I often get asked about why companies should outsource CFO services. As small- to medium-sized businesses grow, they need additional financial resources, including data and expertise to help them better understand the company’s financial health, plan where they can feasibly go based on that health, and improve performance overall. In the past, many companies reaching this phase would bring on a full-time Chief Financial Officer (CFO). But, as we all know, times change … and so do needs and resources. Now, more businesses are deciding to forgo the large salary expense and still get the expertise by outsourcing those financial services.
You may need high-level financial strategy, but you may not need, or maybe you can’t afford, a full-time employee. Essentially, the finance function of your company can be outsourced to a third-party service provider who acts in the same capacity as a CFO. You gain expert financial insights, advice, skills, and resources that will help you grow your business, without the huge paycheck that historically goes with it.
Why Outsource to a CFO? The reasons you may decide the time is right to get someone in your financial corner are plentiful. However, as I touched on above, your company experiencing rapid growth, such as the development of new products or market expansion, is one of the most common reasons. Growth like that needs cash for manufacturing, distributing, and marketing. Does the company have enough? Where will it get the money from over time? These are the questions a CFO can help you answer.
Other reasons to bring on an outsourced CFO include resolving a financial challenge (cash flow, inefficient processes), scaling systems to handle the complex transactions aligned with rapid growth, and needing an accurate, up-to-date financial forecast for budgeting, restructuring, or funding purposes. These major decisions and company crossroads require a financial expert that many companies do not have on staff.
How an Outsourced CFO Helps An outsourced CFO will take their knowledge and broad experience to analyze the company’s financial picture and provide strategic planning and solutions to move forward with the best financial footing. Equally important, they will help ensure the company has the checks and balances needed to keep stakeholders accountable as the company grows. For example, if the company needs to secure additional funding, prepare for a merger or acquisition, or increase oversight to minimize the risk of fraud.
While each set of circumstances and needs vary, an outsourced CFO can:
Develop a financial roadmap to navigate the company’s future
Help make the numbers more understandable
Help overcome obstacles to business growth
Implement reporting for financial and accounting functions
Oversee financial controls
Identify weaknesses and capitalize on strengths
Develop KPIs and metrics
Develop forecasting and budgeting models
Provide strategies to move forward
Put accounting and reporting systems into place
Provide regular financial reporting
Manage cash flow
Help acquire funding from investors
The End Benefits of Outsourcing a CFO It’s appropriate that the largest benefit of outsourcing a CFO is cost savings. And while many people believe that the costs are actually higher, according to an article in Forbes, the idea that outsourcing is too expensive is a fallacy. In the article, they compare the salaries of full-time CFOs (companies with approximately $10 million in revenue) to the costs of outsourcing. The full-time CFO earned about $200,000 to $250,000 per year as a base, plus bonuses, benefits, taxes, overhead, and long-term incentives (equity), adding up to $300,000-$400,000 per year or more. However, an outsourced CFO for the same size company averaged $7,500 per month, or $90,000 per year (assuming they were retained every month, all year, which is not always the case). The outsourced CFO was about a quarter of the cost of the full-time CFO (at the higher end).
In addition to the cost savings, an outsourced CFO provides access to a financial expert with various experiences, and the flexibility to utilize that expertise only as needed. The relationship can start part-time or be project based and, as the company grows, so can the services and time. But in either case, you can get back to the business of your business.
Barker Associates provides outsourced CFO services to companies of all sizes. We can provide the higher level of financial analysis and strategy your company needs to get to grow. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
Those of us who work to manage our cholesterol have received conflicting information about eating eggs. I grew up loving eggs, but then, as an adult, I was told not to eat them due to high cholesterol.
Then the nutrition experts decided you can eat egg whites. Now it is back to eat your eggs – yolk and all – the last time I spoke with a nutritionist. Confusing.
Deciding if you are going to outsource a function within an organization is about as confusing. The trends go back and forth on that issue too. Advances in technology and lower costs of offshore professionals have made the idea of outsourcing more attractive in some cases.
I have some advice, gained over my years as CFO in various organizations, for you to consider while you evaluate the idea of outsourcing financial functions:
Don’t try to fix a broken process by outsourcing it. Do not outsource a recurring, detail-oriented process that is currently broken. Get the best consultant you can afford working to fix the process. Make certain the expert who fixes the process creates a training manual on how the process should run and trains an internal staff person on it. You may discover during this process it is easier for you to keep that process going with your own employees or you may decide you want to outsource the detail part of it to an outside, less costly resource. The bottom line is that if you do not understand your own process, you cannot know if a third party is accurately performing it on your behalf.
Get organized. Organize your data in a way that you can provide it to the outside party prior to engaging them. If you cannot make sense of your data, you can end up paying a third party a lot of money to do it for you.
One of the areas I’ve seen this as an issue is with State Sales Tax. Compliance in this area is about as difficult as hanging upside down from a tall tree branch while flossing your teeth. Companies get frustrated with the complicated process of filing state sales taxes, especially when multiple states, or states with complicated calculations and forms are involved. For example, are you capturing sales revenue based on the billing address or the shipping address? You must have accurate data before outsourcing it for someone else to handle.
My recommendation is to invest in upgrading your IT infrastructure. Regardless of whether you are outsourcing compliance with state sales tax or another process, you must be in a position to produce data in an organized manner that a third party can accept and act on.
When you do decide to outsource a portion of your business, make sure you keep the data and regularly backup the data the outsourced agency is using. Make sure you still know where your information is and how to get to it if the outsourced entity suddenly goes out of business. Perform routine oversight of the work being done by the third party. This is even more important today in this every changing business world.
Just-in Time Experts. Expertise that you need infrequently is a great area to consider outsourcing. Many third parties provide outsourced IT, legal, human resource, or financial expertise to augment internal resources and are less costly than hiring the expertise full time. You may only require specialized expertise for specific projects rather than an on-going need.
Outsourcing these functions is not without its drawbacks. For example, let’s say your obsolete, no-one-has-ever-heard-of information system gets hacked and you have no in-house expert who is familiar with your system. Hiring an expert to support obscure software can be costly and time intensive to get your problem solved.
Or perhaps legal expertise is something you only require occasionally. You decide to download a customer contract from the internet instead of hiring legal expertise to prepare your standard contract. If you get in a nonpayment dispute with one of your major customers and then bring in legal to help you, you may discover that the customer contract you downloaded for free from the internet will not allow you to properly recover the revenue you are due. Now the outside lawyer has to clean up the mess you made by not hiring them on the front end to prepare a sound contract.
My point is that it is essential the right expertise performs the company’s core functions in every business. The laws and regulation in these areas change rapidly and you need someone to help you stay compliant and out of trouble.
Barker Associates provides outsourced Chief Financial Officer services on a fractional or full-time basis in the event of a transition. Fractional services work best during times of fast paced growth, a new system implementation, a merger, or an acquisition. Even with a full time CFO on board, they have a day job and these types of changes require a unique focus and background. Our extensive and diverse background helps guide the organization through the change.
During a transition time, Barker Associates uses their expertise to assist the organization with designing a job description and interviewing candidates for the new position. Once your new CFO, Accountant or other financial professional is onboard, Barker Associates exits until you bring us back for the next big project.
If you are considering outsourcing a financial process within your organization and would like to discuss specific areas of concern, I would love to speak with you. Click here to schedule a 30-minute free consultation to discuss your unique situation.