7 min read
July 15th, 2024
Every chief executive officer (CEO) has a dream, a future vision of their business, and a plan to take the business from its current stage and grow it until the future vision becomes a reality. Beside every successful CEO is a savvy chief financial officer (CFO) with the financial smarts, insights, and money-related vision to support the CEO's business plan with a complementary financial strategy.
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Key Takeaways
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High-quality, executive-level employees don't come cheap, however. So, business leaders must understand what they need from a CFO and how much they can afford to spend on a CFO before deciding whether or not to hire one in-house.
While the idea of outsourcing one of the top-ranking positions in a company might shock many business owners, outsourcing CFO services can actually be a financially and strategically smart decision for small and medium-sized businesses.
The top financial position within a company, a chief financial officer is responsible for the financial oversight and strategy of a business. The CFO oversees the entire finance department, as the head of all accountants, bookkeepers, and controllers in a business. Apart from overseeing the compliance, security, efficiency, and soundness of a business's back office operations, the CFO's primary responsibility is strategically oriented. A CFO is responsible for ensuring current financial strength to support present operations in addition to developing a financial strategy that can support the CEO's future vision for the business.
The difference between an in-house CFO and a virtual CFO (also called a vCFO, outsourced CFO, or fractional CFO) is that an in-house CFO is an employee and a vCFO is a contracted third-party provider of CFO services. An in-house CFO works for your company full-time in the office, and a vCFO works remotely for your company as often as you require.
As business owners know, executive-level positions are not cheap to fill. The caliber of professionals who are qualified to fill executive-level positions command a high salary, competitive benefits, and desire a challenging work environment. As a result, cost savings is the most frequently recognized benefit of working with an outsourced CFO, rather than hiring in-house.
On average the price of working with a virtual CFO ranges from about:
These pay-as-you-need or subscription-based models for outsourced CFOs represent a significant cost saving when you look at the total price of an in-house, full-time CFO.
Read More: The Pros and Cons of Outsourced Accounting Services for Businesses
The most obvious category of savings that a vCFO provides is salary and benefits. In the United States, the average salary of a chief financial officer rings in at a whopping $441,037 annually - and that's just their salary. On top of paying an in-house CFO nearly $37,000 a month, businesses can add several thousand more to cover additional employee costs. Businesses must also provide CFOs with competitive benefits packages including paid time off, good health insurance, retirement, and more. Plus, you'll need to factor in the costs of payroll taxes and unemployment compensation insurance.
Compare the astronomical expense of an in-house CFO with the tax-deductible, much-lower, business expense of an outsourced provider.
Turnover - especially in the C-suite - is extremely costly for businesses. Replacing low-level employees (i.e. employees with minimal training and business knowledge) is estimated to cost about 33% of the employee's salary. When replacing higher-level positions, the number quickly increases to three or four times the individual's salary. Not only does a company incur real costs through a costly advertising, interviewing, hiring, and onboarding process, but they also incur losses that are harder to quantify such as morale damage, workplace culture shifts, lost institutional knowledge, and productivity lags. The loss of an executive-level employee can also sometimes damage a company's broader reputation with clients and investors.
With an outsourced CFO, businesses completely mitigate the risk of incurring losses and suffering damage as a result of potential turnover.
In addition to these costs, in-house employees also add to your overhead expenses. An in-house CFO will require a nice office space, high-quality office furniture, equipment, and supplies. According to Gartner, the average overhead cost per employee is $17,000. A CFO, with a larger office and a need for nicer professional items, will likely cost your company more than average.
Read More: What to Look for in a vCFO Service Provider
Virtual CFOs provide their own office space, supplies, equipment, software licenses, etc. So, all your business will have to worry about is covering the comparatively low fee.
In addition to saving your business money on the up-front expenses associated with an in-house CFO, a virtual CFO offers several more advantages.
One of the most valuable benefits an outsourced CFO can provide is an objective perspective and fresh insights into your business and its industry. In-house CFOs might be too close to the business to see it objectively, and a leader must be able to view the business from an objective perspective in order to make smart financial choices.
For example, a CFO who has been with a company since its beginnings might feel emotionally connected to a product, service, or strategy that is no longer serving the company. This emotional connection or nostalgia can cloud a CFO's judgment, making new opportunities seem less appealing or leading them astray from the decisions that will truly benefit the company.
Outside leadership can help CEOs identify challenges and opportunities while coming up with creative, fresh approaches to growing the business.
The best CFOs in your business's industry are highly educated and highly experienced. They have stellar track records of developing successful financial strategies for businesses just like yours. Sounds good, right? Of course, but these professionals come at a high cost, and they also tend to crave work environments that will continuously challenge them. As the top people in their field, not many businesses can offer them these challenges or the career advancement they desire.
However, accounting firms that provide outsourced CFO services can provide these talented individuals with career advancement opportunities, fresh challenges to overcome, and a stimulating professional environment.
When you contract a reputable CFO service provider, your business will be able to access these great minds, their experience, their education, and their insights at a fraction of the cost of attempting to hire one in-house.
Outsourced providers often specialize in a few types of businesses operating within a handful of select industries. As a result, they are highly specialized in these areas of financial management and strategy. When you look for a virtual CFO who specializes in your field, you'll be able to tap into their vast expertise in addition to the learning experiences and success stories of all their previous clients in your industry.
A virtual CFO will ensure your business is set up with the most advanced tools and technology. This will streamline your back-office processes while automating data collection and reporting. As a result, you'll benefit from more reliable financial data, organization-wide insights, and better analysis. This will help you make better leadership decisions, improve cash flow, and maximize your profits.
Additionally, an outsourced CFO can work with you to help you learn how to read, understand, and use your financial reports so that you can take control of your business and understand how your financial strategy will work to support the future vision you have for your company.
Every business is responsible for maintaining compliance by adhering to certain applicable rules and regulations. Plus, every business is at risk of suffering losses due to internal fraud. Fraud risk and compliance may not be the most exciting topics in financial management, but they are essential. Working with a virtual CFO helps to strengthen your back-office security, maintain compliance, and shift the burden of worrying about maintaining these systems to an experienced third party.
A virtual CFO can help you improve your financial communication skills by ensuring you know and understand your company's numbers. As a result, you'll be better able to talk with investors, lenders, and board members. You'll be able to confidently answer their questions about your financial health and explain how your business plan is feasible and supported by a sound financial strategy.
Read More: The Pros and Cons of Outsourced CFO Services
Virtual CFO services are flexible and scalable to meet your business's needs. While your small business might currently only require a few hours of CFO services each month, these needs will likely change as your business begins to grow. The services provided by a virtual CFO are available on an as-needed basis, which means you can adjust the services and time your business receives as your needs change.
Virtual CFOs can also offer a variety of services to larger companies that require (and have) a full-time, in-house CFO. Many larger companies contract outsourced CFO service providers for consulting purposes or to assist with major transitions that can significantly increase the workload of an in-house CFO. Some of these instances can include events like a merger, acquisition, or other shifts in ownership. A virtual CFO can also help with preparations for an initial public offering, the implementation of a new accounting software system, or offer guidance when a business plans to expand into new markets.
Whether you're a small business just getting started or a quickly growing medium-sized enterprise with a bright future and ambitious plans, virtual CFO services can provide you with the financial insights, structure, and strategy you need to turn your future business vision into a reality.