long-range planning. 

Smaller companies with fewer zeroes on their balance sheets may not feel their business merits a full-time chief financial officer or CFO. But for these burgeoning businesses, it’s even more important to make smart decisions that will help your business remain sustainable through adverse conditions. A CFO, either in-house or outsourced, can help.

Read on for some of the factors you’ll want to consider when balancing the pros and cons of outsourcing your company’s CFO needs. 

Your CFO’s Responsibilities

Regardless of whether you retain an in-house CFO or ultimately decide to outsource these duties, it’s important to have clear guidelines and expectations for your CFO before you fill this role. Some of the duties for which CFOs are typically responsible include:

  • Heading up the finance and accounting teams;
  • Tracking the business’s overall cash flow;
  • Overseeing the business’s capital structure and determining how to finance new ventures;
  • Forecasting—namely predicting future cash flow, assessing profitability, and deciding when to pull the trigger on upcoming major expenses;
  • Collecting, presenting, and reporting key financial data to shareholders, directors, and other stakeholders; and
  • Handling taxation issues, including both practical matters (like making sure quarterly taxes are timely remitted) and long-range planning (like making sure the business is structuring its purchases and capital improvements in the most tax-efficient manner).

In addition to these, depending on the size and scope of your business, you might also consider making your CFO responsible for:

  • Reviewing and revising your company’s financial, tech-security, and HR policies; and
  • Engaging in outreach to drum up new financial opportunities (whether lending, marketing, or something else entirely).

The scope of your CFO’s duties (and the amount of time you expect these duties to consume) may be one of the weightiest factors in your decision whether to hire an outside CFO. For example, if an internal review indicates that these responsibilities will take someone an average of 10 hours a week to complete, paying a full-time salary (and benefits) to that person may not be the most economical option.

On the other end of the spectrum, a company whose CFO duties will require more than 80 hours of work per week may also want to consider outsourcing, as it could be tough to find a single person to effectively and reliably handle this volume of work over the long term.

Cost Considerations

Because of the skills and knowledge a CFO must possess in order to do their job well, it’s almost always more cost-effective to outsource these duties by hiring a “virtual CFO” than it is to maintain a CFO in-house.

Putting together a top-notch benefits package that is sure to attract qualified candidates can run into the mid-to-high five figures on its own, even before accounting for a C-suite salary. Meanwhile, having a virtual or outsourced CFO allows you to analyze each of the tasks you’d like your CFO to complete, then negotiate a payment “package” that ensures you’re getting the most value for your money. If your needs change, you can always revisit this package to add or remove certain tasks; a far easier process than hiring or terminating a full-time employee.

However, it’s important to caution against the most penny-wise, pound-foolish option out there: eliminating the CFO role entirely. In the early days of a business, it’s common—even essential—for the company’s founders and leaders to take a jack-of-all-trades approach to the business’s needs. But as your business grows, it needs someone whose role is exclusively dedicated to the financial stewardship of business assets. Failing to bring a CFO (or virtual CFO) onboard during your business’s growing years can lead to stagnation and loss of market share.

Flexibility And Accessibility

Another area in which virtual CFO services tend to outrank more traditional arrangements is flexibility. Virtual CFO services are easily scalable, allowing you to accelerate or back away whenever your business’s needs change.

If you haven’t had much in the way of financial management or planning during your startup days and want someone to provide you with a holistic overview and some targeted suggestions, hiring a virtual CFO to generate a long-term plan (and then to revisit it every few years) can be a lucrative investment. Klein Hall offers virtual CFO services to businesses, governments, not-for-profits, and individuals in the Chicagoland area.

A virtual CFO can also help you during times of transition, like an initial public offering or a merger or business acquisition.

Inside Knowledge of Your Business

Many business owners are hesitant at the thought of a virtual CFO because it’s understandably hard to imagine that anyone who isn’t part of your business can adequately advise you on how to run it. Does the cost-effectiveness of an outsourced CFO outweigh their lack of in-office expertise?

For most companies, the answer is yes. An outsourced CFO may not be intimately familiar with the inner workings of your business, but such a depth of knowledge isn’t usually necessary in order for your CFO to provide you with valid (and valuable) advice. Most outsourced CFOs have experience with multiple businesses spanning multiple industries, giving them the expertise to objectively evaluate your company.

In contrast, an internal CFO can sometimes be more vulnerable to “yes-man” syndrome in an effort to get along with coworkers or avoid being the bearer of bad news. This confluence of considerations can often make an outside hire the best possible option.

If you’re interested in learning more about the advantages and potential drawbacks of enlisting the help of a virtual CFO or want to get started with your own CFO, get in touch with us today! At Klein Hall, our full-service accounting and financial management firm boasts experienced advisory services, including virtual CFOs, who can review your business’s financials and set you on a course of long-term sustainability.