As your company grows, it will find itself stepping into a world of problems and opportunities that operate on a much larger scale and with many more moving parts. A lot of the most difficult questions to tackle are financial: capital strategies, looming bankruptcies, and establishing strategies for effective forecasting of your finances over the coming years. These are duties that typically fall to a chief financial officer.
The growth of your operation requires the steady hand of a seasoned financial leader. However, many companies find themselves at a point where they cannot afford the salary of a CFO but are beginning to need the services of one.
For example, a company making $2 million in revenue would be hard-pressed to justify spending fully 10 percent of its revenue to get the guidance that it needs. They might also struggle to succeed without it. This is where outsourced CFOs come in.
What Is an Outsourced CFO?
Outsourced CFOs (also known as fractional CFOs) split their time between multiple different companies. They fill in the gaps in financial services leadership. You can find outsourced CFOs that work as individual agents. Others may collaborate with other CFOs in a group to provide services to many mid-stage companies. Either form of outsourcing can bring C-suite financial leadership to your company without the burden of a C-suite salary.
Outsourced CFOs may either have a physical presence in your office or participate virtually, depending on the individual. This is something you should broach with a potential provider upfront if you have a strong preference.
If your CFO is working with an agency, they may switch off with other CFOs in the agency. Continuity with single individuals has the advantage of simplifying communication. However, it also limits you to the knowledge and availability of a single person. If you have a preference, you should bring it up early in your conversation. That way, you can make sure that the service you are contracting will mesh with your company’s evolving culture.
When Might You Need an Outsourced CFO?
Outsourced CFOs are most appropriate for companies with at least $1 million in company revenue. However, particularly complex projects may need them once they reach $500,000.
Once your revenue crosses $50 million, you will likely need someone full-time. The size of your business would require the complete attention of a dedicated CFO at that point. That said, some particularly complex projects may be better served by transitioning to a full-time CFO as soon as they reach $25 million.
Look for Your Business Needs Specifically
CFOs are not one-size-fits-all leaders. It is critical that you make sure you get a CFO that fits your needs. From the beginning of your search, you should look for an outsourced CFO service that has worked with your industry, whether it is construction, software as a service, or anything else. As you are talking to potential CFO contractors, ask questions about their experience with your specific industry.
If there are specific short-term financial needs that you have, bring them up promptly. You should also include them in your search from the beginning. If you are working through bankruptcy, it would be of little benefit to bring on a CFO who has never dealt with one before. The same goes for a relocation or other large capital project.
Needs That Not All Outsourced CFOs Cover
Depending on what point of evolution your company is at, certain services may be more or less important to you that different CFO contractors don’t provide. Some examples include:
- Attendance at board meetings
- Assistance with fundraisers
- Mergers or acquisition assistant
Finance IT Assistance
If you anticipate needing assistance with financial IT systems, you should bring that up in initial conversations. This can ensure that they are offered by your potential CFO or their contracting organization.
Ask About Their Record and Practices
The most important quality is experience. There are several categories to check that can help you quickly assess the suitability of your CFO contractor:
Your outsourced CFO should be able to easily provide you with references. These should reflect the positive professional relationships they have with current or past clients.
It is important to ask for samples of the types of reports that they will be generating about your business. That way, you can check for obvious holes in their reporting. It can also help you determine whether they are providing something useful and comprehensible for your purposes.
Your CFO is not there to just approve your ideas. After discussing your business needs, they should have opinions and suggestions about what they can bring to your company. You are bringing in a financial leader to help your company, and you should treat them like it.
Q: Can a CFO Be Outsourced?
A: A CFO can be outsourced by contracting with a company or an individual. They can perform the duties that a traditional, full-time CFO would normally handle. If your company is smaller than a certain size, it does not necessarily need a full-time CFO. An outsourced CFO can give you the same benefits as an in-house CFO at a lower cost.
Q: When Should I Hire a Fractional CFO?
A: You should hire a fractional CFO if the following apply to your business:
- You are at a point in your company’s growth where it would be financially irresponsible to hire a full-time CFO.
- You are generating enough revenue that your reporting requirements are beyond your ability to administer.
For many businesses, this occurs when they reach between $500 thousand and $1 million in revenue.
Q: What Are the Rates for Fractional CFOs?
A: Fractional CFOs typically charge around $175 to $350 per hour. The exact rate will depend on:
- The depth of their specific knowledge base
- The duration of the contract
- Their experience
- The percentage of their time committed
A CFO for a particularly complex project, or who has a great deal of experience, will likely charge more than a CFO with less experience.
Q: What Is the Average Cost of an Outsourced CFO?
A: Overall, hourly costs will likely run between $2,000 and $14,500 per month, or between $24,000 and $174,000 per year. If you are only using a day or two of your CFO’s time each month, it will cost you much less than if you are utilizing most of their calendar. This is still usually a savings of between 80% and 50% over the average yearly CFO compensation package.
Get the Guidance You Need With Outsourced CFO Solutions
If you are looking for an outsourced CFO, do not hesitate to reach out for a conversation about your needs and how we can serve them.