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The Pros and Cons of Outsourced CFO Services

    

8 min read

Outsourced CFO services for businesses

Running a business is a complex endeavor, and most business leaders are experts in their own fields - not in finance.

Key Takeaways

  • Reduced Costs: Fifty-nine percent of businesses use outsourcing to lower their expenses, and it is an effective cost-saving strategy. Outsourcing a high-level position, like the chief financial officer could save a business hundreds of thousands…

  • Less Connected to the Business: While an outsourced CFO might not have the experience of working directly inside your company, a good one will put in the effort necessary to know and understand the business. Although…

  • Are Fractional CFO Services Right for Your Business: With businesses facing unprecedented employee turnover rates during the Great Resignation, interest rate hikes, and the reduced spending power of inflation, the need to reduce costs across the board…

 

Business management, however, requires extensive knowledge in not just financial management but also bookkeeping, accounting, tax law, and financial regulations to maintain financial health and compliance.

 As a result, most business owners must seek assistance with the management of their back offices in the form of in-house employees, outsourced CFO services, or a combination of both. 

What is the cost comparison between an in-house vs. an outsourced CFO? See How  Your Cost Stack Up With Custom Pricing. 

What Are CFO Services?

The term CFO services refers to the services provided by an outsourced CFO (also called a fractional CFO, interim CFO, or hourly CFO). The scope and type of services included in outsourced CFO services tend to vary based on the client's needs and budget. 

CFO services often include:

  • Financial reporting and management reporting
  • Financial data analysis
  • Cash flow management
  • Financial guidance
  • Financial planning and strategy
  • Financial communication with stakeholders and investors
  • Capital management and fundraising
  • Bookkeeping and accounting system establishment, maintenance, and management
  • Regulatory compliance oversight
  • Financial department management
  • Fraud mitigation
  • Audit preparation and management

Outsourced CFO services can offer business incredible value, but are they right for your business? Let's take a look at some of the pros and cons of working with a fractional CFO to help you decide whether your business could benefit from an outsourced CFO. 

The Pros of Outsourced CFO Services for Business

Outsourced CFO services offer countless benefits to businesses such as invaluable financial insights, improved operational efficiency, improved productivity, and maximized profits. Some of the primary advantages of outsourced CFO services that help deliver these benefits include the following:

Reduced Costs

Fifty-nine percent of businesses use outsourcing to lower their expenses, and it is an effective cost-saving strategy. Outsourcing a high-level position, like the chief financial officer could save a business hundreds of thousands annually with the average CFO in the United States making around $435,000 each year in salary alone. When you account for additional expenses of high-level in-house employees such as benefits packages and paid time off, the total cost is actually much higher. 

But how much do CFO services cost?

Fractional CFO services cost much less than an in-house CFO. However, the specific answer is, "It depends." The actual cost of outsourced CFO services depends greatly on several factors such as the scope and type of services your business needs from a fractional CFO and the amount of time spent on those services. Plus, the fractional CFO you choose to work with and their individual credentials and experience can also affect the value pricing of services. 

On average, most businesses can expect to pay about $40 to $60 thousand annually for outsourced CFO services. These costs are typically incurred on a monthly basis over the course of a year with a subscription-based service package. 

Read More: How Much Do Outsourced CFO Services Cost?

Objective Perspective and Fresh Insights

Working with a financial professional who is not an in-house employee means that you'll have access to an objective perspective of your business which can provide new, creative insights. With the potential to see your business, market, and industry in a fresh light comes the potential for new opportunities and the avoidance of unforeseen challenges and pitfalls. 

Access to Expert Financial Guidance

Hiring in-house, your company likely won't be able to hire the very best CFO with the most experience and most successful track record because these financial professionals are very expensive. They're paid exorbitant salaries and negotiate attractive benefits packages to match. 

By outsourcing, however, you will be able to afford to work with some of the brightest minds in the financial sector at a much lower price point since you'll only be paying for the services and time your business needs - and not footing the whole bill for a high-caliber, C-suite-level, in-house employee. 

Reduced Risk of Fraud

In-house employees with too much control or access create a serious risk of internal fraud. Having an outsourced CFO means that you'll have a third party overseeing your back office, establishing sound systems, and ensuring the adequate separation of duties and distribution of power to protect your business from fraud. 


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The Cons of Outsourced CFO Services for Business

While outsourced CFO services are an unbelievably powerful tool for businesses, the industry is not infallible. The following are some of the most commonly experienced disadvantages of outsourced CFO services:

Less Connected to the Business

A common argument against using outsourced CFO services is that in-house employees are more connected to the business. Employees working in-house do indeed have a greater understanding of the business's operations, its customers, its services, and its products - they have a better understanding of every aspect of the business. In-house employees, however, can also quit at any time and take all of that knowledge with them. 

While an outsourced CFO might not have the experience of working directly inside your company, a good one will put in the effort necessary to know and understand the business. Although they do not work directly for you, as an employee, outsourced CFOs are connected to your business in that your success is better for them. The more successful you are, the more successful they will be too. Your business success will help to strengthen your relationship with the outsourced CFO, reflect positively on their services, and improve their business, too. 

Potential Lack of Industry Expertise

If you hire an in-house CFO, you're more likely to require that the individual has experience with your industry and a clear understanding of the opportunities, challenges, and requirements found within that industry. 

This isn't always the case with an outsourced CFO- if you do your research!

It is possible (and strongly recommended) for business leaders to do a good amount of shopping around before choosing an outsourced CFO or outsourced accounting service provider to work with.   Your outsourced service provider must have expertise and experience in your business’s industry.

You get to choose which outsourced CFO you work with, so look for one with experience in your industry to maximize the potential for a successful working relationship. 

More Limited Communication

Communication is essential to a fruitful and successful relationship between a CEO and a CFO. So, communication is key.

It is indeed much simpler and easier to talk with a person who's working one office down the hall from you than someone who maybe isn't even located in your state. For some business owners, the need to use other methods for communication can be a significant con of outsourced CFO services. 

However, modern technology does offer new forms of communication that can be just as effective as talking face-to-face. Plus, the pandemic and the need to work remotely resulted in a significant upswell of options and improvements in remote communication tools. 

When researching outsourced CFO services, be sure to ask about preferred communication methods, frequency, and expectations to ensure you choose a service provider with whom you'll be comfortable communicating. 

Potential for Unexpected Costs

If you hire an in-house employee, you can pretty much nail down your costs as soon as contract or hiring negotiations have finished. With an outsourced CFO, the services and time involved are more malleable. As a result, it's possible to incur costs that you weren't expecting. 

You can avoid unexpected costs by having a thorough conversation about rates and included services. Be sure you understand how much you're paying and what your service package includes. Ask about additional services or time and how much any additional fees could impact your bill. 

To maintain control of costs when working with an outsourced CFO, it's also helpful to have a good understanding of your business's needs at the beginning of the relationship. This will help to limit additional time and services after you've agreed upon a service package and price that could result in unplanned costs. 

Read  More: The Pros and Cons of Outsourced Accounting Services for Businesses

Are Fractional CFO Services Right for Your Business?

With businesses facing unprecedented employee turnover rates during the Great Resignation, interest rate hikes, and the reduced spending power of inflation, the need to reduce costs across the board is of paramount importance. As a result, the demand for outsourced, interim CFO services increased 103% year-over-year in 2023. 

However, each business owner must weigh the pros and cons of outsourcing a C-suite position to determine whether or not it is the right choice for their business's needs. To avoid the downsides of outsourced CFO services, use due diligence in the selection process. Look for an individual with direct experience in and a successful track record of working with similar businesses in your industry. Understand your business's needs as you enter the relationship and look for a communicative CFO who will be available on the schedule you require. Additionally, be sure to ask plenty of questions and get clear answers about the cost of the services you require and what you can expect in terms of deliverables, time investment, and communication from an outsourced CFO. 

For every business, having a knowledgeable financial professional available to support the business strategy with a sound financial plan is vital to success. Whether you're running a startup, looking to expand your business, undergoing a merger or acquisition, or beginning to plan your exit strategy, a CFO can help you navigate the challenges that come your way from a financial perspective to ensure you have the necessary resources available to ensure success.  

 

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