Growing your company’s revenue is a goal for almost every business owner, and it’s a great feeling when you hit those financial goals you’ve set out to achieve. Reaching those new goals in your business can come with growing pains so there may come a time when your continued business growth and the desire to drive your business forward requires a financial executive’s expertise. Perhaps you have considered hiring a CFO (Chief Financial Officer). Before you make that decision, you may have seen some other options available, like fractional, virtual, and outsourced CFOs. But what are outsourced CFO services? What can outsourcing the CFO function do for your business? And what is the difference between an in-house CFO vs. a virtual CFO?
What we cover in this episode:
- 01:54 – What is an outsourced (virtual, fractional) CFO?
- 06:17 – What is the difference between a CFO and a virtual CFO?
- 08:58 – How would a virtual CFO work with my company?
- 13:52 – When does a business need a virtual CFO?
What are outsourced (virtual, fractional) CFO Services?
The term CFO (chief financial officer) refers to a senior executive who manages the financial components of a company. There are many terms used for a financial expert who performs the services of a chief financial officer, but isn’t on site or in person. These duties can be performed remotely and are referred to as virtual, remote, fractional and outsources CFO services. We will use these terms interchangeably here but know they all mean relatively the same thing. Rather than delivering those services in person, as a full-time employee, the virtual CFO (vCFO), works remotely, on a contractual, part-time schedule. The outsourced CFO would oversee your accounting processes, provide expert advice, and drive the financial strategic planning side of the business.
Strategic planning for a business involves more than the finance processes as well, like marketing strategy, business operations strategy, metrics and performance management, cash flow, oversight of regulatory compliance for the financial aspects of the business, and reporting on financial performance. The vCFO is responsible for working at a very high level with the leadership team, in an overseer role. The vCFO would identify any process deficiencies or financial issues, manage your key performance indicators (KPIs), and report back to the leadership team with executable solutions for what’s important in managing the business processes to optimize growth and revenue.
What is the difference between a CFO and an outsourced CFO?
The outsourced CFO role is similar to the traditional role of an in-house CFO, but the differences between having a full-time, corporate CFO in-house vs. hiring a vCFO are important considerations for a business owner. It can be very cost-prohibitive for small to medium size companies to hire a full-time CFO, and perhaps a company does not need someone 40 hours per week for their circumstances. In addition, there are team dynamics that will change, depending on the type of CFO you choose.
The cost of hiring a full-time CFO with the traditional compensation needed for an executive position may not be affordable for most small to medium companies. Perhaps the biggest benefit of a vCFO is the ability to access this level of experience without paying the typical cost of an in-house CFO. A vCFO has experience tapping into a structured, proven, best practices process, and will be ready to begin working with a company with just a bit of customization. A vCFO can provide customized service with the skills and scope of work necessary to fit your company, without charging you for anything that is not needed. In addition, vCFO services can be expanded and shifted as your business grows and changes.
Team Dynamics and Experience Differences
Another difference to consider between a CFO and a vCFO is the expertise and experience that a vCFO has gained in working with multiple companies and across multiple industries. The expertise of a vCFO can bring a depth of knowledge to a company that is invaluable for all financial aspects of a business. You are also working with someone on a part-time, contractual basis with a vCFO, vs. bringing on a new employee with a full-time CFO. There are obvious differences in how that impacts the dynamics of your team to consider as well.
How would a virtual CFO work with my company?
Because a vCFO is not sitting there every day in your office, it will be a different experience for business owners. Obviously, the nature of meetings and communication is going to be virtual, so that is pretty straightforward. Beyond that, the biggest thing you will see is a true decision-maker that specializes in specific industries while working with a handful of different clients across various sectors. This enables a vCFO to demonstrate a deep, relevant understanding of your business and customize services to your needs.
You can expect face-to-face meetings on occasions, as well as virtual meetings with a company’s leadership team on a regular basis to make sure you’re really connecting. You will want your vCFO to be a part of your business, and assist in driving your business forward. It’s very hard to operate as a vCFO in the dark or have missing pieces to the puzzle, so they really need to be involved in order to have that accountability and that partnership, which allows them to advise you accordingly.
When does a business need a virtual CFO?
We have found there are often tell-tale signs that seem to trigger the need for a CFO, virtual CFO, or fractional CFO. There are also stressors that can be relieved when you find the proper advisor. But how do you truly know you’re ready for a CFO? Obviously, you will want to have many discussions before hiring, but some of these can be signs it’s time to begin looking for a virtual CFO or other option for your team.
Profitability isn’t at a desirable level and you need clarity
When profitability has become stagnant or you are experiencing slowing in growth, it may be time to get an expert to look at what could be causing the slowdown. There are many factors that can impact profitability, but an experienced CFO, or virtual CFO, can assist you in dissecting the areas that could be impacting growth and identify the areas you can control. If you want to get to that next level of growth with your business, but you’ve exhausted ideas within your current team, it is time to consider hiring a seasoned vCFO.
Complexity of the business increases
You could be experiencing rapid growth and increasing complexity in your business. As growth occurs, so will volume and if you don’t have solid systems in place, things can easily spiral out of control. This can lead to anxiety if you know you need more control but there aren’t enough hours in the day. In addition, you may be seeing more complexity in taxes, more complications when it comes to your accounting, or you may not be able to figure out why you’re bringing in plenty of revenue, but you’re not seeing the cash. These are all examples of signs you could use a CFO or virtual CFO.
You want to establish a Financial Model for your strategic planning
First, it’s important to understand why a financial model is important. On its face, it may sound similar to a budget, but a financial model is actually established to determine whether the business model itself works and is sustainable. This crucial tool will help you forecast into the future and see how your team will grow, how you could expect your revenue to grow as you make changes and many other factors. A CFO should be able to put this together and should be leading the discussion and managing this important piece of your strategic planning strategy.
You want a partner who can help execute a growth strategy
Perhaps you have more questions with regards to how the business is doing and need expert guidance to get you to the next level. You know you need some structure in place from a financial and strategic perspective, but have a hard time getting that established. A vCFO can help you navigate unsettled times, assist with the best systems for your current phase of business, and help prepare you for the next phase.
So if you’re struggling in your business with executing your strategic plan, that’s usually a sign that you need somebody who can champion those things with you, and they can help to push you as a business owner and, in turn, can help push the leadership team along. Having that knowledge from a vCFO is very valuable and informative from a management perspective. It also helps ease your mind. You feel like you’re on top of things, you know what’s going on, you know where you’re going with your business. Hiring a vCFO makes sense when you’re in that position where you want to make sure that you can understand what your balance sheet is telling you, you can understand what your P&L is telling you, and what your KPIs are telling you.
It’s time to delegate financial duties
As an owner, there will eventually be a point where you will not be able to have your hands on everything. It will be impossible for you to manage everything at the level necessary to run your business once you reach a certain size. Offloading this duty to someone like a CFO can help ease your mind, knowing that you have someone experienced and very capable in your corner, who is thinking proactively about the future of your business. We cover how to hire a CFO in episode #72 if you’d like to learn more and download our free guide that include the Top 10 Questions You Should Ask Before You Hire a CFO.
What can you achieve with a virtual CFO?
Understanding the value of a vCFO and hiring one can bring your business to the next level. Gaining valuable, real-time information with insight from an experienced financial executive can mean the difference between struggling and thriving, and in some cases, business success and failure. Gaining assistance with your business processes and having sound advice in strategies to push forward is key to growth and success. It’s exciting as a business owner to have that insight and work with someone who can really partner with you so you can make sound business decisions. If you are looking for more information, we have excellent case studies for proven results that businesses have achieved in working with PJS & Co. CPAs. Contact us today to see what a vCFO can do for you!
In today’s episode, we answered the question, “What is an outsourced CFO?” You may have been considering hiring a CFO, but then been disappointed to find it wasn’t in your budget, but there are other options available, like fractional and virtual CFOs. We explain what a virtual CFO does, the difference between a traditional CFO and a virtual CFO, and how you could expect to work with a virtual CFO. We then discussed the signs that it is time to bring a CFO, vCFO or other option onto your team. The results you can achieve by partnering with a vCFO can be astounding! The investment and dedication from you to reach new heights in your business will pay dividends. If you are interested in learning more about our services, please feel free to reach out for a free discovery call.