What is an Outsourced CFO?
Written by Amanda Bower | Published: April 26, 2022
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Most businesses outsource IT, customer service, sales, marketing, manufacturing, shipping, etc., to third-party providers. However, many don’t know that they can outsource their financial functions too.
Outsourcing a CFO is the easiest and most cost-effective way to achieve your financial objectives. An outsourced CFO will meet your tax liabilities and oversee the teams responsible for tactical issues like keeping accurate, timely books. They fulfill the same strategic roles as an in-house chief financial officer, but instead of joining your business as a corporate officer, they’ll work with you on a contract basis. This can help your company save costs, make quicker business decisions, and gain an independent viewpoint.
Outsourced CFOs partner with your business to offer expert solutions to help raise capital, optimize strategy, generate revenue, implement rigorous financial systems, avoid financial challenges, and ultimately take your business to the next level. An outsourced CFO gives your organization the tools and expertise to fuel growth and innovation. They’re an amazing option for ambitious startups.
When Would a Company Use an Outsourced CFO?
The best time to use an outsourced CFO is right from the start. However, most companies wait until they experience substantial growth that presents complex financial processes and requirements to outsource a CFO. For example, companies experiencing rapid growth bring in a CFO to help manage the growth and cash flow, deploy proper processes, and budget for a corresponding increase in expenses.
Generally, you’ll need a CFO when:
- You’re unsure about the right time for a capital raise.
- You want to ensure your books are in order before approaching investors and lenders.
- Your business has financial challenges or is undergoing changes or audits. For example, if you’re going through an acquisition, you’ll have to deal with economic changes and taxes, among other things.
- You’re not confident that your current controller or bookkeeper can handle the process changes.
- Your business is expanding.
- You’re a part of a merger or acquisition.
- You’re overwhelmed.
How Does An Outsourced CFO Provide Value?
Outsourced CFO services allow businesses to access financial experts on a need basis without committing to an in-house source. It’s not only convenient but also more affordable. An outsourced CFO provides you with highly critical, organized, and accurate financial information that helps you make informed business decisions. The right decisions ultimately reflect all business aspects, including costs, inventory cash flows, profitability, margins, etc.
For many companies, outsourcing the role of a CFO is a smart and profitable decision. An outsourcing company provides value in the following ways:
- Manages cash flow and ensures that you never run out of cash
- Analyzes your business’s strengths and weaknesses and suggests ways to improve
- Reports on profitability compared with targets and ensure you comply with the relevant laws
- Assesses the financial viability of new product ideas
- Works with you and other key decision-makers and can become a critical strategic adviser
- Evaluates cost structures and pricing to improve margins
- Negotiates with banks on behalf of your business
- Analyzes financial data capture and reporting systems and provides improvement recommendations
- Helps you raise capital and offer advice on debt/equity mix
- Prepares financial presentation for investors or board
- Helps with quarterly financial reporting
- Provides continuous financial planning and analysis, which includes budgeting, predicting, and assessing short- and long-term financial needs
The Most Common Outsourced CFO Activities
A CFO pays close attention to your business’s short- and long-term financial strategy and will uncover what’s needed to propel your business to the next level.
Short and Long-Term Forecasting
A significant part of outsourced CFOs’ value to your business is their ability to forecast potential short-and long-term outcomes accurately. This includes financial forecasting and modeling based on your business’s past performance, as well as external and internal factors that may influence expense and revenue. The CFO will interpret different departmental level predictions to create profit projections for the CEO and shareholders. Forecasting helps you foresee changing market trends and stay ahead of the curve.
Financial System Strategy and Design
A CFO will implement processes to track your company’s financial activities. They’ll ensure that your accounting measures, wages, revenue and expense schedules, balance sheet verification, etc., are in order. This not only helps in financial planning and funds allocation but also in acquiring and managing funds. Most importantly, financial systems provide insights for critical financial decisions.
A CFO can create a spending plan for your business based on income and expenses. They will identify the available capital, estimate your spending, and predict revenue. This will help you plan business activities and serve as the foundation for setting up financial goals.
Understanding Financial Reporting
Your outsourced CFO will analyze the financial statements and determine your business’s financial information and performance over time. This is vital for understanding the amount of money you have, the source, and where the money needs to go. Financial reporting helps you make the right decisions based on your business’s financial health.
The CFO will take charge of raising money to help your business get off the ground, expand, or change in any way. Raising capital needs considerable preparation and planning, and a CFO can assist with all of this.
Hiring an in-house team can be costly, especially considering that you have to pay them for time off and other benefits. Onboarding is also expensive. But that’s not the case for an outsourced CFO. Outsourced CFOs come with broad experience from different companies in your industry and are often more objective, offering an outside perspective and the ability to make decisions based on a wide array of experience and data.
A CFO provides services like stabilizing financial functions, preliminary analysis and reporting, forecasting, preparing relevant documents, and advising key team members during the sales process. All these are critical during mergers and acquisition transactions.
Equity/Cap Table Accounting
A CFO can create and maintain a capitalization table. This table shows the equity capitalization of your company and breaks down the shareholders’ equity.
Banking Relationship Oversight
An outsourced CFO can establish rapport with the bank, thereby helping streamline how you do business regarding business transactions, special requests, and loans.
Unit Economics Analysis
The CFO can analyze unit profitability and other financial aspects of the business, including gross margin, payback period, or ROI of sales and marketing efforts. This will provide insights into unit profitability, helping you make informed decisions.
A CFO can identify investment opportunities, helping your business grow and remain competitive in the market.
What to Ask When Picking an Outsourced CFO Provider
The market has no shortage of outsourced CFO providers. Here are a few things to ask to ensure you settle for the right CFO provider:
Do you have experience working in my industry?
CFOs handle a variety of tasks across different industries. However, it is beneficial if the prospective CFO has worked with companies in the same industry as you, as this means they have the experience to handle your type of problem.
Can I see samples of customized reports?
The last thing you want is to work with a CFO who takes a one-size-fits-all approach. Find a CFO who adjusts to different types of business and can customize reports as per the information you process.
Which reports do the board and investors want to see?
Your investors and board of directors will need to communicate with your CFO at some point. Therefore, the CFO should understand the perspective of investors or boards and communicate the information they want to see.
Are you certified and licensed?
Your CFO should be certified and licensed to work. This will give you the confidence that you’re working with a qualified company or individual. Licensing also provides peace of mind that the relevant bodies approve the CFO to carry out their duties.
Can you provide relevant references?
Don’t just take their word for it. Ask for references to call and inquire about their experience working with the outsourced CFO. This way, you can make an informed decision.
An Outsourced CFO Could Be the Tool That Takes Your Team to the Next Level
Don’t struggle alone. Let an outsourced CFO help you see your business in a whole new way. At hiline, we commit to providing the best in class accounting and bookkeeping services designed to grow alongside your business. With hiline, you’ll know where you’re performing well, where you’re losing cash, and where the best opportunities lie to improve your bottom line.
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