How Much Should Mid-Market Companies Pay For Outsourced CFO Services?

7 min read

As small and medium-sized businesses grow, business owners can quickly find themselves overwhelmed by the back office. While bookkeeping and accounting are important for tax and compliance purposes, they are also essential to the execution of your business plan, strategic planning, financial health, and growth. 

Without the help of a professional who is a financial expert with business know-how and experience in your industry, your business might be struggling to budget properly, maintain a healthy cash flow, keep up with the cost of business growth, or maintain strong profit margins. Without the help of a chief financial officer (CFO), your business might be failing to meet short-term benchmarks and achieve long-term goals. Without a CFO, your business might not have any long-term goals.

The primary role of a CFO is as a visionary leader of the company who leads, plans, strategizes, and helps the chief executive officer (CEO) make decisions from a financial perspective. The CFO's job is to help support the vision of the CEO with a financial plan designed to complement the business's overall strategy, making the CEO's future vision a reality.

What Are CFO Services?

CFO services (also often called an outsourced CFO, fractional CFO, or virtual CFO) are services provided by a third-party provider such as an independent contractor, consultant, or outsourced accounting firm. 

Outsourced CFO services specifically refer to a list of services and functions that would normally be performed by a CFO in a company.

What Can a Virtual CFO Do for Your Business?

Outsourced CFO services can include the following:

• Financial Strategy - An outsourced CFO works with the CEO to develop a financial strategy that's designed to complement and support the business plan. The CFO can identify, measure, track, and interpret financial data, reports, and metrics to measure and analyze performance, benchmarks, and progress toward goals.
• Back Office Management and Oversight - While the controller's responsibilities are more geared around the direct management of back-office staff in addition to overseeing and ensuring proper execution of the bookkeeping and accounting policies and procedures, a CFO can provide guidance and vision to help steer the department in the right direction. The CFO can ensure the controller and entire department have the proper systems in place to help implement and execute the business's overarching financial plan and strategy.
• Financial Communication and Fundraising - A CFO can communicate with ease regarding the company's finances, numbers, financial strategy, and goals. They are essential for keeping stakeholders informed about the business's financial health in addition to finding and talking with potential investors or lenders.
• Improved Financial Health - Guidance from an experienced outsourced CFO can help improve your business's financial health by identifying creative ways to cut costs, increase revenue, and strengthen profit margins. Additionally, you can use a CFO who understands the ins and outs of your business from a financial perspective as a sounding board for testing new ideas.
• Solving Problems and Overcoming Challenges - With an extensive background in financial strategy and business, an outsourced CFO can help you solve problems and overcome challenges your business is facing. Even better, a CFO can help your business prevent, mitigate, and avoid future financial pitfalls with financial forecasting and smart planning.
• Identifying and Leveraging Financial Opportunities - With their background and knowledge base, a CFO can readily identify potential opportunities for your business and help you implement financial strategies to leverage their potential.

Read More: Outsourced Accounting Costs for Mid-Market Companies

The Benefits of Fractional CFO Services

The act of outsourcing a CFO, instead of hiring one in-house, automatically reduces your costs. A CFO's strategic services will also help you identify more ways to increase efficiency and save money and time in your business.

Beyond the improved resource management, CFOs can also benefit businesses in a variety of immeasurable ways, such as:

• Better financial operations and healthier cash flow that eliminates cash bleed that often comes in the form of opportunity costs, interest payments, the cost of debt, late fees, or missed early payment savings.
• Greater understanding and management of your business through an understanding of its finances.
• Gained and improved confidence in your business from key stakeholders such as investors, the board of directors, and co-founders.
• Increased efficiency and productivity across the board.
• Increased opportunities and ability to grow.

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How Much Do Outsourced CFO Services Cost?

Outsourced CFO costs are typically subscription-based and can range anywhere from $1,200 to $2,500 per day of services when hiring an individually contracted CFO or $5,000 to $12,000 per month when hiring an outsourced accounting firm with virtual CFO services. Different outsourced CFO companies charge different rates. The rates vary for SMEs, as outsourced companies often bundle a client's desired services into different service packages that come with various price points designed to meet the business's needs and budget.

The fractional services of an outsourced CFO come at a fraction of the price of hiring an in-house CFO.

Cost Comparison: How Much Do In-House CFOs Cost Mid-Market Companies?

Comparatively, the cost of an in-house CFO is much higher than outsourced services. Depending on an individual's experience and education, the typical annual salary of an in-house CFO ranges from about $232,000 to almost $670,000 with an average of $433,088 in the United States ^[1]. Plus, it's important to remember that these figures do not account for the additional costs of hiring in-house employees such as taxes, insurance, benefits, bonuses, paid time off, office space, technology licenses, equipment, hiring costs, turnover costs, etc. The additional costs of an in-house CFO can easily add up to tens of thousands of dollars per year.

Does Your Mid-Market Company Need an In-House CFO?

The primary benefit to hiring an in-house CFO is that you get access to their expertise and their services full-time. However, most small and medium-sized businesses do not actually require 40 hours of CFO time each week. While being CFO is a big job with a big salary and title to go with it, the truth is that most growing SMEs can get everything they need from a CFO in a small fraction of the time a full-time, in-house CFO would be on the clock.

Mid-market companies are defined as those that generate more than $10 million but less than $1 billion in annual revenue. While these figures represent significant sales numbers, they do not yet typically indicate the need for a business to bring on a full-time, in-house CFO. While your business's needs are limited, it's best to save money by outsourcing until outsourcing can no longer meet your business's needs.

Read More: Cost Analysis: Outsourcing vs. In-House Accounting for Your Business

Scaling CFO Services for Small Businesses in Your Mid-Market Company

At a minimum, your business needs a bookkeeping and accounting department with at least a three-person team to ensure the proper separation of duties and power. Typically, this team includes one or more bookkeepers, a controller, and a CFO. With outsourced accounting, your business can have a complete back-office team - and all the benefits that come with it - at a fraction of the cost of hiring in-house.

No matter your SME's size or how fast it's growing, an outsourced team can scale its services to accommodate your business's needs, enabling and keeping up with the business's growth, as you continue to set, work toward, and achieve strategic goals.

[1] https://www.salary.com/research/salary/benchmark/controller-salary