What is an Outsourced CFO? [And Why Do Businesses Use Them?]
Companies outsource many functions in today’s economy, including accounting, payroll, IT, and marketing. However, many business owners don’t realize they can outsource their company’s finance functions.
Outsourcing CFO services give businesses access to financial experts with a wide range of experiences committed to keeping up with best practices in the field. It also allows business owners to access that expertise as needed, rather than committing to a full-time in-house resource.
What is an Outsourced CFO?
An outsourced CFO is a finance leader outside of your organization that provides top-tier finance, business, accounting, and operational guidance for your business. An outsourced CFO can be used full-time, part-time, or as an interim for the duration of a project.
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Why Do Companies Use Outsourced CFO Services?
From start-ups to private equity-backed firms and all businesses in between, there are several scenarios where outsourcing CFO services is the best way to address business owners' challenges. Circumstances that call for outsourcing the CFO function are varied but can include the following scenarios:
- You’re an entrepreneur. Your business is taking off, and you have a lot of balls in the air – you simply don’t have enough time for budgeting, forecasting, and analyzing financial results.
- You run a small- to mid-sized business. You know your customers and your services or products inside and out, but you’re less focused on dissecting the company’s financial side. As a result, you sometimes make decisions based on instinct instead of financial data and other objective inputs.
- You’ve raised some venture capital to expand your business (congratulations!), and you need to update your investors about profit margins, customer acquisition costs, and other key performance indicators, but you’re not sure how to put that together.
- Your business has been getting along with a one-person finance department, and that person just gave two weeks’ notice. While you have a bookkeeper, you don’t fully understand the financial statements they prepare. You’ve felt like you could use more in financial planning and analysis, but you’re not entirely sure what you need.
- You have a bookkeeper or controller who does not understand the financial statements they are preparing and presenting.
- The business is not performing as well as you think it should. An objective third party can help you understand where it falls short and where action is required to turn the business around.
How Does an Outsourced CFO Provide Value?
Consider a business that offers both a product and service contracts to support the use of the product.
The owner doesn’t have the financial information needed to allocate expenses appropriately between the two and doesn’t know the critical metrics or KPIs for a software business versus a service business.
In this situation, the owner simply cannot know whether both sides of the company are profitable.
Managing a business with inadequate financial information is like being given critical news scrambled or written in a foreign language.
You need a capable translator to help you interpret the data and take appropriate action. If you do not have that translator on your staff, an outsourced CFO could be the right solution.
Business owners make decisions every day, but they are not optimal if they are based on insufficient or incorrect inputs.
The implications of faulty financial inputs, including quantities, costs, margins, inventory, cash flows, and so on, can be profound, affecting profitability, market share, and access to capital.
If your financial data is not well organized and presented, it is not as valuable as it could be. If you are getting inadequate or inaccurate information, that is even worse.
Outsourced CFO services add significant value to all types of businesses in numerous ways, including:
- Ongoing financial planning and analysis (budgeting, forecasting, assessing long-term and short-term financing needs)
- Analysis of overall financial strengths and weaknesses, with suggestions for improvements
- Assessment of the financial viability of new product ideas, including projections and NPVs, and IRR calculations
- Analysis of pricing and cost structures to improve margins
- Evaluation of financial data capture and reporting systems, with recommendations for improvements
- Assistance with raising capital, advising on debt/equity mix
- Preparing financial presentations for the Board or investors (e.g., pitch decks)
- Assistance with quarterly financial reporting
- Negotiate with banks on behalf of the company
- Analysis of M&A opportunities, including financial forecasts of BAU and post-acquisition operations
Recognizing the Need for Outsourced CFO Services
You may have realized that many of the items on this list could be done more effectively in your business. Or, in many cases, a business owner will simply have the feeling, “something isn’t right here.”
It often starts with cash and cash flow – your financial statements say the business is making money, but sometimes you don’t have enough cash on hand to meet expenses.
The trigger might be a particular event that requires an in-depth financial analysis and takes too much of the CEO’s time, leading to the feeling that “we just can’t do things this way anymore.”
The CEO of a VC-backed firm frequently is told, “you need to have finance people to provide various types of financial information to our Board.”
VCs also want to know that the CEO can access reliable financial information to make informed, data-driven decisions.
Regardless of whether or not a firm has outside investors, CEOs often have an unfulfilled need for someone to help interpret financial data or to provide financial data they don’t have but don’t want to commit to hiring a full-time, in-house CFO.
Suppose your firm handles financial matters by a committee because no individual is genuinely responsible for compiling those analyses. In that case, that’s another indication that outsourcing your CFO needs could provide a substantial benefit.
If your accounting needs are handled by outsourcing, you know the relief that comes with having that work managed for you. The same applies to the finance function, but your accounting firm is not the place to turn to for help.
Accounting firms do auditing and tax planning, but they are not well-positioned to help with financial forecasting, improving the profitability of your operations, and analyzing opportunities to grow your business. For that, you need financial experts committed to financial expertise and best practices.
Could your business benefit from Outsourced CFO Services?
Outsourcing the CFO function can significantly contribute to the financial and strategic decisions made for many businesses.
As an expert in providing outsourced CFO services, G-Squared Partners is ready to help your firm achieve its financial goals. Contact us today.
Why It Pays to Utilize a Part-Time CFO: A detailed look at why (and how) it pays to utilize an outsourced, or part-time, CFO.