The Outsourced CFO Services Buyer's Guide

The massive move of data and systems to the cloud over the last few years is enabling many small businesses and non-profits to "go lean" while simultaneously driving business growth. These organizations now depend on remote 3rd-parties for activities that used to be performed in-house. 
The shift from in-house to outsourced has created all-new service industries. Today, many industry-leading enterprises leverage the power of outsourced Chief Financial Officer (CFO) services.

Small businesses now have more choices for high and low-level roles based on merit, not just physical proximity. It is now possible to get great financial insight from professionals with experience in your industry without requiring them to move to within a commute-radius of your locale. It's a matter of finding the best CFO service anywhere, not just the best in your zip code.

But, of course, more choices means a tougher decision. What is a CFO service, exactly? What differentiates them? How much should you pay? How does the engagement work? What questions should you ask them? What expectations should you have?

That's where this page comes in. We aim to answer each of those questions so that you can proceed confidently in your search for outsourced CFO solutions.

Before you get to the search process, it's important to understand which types of companies get the most out of contract CFO services. We can offer a range of criteria, but keep in mind these are not hard and fast rules.

If you're a sole proprietor or run a startup with little to no existing revenue, you may benefit from CFO consulting services on a one-time basis, but you probably don't want to plan on contracting CFO services for a long-term relationship just yet.

Generally speaking, $1MM in revenue is a minimum threshold for outsourced CFO services, but there are a few $500K businesses which benefit as well. The key for those smaller businesses is that they’re hungry to get and use financial insights.

On the upper end, your company will typically want to consider moving from fractional CFO services to a full-time CFO at around $50MM in annual revenue. Some types of businesses have more sophisticated financial needs. That means these companies may need a CFO at less than $1MM and will probably want to graduate to a full-time CFO at less than $50MM. A Software as a Service (SaaS) company, for example, could be in need of a contract CFO service at $500K and employ a full-time CFO when it reaches around $35MM, perhaps earlier.

Before we can get to "how to select the right outsourced CFO service," we need to agree on what outsourced CFO services actually are and what they offer.

While "outsourced" could mean a person or business in your zip code, the view we'll take in this post is that "outsourced" can also mean "virtual CFO services," meaning your outsourced CFO may not actually warm a chair in your office. So most of the pointers we provide below will be applicable both to local and non-local providers.

In addition to "virtual," there are several other modifiers which could refer to an outsourced CFO solution.

• Part-time CFO services
• Fractional CFO services
• Interim CFO services
• Contract CFO services
• CFO professional services
• CFO consulting services
• CFO advisory services

These variations may come in handy as you begin doing searches. We'll talk more about search terms below.

Individuals or Groups

Keep in mind that the service provider could be an individual or a group of CFOs who have gone into business together.

Contracting with an individual gives you the advantage of knowing exactly who you're going to be working with. But you also run some of the same risks when hiring an employee. If that individual lacks experience in areas of future need (eg: M&A, pricing overhauls), has an extended illness or closes the business, you're going back to the drawing board.

While a group of CFOs in business together may not give you the certainty of which individual you'll be working with, you do get some added benefits.

• You get the combined knowledge and experience of the entire team for strategy recommendations. Even if the other CFOs don't contribute to your strategy directly, the group usually shares their successes and failures internally so that everyone can learn from them. Or your CFO may bring in another team member when specialized expertise is needed.
• You get the assurance that someone can step in if your CFO is absent for a while or leaves the business. Top-tier outsourced CFO providers make sure to document their processes and cross-train when possible for just this reason.

So, what services do these providers offer?

Let's talk first in terms of benefits. As we cover in What's Included in Virtual CFO Services?, outsourced CFO services provide many of the same benefits as an in-house CFO.

• A CFO can identify and manage bookkeeper/controller to produce reliable data and interpret the results, providing insight to help steer the ship toward your stated goals. The result is that you know exactly where, when, and how to focus your team and inform your stakeholders.
• A CFO can be a much needed sounding board, coach, or guide. Look for a seasoned veteran who you like and trust, not merely someone to fill a role. In the end, you'll have a team member who knows your business and can help hold you accountable as you work to reach clearly-defined goals.
• A CFO can position the finance function as a competitive advantage. If you're financially frustrated, chances are your competitors are too, but they're probably not reading this post and actively seeking a solution. An experienced CFO can help you cut waste, deploy cash efficiently, and find opportunities for greater production or expansion. With their help, you can be in a position to step ahead of the other organizations in your niche.

In addition to these more over-arching items, outsourced CFO services ALMOST ALWAYS:

• Identify key metrics and map out reporting to monitor
• Interpret financial results on a regular basis
• Manage annual budgeting process, development of annual strategy
• Cash management & planning
• Strategic planning

Outsourced CFO services SELECTIVELY include:

• Fundraising. Outsourced CFOs may create the financial story, coach you on delivery and even do some light pitching, but don't expect them to spend six months on planes pitching VCs or banks all over the country.
• Management of finance-related IT systems. While they will often take responsibilities for accounting related technology, don't expect the CFO to manage IT staff, company network, internet access, security, or CRM/ERP systems.
• Participation in board meetings. Outsourced CFOs may prep and coach the CEO and can be requested for a presence in meetings.
• Help with mergers and acquisitions. This usually consists of light advisory and analysis help, but don't expect the provider to take on a months-long due diligence project on a moment’s notice unless that's an anticipated part of the engagement.

Your organization may not be in need of these services at present, but if you anticipate being in need, it would be wise to ask about these offerings up front.

Outsourced CFO services USUALLY DON'T: *

• Shoulder the burden of all things legal
• Manage HR/Admin (benefits, insurance, hiring/firing of non-finance staff)
• Provide a one-stop for all investor relations

* Many CFO's have this experience and would entertain including these services if there is a need.

Keep in mind that some outsourced CFO services group CFO-level insights with bookkeeping and controller services, essentially delivering an outsourced finance department. 

For instance, this is how we group CFO services with robust accounting offerings here at Driven Insights . . .

Learn more about how we can help you build meaningful enterprise value through CFO services here.

What CFO consultants offer:

CFO consultants work on a one-time project basis. They can be helpful in several ways.

• Can help stabilize a struggling company. If your company finds itself in a cash crunch, a CFO consultant should be able to step in and help you navigate to safer waters.
• Can bridge the gap while you find a permanent CFO. If your company is searching for a permanent in-house or outsourced CFO, a consultant may be able to bridge the gap while you work through the recruitment process. This solution gives you the breathing room to find the right person or outsourced solution for the long-term.
• Some are proficient at establishing and interpreting Key Performance Indicators (KPIs). But many consultants just aren't skilled or experienced enough to align KPIs. Beware of the controller who is now marketing their services as a CFO. Check out our CFO vs Controller post to learn more about the differences in these two roles. 
• Can be leveraged for a thorough market analysis. Consultants often step in for a review of your market. Just make sure you understand and can articulate what the practical outcome of this analysis will be before jumping into this examination.
• May provide insight during mergers and acquisitions. Keep in mind that small business M&A is much different than big business M&A. Don't pay a rookie consultant to come in and learn how this works. Look for someone who has worked through a couple of M&As already.

The Cons of CFO Consulting Services

While a company can benefit from a consulting service, there are drawbacks which come when you don't have a CFO service on an ongoing retainer.

A consultant ...

• Won’t truly know your business or industry. It takes time (and first-hand experience in a similar business in a given industry) to understand what makes a business and market tick. Don't expect a consultant to step in and unlock the secrets of your niche in a couple of weeks.
• Can’t fine-tune processes. “No plan survives first contact with the enemy.” Plans are necessary, but they always need to be adjusted after implementation begins. A consultant may deliver a slide deck with a plan and a “good luck” slap on the back but isn't available to guide the adjustments to that plan as you begin implementation.
• May leave your team frustrated. Consultants aren’t available to answer day-to-day questions and may not appreciate the context, roadblocks, or specific nuances your team faces. They may not be able to frame the tasks/insights in a way that the team understands. At Driven Insights, we’ve seen a bookkeeper repeatedly struggle to work with an outside CFO because she was intimidated and didn’t understand tasks that were assigned. The bookkeeper essentially shut down.
• Can’t provide historical context. One of the benefits of a more extended engagement is that the person or team knows what decisions were made 18 months ago, why they were made, what the results were, and how that affects strategy for the next six quarters. Relationships and trust don't happen overnight.

You may need help in more than just CFO-level insight. Are you 100 percent sure that your bookkeeper and controller are delivering a competitive advantage? Some outsourced solutions include assistance in these areas along with CFO services.

Rule #1 - Fit is everything.

While a provider with an impressive resume(s) or prestigious background(s) may be preferable to one without (if that is your only differentiating criteria), those may not be the first things you should look for. We have those credentials, but you shouldn't hire us on that fact alone. We'll outline three types of searches you can do to help you dig deeper and find the right fit.

Niche Queries: The best partner for your organization is a firm or individual with experience in your niche and/or your situation. If you run a SaaS company, by all means, do a search for "SaaS outsourced CFO service" in addition to the broader "outsourced CFO service" query.

Specific Question Queries: One good way to test for industry knowledge is to look through blog posts on a CFO service's website. Many great service providers cover industry-specific financial topics on their blogs. If the team can explain things well in written form, they know their craft. Do a query like "financial metrics for SaaS companies (or your industry)" to see if any CFO providers cover the needs you have.

Start with a very specific search and widen it if you don't find what you're looking for. Keep in mind that there may be CFO service providers with expertise in your industry which may not be obvious from a Google search. But there's no reason not to start there.

Specific Need Queries: Some organizations begin searching for an outsourced CFO solution because of a pressing need. They may even be looking for a short-term engagement with an interim CFO service, but shouldn't rule out a longer relationship. CFO service providers can deliver solutions to short-term needs, such as...

• A cash crunch. For example, your company had some customer concentration and lost a big account.
• A bankruptcy or forbearance with the bank.
• A one-off project. For example, you need deep analysis on pricing, margins, or the strategic planning process.
• A one-off financial gap analysis or due diligence exercise
• A relocation.
• A merger or acquisition. For example, you need post-acquisition integration or oversight in preparation for a sale.
• A new bookkeeper/controller. The interim CFO could step in to help hire and train these roles.

The same rule applies here as in a niche industry search. Try to find a provider with experience in the task at hand. For example, if a bankruptcy is possible in the near future, search for "bankruptcy CFO service."

Finding the right fit is crucial, not only because the best provider can deliver the best insights, but because that provider will take less time to on-board and get up to speed. Your financials and systems will likely look like familiar territory to them, and the provider will be able to see what needs to be done very quickly.

Now that you've done some online searches, you'll want to screen providers by asking some questions which will help you find the right fit. In addition to some general questions to check for financial competency, cover the following topics.

1. Do you only offer CFO services? Some CFO service providers engage at the bookkeeper, controller, and fractional CFO levels. CFO services can't be isolated in this case. These companies act more like an outsourced finance department, and that may be a solution you should consider. READ MORE
2. How have you helped companies in my industry or situation in the last year? This question gets at the topic from the "How to Search for" section above. Some CFO professional service providers employ specialists from an academic field or larger companies. While these specialists may know the theories, there’s no substitute for actual small business experience. READ MORE
3. Can you show examples of sample reporting that is representative of what we need and why? Some CFO professional service providers know one business vertical and can speak to one type of personality really well. But that may not be your business and personality. A first-rate CFO provider knows their craft well enough to adjust to various types of businesses and can customize reports based on the type of info which you process effectively. READ MORE
4. What happens if my CFO leaves? One of the reasons you should consider outsourced CFO services is because you can get the experience and expertise of a team of professionals instead of an individual. But if your service provider assigns you one person who is the only human on the planet who knows your business and that human finds other employment, you’re in a bind. READ MORE
5. Can you tell me what kinds of reports boards and investors will want to see? Chances are your board of directors and/or investors will need to communicate with your virtual CFO at some level. Those parties may even be apprehensive about outsourcing CFO services. Make sure your provider is skilled at understanding the perspectives of these team members and communicating what information they need to see. READ MORE

Keep in mind that you will be working with a CFO service provider in a personal way. If, during the interview process, you feel like this provider may know their stuff, but is going to be difficult to work with or doesn't communicate well, keep searching. The CFO role is collaborative in nature, so don't just hire a provider based on their ability to accomplish tasks.

It is helpful to understand, before you make a commitment, what the first few months of an engagement will look like. Top-tier CFO service providers will have been through an onboarding process before and understand what needs to happen first to get off to a great start.

Here are some activities that are often completed during an onboarding period.

• Goal Setting - Your provider should start by understanding your short and long-term goals. Your goals help determine the information you’ll need to hit the milestones en route to achieving them. Your information requirements, in turn, inform the technology, team, and process needed to generate it.
• Report Design - There are two main considerations in report design. The first step is to pick the right KPI's for your industry and growth stage. The service provider will highlight the few key metrics that you need to be watching now and evolve those as your business challenges and opportunities change. The second step is to make the data consumable. Your provider should be able to present reports which match the way you interpret data best. Some owners digest visual data better and will benefit from more charts and graphs. Others are more numbers-data oriented and can consume reports with numerical data only. Check out 7 Essential Features Your Financial Dashboard Must Have to learn more about what to look for.
• Technology Recommendations - Your provider may see that your system would work more efficiently with a new software with a balance of price, performance, security, and stability.
• Ensure Accounting Foundation is Sound - Among other things, the provider may need to rework your balance sheet to get a more accurate picture of financial reality.
• Build or Enhance Financial Processes - One benefit of hiring an outsourced CFO service provider is that you are not only getting their financial management expertise, but you can benefit by borrowing from their knowledge of processes they've built or used in other businesses. This onboarding time can be used for restructuring your processes for better productivity.

The outsourced CFO service should be able to give you a 90 to 120-day roadmap of everything that will occur in this period. This roadmap is a crucial first piece in the engagement with the service provider.

It is possible that your needs run deeper than just CFO-level insight. If you are not 100 percent confident that your finance department is providing your organization with a competitive advantage in your industry, you may want to consider a more comprehensive solution.

Some companies group CFO responsibilities with bookkeeping and controller services. These companies provide a turnkey solution to organizations which are in a position to outsource day-to-day tasks as well as the larger decision-making responsibilities.

These providers are often specially equipped to provide you with confidence that the following tasks are completed with efficiency and accuracy:

• Transaction entry & classification
• Accounts receivable management
• Accounts payable management
• Payroll management
• Bank account reconciliation
• Rigorous monthly close process
• Reporting package generation
• Financial control oversight 

You'll also find efficiency advantages with a company (like ours) which groups CFO services with Bookkeeper and Controller services.

This type of company has a team that is accustomed to working together, is centrally managed, and is finely-tuned and cost-effective. The result of those efficiencies is that you can save a lot of money by getting the most out of a higher-paid CFO. The CFO will engage ONLY when needed because everything he needs has been teed up by the team beforehand.

You only pay the high CFO rate when that person is providing the maximum value to your business. A CFO from a separate service will waste time cleaning up lower-level tasks and trying to manage people from outside his organization.

If you think your company would be a good fit for outsourced CFO services but want to learn more, we'd love to talk. No obligations, no pressure, just a short conversation to learn more about your challenges and goals and what your best path forward will be.