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, an outsourced 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.”
The obvious answer is cost savings, but there are more benefits to hiring an outsourced CFO:
Cross-Industry Expertise
Because outsourced CFOs work with a number of clients at once, they bring cross-industry experience that offers a unique approach to your business and can offer insight that you might not otherwise gain from an in-house hire.
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.
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.
Objective Insight
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. wWen we introduced and implemented NetSuite to one of our clients, we were able to use it to better track customer channel profitability. The result? Their net profit jumped by a whopping 120%!
Value
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:
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 staff.
Jason Woo, founder at Able Hardware points out, “One of the prime benefits we’ve observed is improved efficiency through outsourcing non-core functions such as accounting. It allowed our team to focus more on our key competencies – metal fabrication and quality assurance, resulting in a 30% increase in productivity in the first quarter post-outsourcing. We also ventured into outsourcing some of the manufacturing processes. By choosing specialized vendors, we witnessed a considerable enhancement in product quality while saving on operational costs by as much as 20%. The high-quality products significantly boosted our global presence, with the export of units rising by 15% on a year-over-year basis. For entrepreneurs apprehensive about outsourcing, my #1 tip would be, ‘Start small but think big’.”
“For entrepreneurs apprehensive about outsourcing, my #1 tip would be, ‘start small, but think big.
Begin by outsourcing minor, non-critical business functions. As you grow comfortable, you can progressively outsource more critical parts of your business.”
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.
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
When to hire an outsourced CFO vs a full-time CFO?
Things to Consider
Outsourced CFO
Full-Time CFO
Cost
Lower cost, no benefits, significant cost savings
Higher salary plus benefits, worth it with a certain amount of revenue per year
Flexibility
You can flex up or down as needed
A full-time commitment needed
Expertise
Cross-industry experience
Dedicated financial professional
Resources
May be able to offer special licensing because of access to specialized platforms and tools
Beneficial if you need to build out your entire tech stack
Summary of Responsibilities of an Outsourced CFO
For a business focused on growth and efficiency, CFO responsibilities are critical to achieving strategic objectives. An outsourced CFO must:
ensure the robustness and transparency of financial reports
deliver insights on profitability and cost efficiency that support decision-making
design and implement financial strategies that align with business goals, including rigorous budgeting and forecasting
possess the ability to identify and mitigate financial risks, while ensuring compliance with industry regulations.
leverage advanced technological to support scalable business operations
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.
You will have undoubtedly noticed that on your profit & loss statement, your expenses fall into two distinct categories: What exactly are fixed costs vs.
