Outsourced CFO – Worth the Investment?

My friend Pam Prior, CFO extraordinaire, agreed to guest post for me this week. Her book, Your First CFO: The Accounting Cure for Small Business Owners will publish this Thursday, February 9th on Amazon.

 It’s been a long day, and you have a critical meeting with your banker tomorrow. She expects to see the financials from last months close, as well as your rolling forecast in order to consider granting the loan that you are requesting.

Your blood is boiling, though, because your bookkeeper just informed you that your monthly financials won’t be ready for three more days.

In addition, you are losing sleep, because it makes no sense that your cash balance in the bank is dropping like a stone even though your business is profitable!

Many business owners find themselves in a similar position, frustrated with their bookkeeping service, short on key information, and unsure of how to improve the situation. So, if the story above sounds familiar, you are not alone.

The Telltale Signs That You May Need a CFO

Do any of these scenarios sound familiar?

  • You’ve worked your way through several bookkeepers in the past few years, gaining no understanding of your company’s financial position.
  • You’re not getting your month-end financial reports on time.
  • You’re not able to relate the data on the financial report with the way you run your business.

These three symptoms indicate that something radically different may be required of your bookkeeping process. There is no argument that timely, consistent, and reliable financial data is critical to your ability to be able to see where your business has been, and to see what is coming down the road at you.

You need to be able to test decisions about clients, employees, service providers, leased space, and growth plans, and with clear and relevant information at your fingertips.

If it strikes you that you’ve been running your business without financial reports that are reliable, timely, or relevant, it may be time to talk with a CFO to get an understanding of what you might be missing. You don’t necessarily have to engage a full-time CFO – in fact, a good CFO will listen to your business story, and help you decide what level of support you need to get the reports, information and advice you should be able to expect.

And should that level of support include a CFO, you have many types to choose from. The first decision is whether or not you want a full-time, internal CFO. But assuming you are not in need of that full-time support, there are a number of outsourced options as well.

What Types of Outsourced CFO Services Are Available?

There are a number of different options for outsourced CFO services, and we will focus on three:

1. Part-time CFO

A part-time CFO is someone you set up a service agreement with to provide some number of hours dedicated to your business per week, or per month. As a rule, to hire this type of position, you would likely have reliable bookkeeping and accounting professionals already in place, or an internal team that just requires periodic guidance.

In addition, this part-time CFO can provide you, counsel on strategic matters, financing choices, risk management, and other key financial matters. They can become your “friend in the foxhole” for discussing matters for which you don’t currently have a confidant to act as a sounding board.

In short, they can act as your financial quarterback – giving you critical insights, and providing leadership to your accounting team and related professionals.

2. Interim CFO

An interim CFO is an experience CFO that you take on full-time, but only for a short period, while they are helping you determine what your long-term CFO-level needs are.

Business owners often bring on an outsourced interim CFO so that they can have full and dedicated attention to their business from one person. It avoids the distraction that part-time CFO’s may have from supporting multiple clients; and more importantly, gives the CFO a chance to really dive into the business much more deeply.

This depth of understanding permits a quicker evaluation of long-term need, and therefore, can be much more efficient than keeping a part-time CFO for a long period of time.

3. Project-based CFO

A project-based CFO is called on to assist in specific goals and objectives. Examples of project-based CFO activities include support for acquisitions, business owner exit assistance, working capital improvement (improving cash flow), crisis-management, or preparing an organization for growth.

Is A CFO Worth The Investment?

How much will an outsourced CFO cost? Well, CFOs will charge in different ways. Sometimes, they’ll charge hourly rates, which can range from $100 to $500 an hour. They could require a retainer-based fee. In either case, it is less costly than hiring a full-time internal CFO if that level of service isn’t required for your business.

Project-based work is usually paid by the hour or as a fixed project fee, depending on how predictable the time commitment will be, and its duration.

Another option is a full-service platinum partner program. For our clients, this starts with a VIP meeting during which we dive very deeply into your business model, your vision, your existing processes, and your existing team. It is usually on-site if the company isn’t virtual. From this meeting, we develop a drawing of the business that is clearly traceable from the business as you understand it to the recommended team, processes, systems (manual or automated) that fit that business like a glove. This recommendation takes into account everything about your financial reality, your company culture, your own personal finances (if relevant), and your desired outcomes.

More importantly, this recommendation for VIP clients includes the realistic blueprint to implementation, an implementation blueprint that is realistic, achievable, and time-bound. The VIP package can then also be extended to include implementation and continued access to a part-time CFO. However, continuation with us is only recommended if there is a good fit for continued services. In many cases, much less is required: some changes in the existing bookkeeping practices, and/or the placement of a full- or part-time controller or accountant, for example.

The key to calculating whether or not a CFO is worth the investment is to determine the value that they will bring to your organization. A CFO for whom you are paying this kind of money should, without exception, bring, as savings to the bottom line, at lease five times their cost.

Simply put, if an outsourced CFO costs you $20,000, they should save your business at least $100,000.

Good CFO’s find this return in a number of places including accelerated cash flow, more cost-effective funding, cost-reduction, and process alignment as some typical examples.

It is time to discuss getting a CFO when you don’t feel 100% comfortable that you are receiving a timely, reliable, consistent, and transparent view of your company financials at least monthly. That is a trigger. From there it’s time to assess just what type of CFO you need. Under any circumstance, that CFO should more than pay for him or herself!