What is an Outsourced CFO for Small Businesses?

In this article, you’ll learn:

What is an outsourced CFO and what they can do for your business
If your small business needs a CFO
How outsourced CFOs work
Pros and cons of outsourced CFO services

Every small business needs a solid financial plan to grow and reach its full potential. Once a company has been established for some time, its chief financial officer (CFO) will take the reigns in providing a long-term financial strategy and overseeing fiscal guidance for the business. But having a full-time CFO on board and in-house is an expensive prospect that can impact your business’s bottom line. That’s why more and more startups and small businesses are hiring an outsourced CFO as a more cost-efficient option than the traditional CFO. But, what exactly is an outsourced CFO for small businesses, and what are the pros and cons of outsourcing this vitally important position in your company’s management tier? You’ve come to the right place to find out.

What is an outsourced CFO, and what can they do for your small business?

Before discussing what an outsourced CFO is, let’s look more closely at what a traditional CFO does. A chief financial officer, or CFO, is generally part of the senior executive management team consisting of the CEO (chief executive officer) and COO (chief operating officer).

The CFO oversees the company’s financial responsibilities and commitments and helps the business with cash flow management, budgeting, and financial reporting. They also help the company establish and set financial goals for the short and long term.

Part of the CFOs duties includes overseeing financial forecasting and managing a business’s working capital, accounts receivable, and accounts payable. A CFO typically leads a business’s accounting or finance department and works with bookkeepers, accountants, tax preparers, and controllers to ensure that a company is compliant with regulatory laws.

The CFO is often instrumental in working on behalf of entrepreneurs with lenders, investors, creditors, and others to ensure that a business remains productive and reaches its financial goals to ensure maximum business growth.

An outsourced CFO can do the following:

Help to manage and develop a budget for your business
Offer financial strategies to improve your business’s financial picture
Financial reporting and planning
Give you accounting tips for your company
Interpret your business’s financials
Aid in fundraising and raising capital for your business
Help with mergers and acquisitions

Your small business may not need a full-time CFO or even an outsourced CFO to render all of the above services. The size of your business and other factors will determine what your business needs.

Traditional CFO salary vs. outsourced CFO salary

According to CFO.com, the average annual salary for traditional CFOs who work for a private company earning less than $20 million a year in revenue is $194,354. But this number reflects the base salary and doesn’t factor in a bonus. It’s not unusual to hear of a full-time CFO earning up to 60% of their base salary in bonuses.

Many companies are beginning to realize they can receive many of the same financial services they get from a traditional CFO by outsourcing services. And they can get those services at a fraction of the cost of a traditional CFO.

For example, most small businesses paid between $5,000 and $7,000 per month in 2021 for outsourced CFO services. That’s quite a savings when you consider that you may not even need an outsourced CFO to be on your company’s payroll full-time.

Does my small business really need a CFO?

Most small business owners wear many hats, acting as CEO, CFO, marketing head, sales professional, and more. While this simplifies many processes, the flip side is that it can be difficult and overwhelming for you to function at every level of your business.

While you might understand your business and industry well and the type of market you serve, it’s not uncommon for the financial planning end of a business to get lost on business owners.

Most entrepreneurs aren’t experienced CFOs or financial experts and don’t always understand financial systems, metrics, and financial planning; they’re savvy business professionals who understand how to run a business.

Many small businesses don’t need a full-time CFO, particularly in the beginning. Most companies that staff a full-time CFO don’t do so until they reach $50 million in annual revenue.

But that doesn’t mean that you’re off the hook if you have a small business. You still need your financials to be in order at every stage of growth.

For instance, you’ll want to ensure that you have enough of an operating budget or working capital to see to your business’s day-to-day needs. Expert financial insight can help you make better financial decisions and reach your business goals.

Your business will also need to maintain good relationships with vendors, lending institutions, and investors, which depends in a large part on your company’s financial health.

An outsourced CFO can help ensure your company is in good financial standing before you embark on raising capital for your business. That will increase your chance of getting approved for a small business loan.

Finally, solid financial reporting is a must for every business from a legal and regulatory standpoint.

In the end, your small business needs someone capable and experienced to take the financial lead of your business. In most cases, this can be accomplished by outsourcing CFO services when your business requires it.

How does an outsourced CFO work?

There are a few different business models from which an outsourced CFO can operate. For instance, they may work at your office’s physical location or from another firm’s office. But they can also work remotely and work in an entirely different state from where your business is located.

An outsourced CFO can also work part-time, full-time, on a short-term or temporary basis, or as needed. The great thing about getting an outsourced CFO on board is the flexibility upon which you can require their services, and you pay only for the services performed for your business.

Outsourced CFOs are known by many names and serve varying needs. For example, your company might contract a part-time CFO or fractional CFO if you have specific accounting services that you only need from time to time. This might include completing a thorough financial analysis if you’re considering expanding your business or opening another location.

Or, perhaps you intend to hire a full-time CFO once your business grows but want someone in the meantime to handle the financial management of your company. In that case, you might consider an interim CFO. Hiring an interim CFO will allow you to take your time to find the right CFO candidate for your business.

You also might feel that a contract CFO works best for your business. This way, you can hire an outsourced CFO on a contract or as-needed basis. They can come into your business and generate financial reports when you request them, develop a budget for your business, and prepare financial reports and projections. A contract CFO can also work closely with other members of your company’s financial team to ensure accurate recordkeeping on their part.

Finally, a virtual CFO is a remote CFO option that you can hire full-time or part-time. The advantage is that you might find virtual CFO services in another state with more competitive rates, further helping your business to save money.

The bottom line is that you’ll want an outsourced CFO that is best for your small business. That could mean a one-time consultation or securing their services a few times or on a part-time basis.

What are some other pros and cons of outsourced CFO services?

Outsourced CFO services have a few benefits and disadvantages. Here’s a look at some of the pros and cons of outsourced CFO services.

Pros of outsourced CFO services

More cost-effective than an in-house CFO. It’s a no-brainer that an outsourced CFO service will save your business a ton of money. You can expect to spend 50% or less than you would with a full-time, in-house CFO.
Can offer your business more financial stability when you can’t afford a full-time CFO. Many small businesses just don’t have the capital needed to hire their own CFO. This is particularly the case when your business is new or is a company with a smaller operating revenue. Sometimes the expertise of an outsourced CFO can be valuable in getting your business to a place of a more solid financial standing.
More bang for your buck. Some outsourced CFO firms offer a team of financial professionals rather than one individual to serve your company, including CPAs, bookkeepers, controllers, and more. They work closely with your business and serve to support you in providing real-time financial statements and reports as well as meeting other financial needs for your business. This sometimes negates the need for in-house bookkeeping services or other financial professionals, thereby increasing their value to your business.

Cons of outsourced CFO services

Limitations in understanding your business or its industry. Typically, when a business hires an in-house CFO, they look for candidates that have already worked in their business or industry. But if you hire an outsourced CFO, chances are they’ll have worked in many types of businesses. There’s a chance that they haven’t worked with an industry long enough to truly understand its market. This is likely more important when you’re talking about large-sized businesses rather than small businesses. An outsourced CFO might know just enough about your industry for their services to bring more value to your business at significant savings.
Concerns over your company’s sensitive information. There’s always the chance that an outsourced CFO will inadvertently disclose your company’s financial data to a third party. You can prevent this by having them sign an NDA before you contract them to work for your business.
Inability to strategize based on your company’s previous financial history. A full-time company CFO has complete knowledge of what financial decisions were made in the past, how those strategic business decisions impacted your company, and how they will impact your business in the short term future. Understanding these points can help your company’s finance chief do better strategic planning for the future. An outsourced CFO might not have this insight. That’s why many small businesses are more likely to use an outsourced CFO in the first few years of their business, then switch to a full-time CFO.

The Takeaway

If you’re a startup or small business, the chances are you don’t need a full-time, in-house CFO. But your business can benefit from the financial expertise that outsourced CFO services can provide.

The pricing for outsourced CFOs is much more affordable than having one on staff full-time. Wise financial planning and the success of your business go hand in hand.

It’s always a good idea to have your financials in order and review your business’s metrics from time to time. Utilizing an outsourced CFO can help keep your business on track and place it in its best financial position, allowing it to maximize its growth and remain in good standing with regulatory authorities and lenders.

Speaking of which, a small business loan can offer you the capital you need to grow your business. Biz2Credit is a top online loan service provider and marketplace, and we can help facilitate your next small business loan.

Ask Marie Bibum about how Biz2Credit helped her get the funding she needed for her pharmacy business. She first tried to get a loan through the Small Business Administration but was discouraged about their lengthy loan process. She then came to us and had the cash she needed within five days.