Outsourced CFO Services: What Should it Cost?
We are often asked:
How much does an outsourced CFO cost? The short answer is: probably somewhere between $200-$350 per hour, which works out to anywhere from $2,000 to $14,000 per month.
It depends on what you need an outsourced CFO to do for you, and the number of hours per month of CFO-type work you need.
However, that “short answer” is not particularly useful.
This article discusses how business owners and CEOs should approach this to get a truly useful answer to the question and why the most accurate answer may be far less than you expect.
Start with what you need: a better way to determine how much an outsourced CFO will cost
To be honest, rather than starting with “how much will it cost to use an outsourced CFO?”, we think it makes more sense to talk about the questions you need to be able to answer before getting into how much you would have to pay for an outsourced CFO’s services.
Consider this: if you are considering buying a car, you would first think about what you need or want from a vehicle before looking at prices.
Do you need basic transportation for getting around town or something dependable for a long commute or family road trips?
Do you value luxury features or need space to haul things around? Or maybe you see yourself in a sports car? The question, “how much will a car cost me?” depends on your needs, and any answer only makes sense in that context.
The same reasoning applies when asking how much it would cost to hire an outsourced CFO.
Start by identifying what you need. What would you expect a CFO to do for you and your company?
Perhaps you already have a bookkeeper and a controller and need a CFO for strategic financial advice, more sophisticated budgeting and forecasting, or to help with raising capital.
Or, you may need a CFO who can also take care of tasks a controller typically handles, which includes accounting and financial reporting work, in addition to the types of things a CFO does.
To define what CFO services you need (in other words, to figure out what X, Y, and Z should be for your business), think about what brought you to consider using an outsourced CFO in the first place.
Maybe your investors told you, “you need a CFO’s expertise to address these issues that were unearthed during the due diligence process.”
Or perhaps you are facing an upcoming due diligence process and realize you are at a disadvantage because you cannot answer critical financial questions as well as you would like to.
Important: do not wait until you are staring down the barrel of a due diligence process to look for outsourced CFO services.
If you are even thinking about selling your business, or anticipate pursuing another round of venture capital funding six to nine months from now, engage with an outsourced CFO now.
Ask yourself questions about your business
Many CEOs hire an outsourced CFO when they realize (are willing to admit to themselves) that they do not really understand what is going on in the business, financially speaking.
Ask yourself whether you are comfortable answering critical questions about your company that go far beyond your percentage sales growth or monthly cash flow.
This determines how well you understand the overall financial condition of the business and whether you can handle financial questions your investors, your board, your lenders, and any potential buyer would expect you to answer.
For example, do you know which of your company’s products or services are profitable?
Same question for your customer relationships.
Are you often in danger of running short of cash, and do you know how much cash is usually tied up in inventory and/or receivables?
If you need a line of credit, could you meet the criteria that banks typically require to extend credit to a business like yours?
Will you need to raise new capital (noting that as of this writing, raising capital is likely to be extremely challenging for tech companies or the foreseeable future).
When you start asking yourself these questions, you might discover that you know less than you should and want to know about your business.
If you cannot readily answer them, going through this exercise will help you to come up with a realistic estimate of what you need from an outsourced CFO and, therefore, how much it would cost.
Take a stab at creating a “scope of work” statement.
Many venture-backed firms need the accounting function (in-house or outsourced) to process transactions, handle Accounts Receivable, Accounts Payable, payroll, and closing the books, instead of saddling someone else with the job, someone who is not trained to do it and probably does not do it well.
Firms also need CFO expertise to define and calculate KPIs, develop budgets/projections, create board meeting decks, and negotiate a line of credit from a venture-savvy bank.
Some other CFO-level analyses that might be of interest:
- Is our marketing spend worthwhile? How does it compare with what is typical for our industry?
- What are our true customer acquisition costs?
- What are our recurring revenues and customer retention rate? What does that say about our sales and marketing?
Getting at the true cost of outsourced CFO services
Identifying your needs puts you much closer to being able to answer the question, “how much will an outsource CFO cost?”.
Everything we discussed above is designed to get at how much time you will need from a CFO, which is essential to answer that question accurately.
When you can complete the sentence, “I need CFO services because I need help with X, Y, and Z,” you can translate that into the number of hours per month X, Y, and Z are likely to take.
You may need some help estimating how many hours it would take – if you have never done X, Y, and Z yourself, it is almost impossible to accurately gauge how long someone with expertise in those areas would take.
You could ask some contacts in your industry who have a CFO (in-house or outsourced).
Even better: talk with a couple of outsourced CFO services firms you are considering and ask them. If they give you a hard sales pitch instead of a straight answer, you obtain some useful information!
What would it cost to create a more robust in-house finance and accounting team?
Another way to look at “What does an outsourced CFO cost?” is to turn the question on its head and ask, “What would it cost to create a more robust in-house finance and accounting team?”
In addition to the ongoing salaries, employee benefits, and payroll expenses involved, you would incur costs associated with the following:
- hiring/recruiting (which may include headhunting fees)
- onboarding time
- “learning curve” time, and
- replacing someone if they do not work out, which means you repeat these steps and pay for them again.
Using outsourced CFO services avoids all of those expenses, and you only pay for the hours and services needed to accomplish what you need from a CFO.
In other words, using an outsourced CFO eliminates the problem of hiring a full-time, in-house CFO when you do not have enough legitimate CFO-type work to keep that person meaningfully occupied.
If you think about it, the value an outsourced CFO can provide by creating accurate assessments of your company’s financial health and providing answers to the abovementioned questions should far outweigh the out-of-pocket cost of their services. In that sense, your business is actually profiting from the arrangement.
So, the right answer to the question, “how much does it cost to have an outsourced CFO?” could be, “Nothing – because it pays for itself.”
To learn how much using outsourced CFO services would likely cost based on your needs, contact G-Squared. We would be happy to walk you through the thought process to come up with a realistic estimate.
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