The Rise of Virtual CFOs: Navigating the Pros and Cons

9 min read

January 25, 2024

Traveling back in time more than a decade, The Great Recession led to limited opportunities and job stability for highly educated, qualified, and experienced professionals, leaving the landscape ripe for opportunities in outsourcing and contracting work.

In 2012, an article titled "The Rise of the Supertemp" from the Harvard Business Review identified the early signs of a coming shift in the way businesses ran and professionals chose to work.

"Our unique angle of vision convinces us that traditional models of work are being upended by a convergence of the emerging desires of top professionals and the evolving needs of 21st-century organizations," stated the article's authors. "When the dust clears, the way people think about elite careers, the corporation, and the economy will never again be quite the same."

Without foreseeing the major changes that the forthcoming lockdowns of the pandemic and the hiring challenges of The Great Resignation would create, the predictions made in this article from more than 10 years ago were eerily accurate. The Great Recession set the stage for virtual work to rise. Then the rapid development and adoption of remote working technology and workplace culture presented the tools for virtual workers and remote working relationships to thrive.

The Rise of the Virtual CFO

With the stage set, businesses across industries have watched their in-house CFOs resign and the demand for outsourced CFOs grow.

• Between 2019 and 2022, CFO resignations increased by 27%.
• From 2021 to 2022, Google searches for the term "fractional CFO" grew an astounding 535%.
• 2022 closed out with the turnover rate for CFOs at a five-year high and 40% of executives planning to quit their jobs in 2023.
• By April 2023, the demand for interim CFOs had increased 103% year-over-year.

This significant growth in interest and demand demonstrates that the virtual CFO represents not a passing trend in business but a fundamental shift in the way organizations operate.

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

The Many Benefits of a Virtual CFO

With so much visible growth in the virtual CFO industry, the assumption logically follows that using outsourced CFOs is advantageous for business. Businesses gain many benefits from using virtual CFO services. These benefits and advantages include:

Cost Savings and Risk Management

Working with a virtual CFO instead of hiring an in-house CFO is a major money-saving choice. The median annual salary of a CFO working in the United States is $436,636 - and that figure only includes salary, failing to account for the additional costs of in-house employees such as benefits and insurance. Comparatively, virtual CFOs cost businesses an average of $40 to $60 thousand annually, depending on the scope of services needed.

In addition to saving hundreds of thousands of dollars, the use of a virtual CFO also helps mitigate risk. By hiring a virtual CFO, there's no need to worry about affordability during unstable financial circumstances or unforeseen changes as would be the case with an in-house employee. By outsourcing your CFO to a virtual provider, you can significantly mitigate the risk associated with the timing of hiring and the ongoing cost of an executive-level in-house employee.

Flexibility and Scalability

When you hire a full-time, in-house CFO, you're paying them a steep salary for at least 40 hours of work every week - whether or not you truly require their expertise 40 hours each week. With a virtual CFO, you can hire their services as needed, meaning you pay for the time and talent you need when you need it.

Initially, you might only require a few hours and some basic management reporting each week with a virtual CFO. As your business grows, you might require 20 hours, comprehensive services, or more. The beauty of a virtual CFO is that you can scale up or scale back the services you purchase, as your business's needs ebb and flow.

Objectivity and a Fresh Perspective

Working in-house, professionals can become blinded by their proximity to the business, its challenges, and its opportunities. Virtual CFOs exist outside of your organization, which means they can bring a uniquely objective perspective to the table. They'll have original ideas to present and fresh insights to offer.

Operational Continuity

With the increase in CFO turnover cited above, operational continuity in the C-Suite is a serious concern for organizations with in-house CFOs. Using a virtual CFO service provider typically affords businesses access to an entire team working on their account - not just an individual. As a result, businesses benefit from increased operational continuity, reduced turnover risk, and prevented hiring challenges.

Access to Specialized Expertise

Virtual CFOs can be useful for businesses with and without an in-house CFO because they can provide specialized expertise. This is especially useful when a business is facing a new challenge or undergoing a transformation.

For example, the guidance of a virtual CFO with a successful track record in mergers and acquisitions could be especially valuable for a business looking to expand in this way. If a business owner is nearing retirement, then a virtual CFO with experience in succession planning would be beneficial for helping to develop a sound exit strategy.

Read More: How Much Do Outsourced CFO Services Cost?

Challenges and Considerations When Working With a Virtual CFO

While virtual CFOs offer many advantages and benefits, they are not without some drawbacks. Some of the most common challenges that businesses face when working with a virtual CFO include:

Free and Clear Communication

Communication is essential with in-house executives. When you're working with someone who isn't located in the office next to yours, good communication becomes even more vital and increasingly challenging. It can be difficult to share information via the cloud if your employees are not comfortable using the required technology. Additionally, setting a schedule for communicating with a virtual CFO can also present problems. With limited availability and sometimes unreliable means of communicating, it's much easier for miscommunications to occur as meaning gets lost in translation.

Building Trust

A virtual CFO is by definition an outsider. As a result, it can be difficult to build the trust necessary to hand over such an important role in your organization to an outsourced, remote provider.

Education and Orientation

In-house CFOs undergo an onboarding process and are immediately immersed in the inner workings of your organization. Virtual CFOs exist outside of your company and rely on their contacts within your company to introduce them.

Your initial meetings and communications with a virtual CFO are important for educating your provider about your business. You'll need to provide them with financial information so that they can become oriented with that aspect of your business. Additionally, you'll need to provide them with more general information about your business, its operation, its employees, its customers, its unique value proposition, and your goals so that they can more effectively assist you with strategy.

Workflow Speedbumps

An effective workflow can be difficult to achieve with in-house employees. It is even more difficult with outsourced professionals. Speedbumps can hinder your workflow as a result of communication problems and technology issues. Problems can even occur when a business chooses a virtual CFO with limited, relevant industry experience.

Insights and Tips for Organizations Considering Virtual CFO Services

To create a successful working relationship with a virtual CFO, business leaders should take steps to mitigate the challenges discussed above.

• Communication - Business leaders working with virtual CFOs should establish clear expectations and methods for communication to facilitate a successful collaboration. Be sure you understand the best method, frequency, and means of communicating with your virtual CFO.
• Trust-Building - Practice due diligence when shopping for a virtual CFO. Thoroughly research their background, experience, education, and expertise. Plus, read reviews from other clients. If you have concerns, talk about them with your potential provider before you make a decision. If you still feel uncertain, start slowly with a virtual CFO. This way you can, in a sense, try before you buy. Have them help with limited services or a specific project to see how it goes before diving in completely.
• Orientation - The success of a partnership with a virtual CFO is as much your responsibility as the outsourced provider's. Commit to taking the time to properly orient and "onboard" your virtual CFO in your business.
• Workflow - Before you begin working with a virtual CFO, be sure you clearly understand the process. Know what information and collaboration they need from you, when they need it, and how you can provide it.
• Industry Knowledge and Relevant Experience - Look for a CFO who has experience and direct knowledge working with other clients in your industry. Additionally, if you're bringing on a virtual CFO to handle a specific project or challenge, search for someone with relevant experience. You don't want to be a virtual CFO's first rodeo.

Additionally, business leaders need to understand their expectations and their organization's needs so that they understand what they want from a virtual CFO. Thoroughly assessing needs and expectations will help you choose the right virtual CFO for your business, and communicating these needs and expectations will also help your virtual CFO prioritize their focus, time, and efforts for your business.

While a virtual CFO stands to save your business a big chunk of change, they do not provide their services free. Understanding the pricing structure, what you'll get for what you're paying, and any additional fees is vital. Knowing your costs and what is included with your services will save you from incurring any out-of-budget surprises on your billing statement.

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Do Virtual CFOs Really Work? A Look at the Facts

Yes, like most aspects of running a business, virtual CFOs come with both advantages and disadvantages. However, they do really work to help businesses improve. The benefits are real and proven. In addition to cost savings, virtual CFOs have been shown to:

• Increase stakeholder confidence
• Identify opportunities and risks with an unbiased perspective
• Provide improved financial data and management insights
• Increase productivity
• Strengthen operations
• Mitigate risk with better internal controls and compliance
• Support better decision-making with data-driven insights

Is a Virtual CFO Right for Your Business?

As the popularity of the virtual CFO continues to rise, it might be time to pay real attention to this trend which has quickly become a fundamental operational tool across industries in organizations of all sizes.

Whether you're running a startup that isn't ready to take on a full-time, in-house CFO, an established business that can't quite afford a CFO's salary, or a business with an in-house CFO who could use assistance with a major project or transition, a virtual CFO is likely the solution to your problems and the path to meeting your business's full potential.