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 which 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.
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.
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.
In addition to these more over-arching items, outsourced CFO services ALMOST ALWAYS:
Outsourced CFO services SELECTIVELY include:
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: *
* 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. We'll talk more about this option in the conclusion.
What CFO consultants offer:
CFO consultants work on a one-time project basis. They can be helpful in several ways.
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 ...
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.
CFO service providers generally price their services based on the scope of services needed. A few may work on an hourly rate, but you will usually see fees by day, week, or month.
Most providers will create a custom quote based on your specific needs. The spend can range from $1,200-$2,000 per month. Contrast that with the average CFO salary of $225,000 to $275,000 per year (salary + benefits), and you'll easily save 80 percent by outsourcing the CFO role.
The savings can be even more significant when you consider an integrated outsourced finance department, complete with bookkeeper and fractional controller. Click here, to learn more.
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...
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.
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.
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:
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.