Effective financial management is at the core of any successful business. From managing cash flows to making strategic financial decisions, the role of a Chief Financial Officer (CFO) is critical to the long-term health of a business.

However, not all businesses can afford a full-time CFO. CFO salaries can range from $250,000 to $450,000 (or more) depending on the size of the business – a substantial undertaking for most companies. Additionally, some businesses may not need a full-time CFO. That’s where outsourced or fractional CFO services come into play.

When and why do companies in various lifecycle stages (small businesses, startups with or without funding, and mid-sized businesses) need an outsourced CFO? Let’s explore some of the considerations for different types of companies.

Want to explore these issues in greater depth? Read our Ultimate Guide to Outsourced CFO Services for a comprehensive overview of working with an outsourced CFO. 

WHAT IS AN OUTSOURCED CFO?

The CFO is the finance leader for your organization. They provide strategic insight into finance, accounting, and business operations. They also lead the accounting team (including your controller, data analysts, and bookkeepers), ensuring that the financial statements are produced timely and accurately, and then interpreted to glean meaningful information relevant to growing and maintaining the business. 

Many businesses have some aspect of the accounting team in-house, but not the full team. This is where problems can start. A controller is not a CFO; they traditionally look at the historical information and focus on closing the books routinely. In order to grow your business, you need someone looking ahead! If you can’t afford a full-time CFO, then outsourcing a fractional CFO might be your best bet.

CASE STUDY

Let’s take the case of one of my clients who had some, but not all of the accounting team in-house. They had a biller to prepare the customer invoices (revenue), bookkeepers to manage the payables and pay the vendor bills, and a senior-level accountant to close the books functioning as a Controller. They even had an outside consultant who specialized in compliance reporting for their industry to assist the Controller. What they did not have was a CFO. 

During the pandemic, when cash flow became an issue, PPP and EIDL loan opportunities presented themselves and ERTC was in question, the CEO called me and asked if I could help them with decision-making on some of the higher-level issues. I gladly jumped in and learned that I would have a tough time helping advise on decisions because they didn’t have their books closed on a monthly basis. 

I immediately set up a monthly check-in call, creating a strategic and focused discussion agenda structured to flesh out the primary issues, how they would be addressed, what the timeline was to address them, and who would take the lead. That call started each month with a review of the monthly financial statements and information. 

Within two short months, we got on track with the financial reporting. We worked through the PPP analysis, the EIDL analysis, and ERTC just to name a few. We created realistic organization-wide and department-based budgets. We updated the budget midway through the year as factors changed, preparing a rolling forecast to better manage the business. 

We made decisions on paying down some existing debt, looking at the profitability of specific departments, and then challenging the department managers to better manage expenses and how best to maximize their revenue. Together, we routinely discuss ways to increase the top line while managing the bottom line. 

This client is a nonprofit organization, so we also gave more structure to how we reported the finances to their governing board. One of the most meaningful exercises I led was a strategic planning session, which included the senior leadership of the client and the Board. It allowed everyone to express their point of view on a number of key issues which we then inventoried into a high-level strategic plan. This plan is continuing to play out on a daily basis. This service alone takes about a day per month with a fee of $3,000 per month. One day a month is only a small sliver of time, but it was enough to be effective and fruitful to my client.

SMALL BUSINESS CFO

Small business owners (revenue under $10M) often think that they can’t afford a CFO because they think in “all or nothing” terms. They truly cannot afford a full-time CFO. If you are a small business without a CFO, Here’s how to recognize when it’s time to consider outsourcing:

FINANCIAL COMPLEXITY

As your small business grows, so does the complexity of its financial operations. Managing that additional volume and complexity is taking up more and more of your current staff’s time and now you don’t get monthly reports (or maybe you never received them in the first place). You want to know if you can take on some debt to leverage growth, but you’re not sure if you can repay it or how long it will take. 

If you find it increasingly challenging to manage your finances, it’s a sign that you need an expert’s help. Maybe your business is experiencing unexpected cash flow issues, you don’t have complete trust in the financial information you are provided, or your accounting department is unable to collect invoices in a timely manner. These scenarios can all be addressed with outsourced CFO services.

STRATEGIC PLANNING

If you haven’t had a strategic planning session with your leadership team in quite some time (or ever), and you keep thinking of ways to do things better, or have a lengthy to-do list of matters keeping you up at night, you may want to consider hiring an Outsourced CFO to conduct a strategic planning session. Having an expert who can get everyone in the room at the same time to flesh out the issues, prioritize them, and facilitate a group discussion on the tactics needed to address challenges and achieve your goals, allows you to be rest assured your business and its operations are moving in the right direction. 

If you lack a clear business strategy or are making decisions in the dark, it’s time to bring in an outsourced CFO. They can provide the strategic insights needed to steer your business in the right direction and set you up for long-term success.

CASH FLOW PROBLEMS

Are you struggling with inconsistent cash flow or an inability to manage expenses efficiently? Not having a CFO on the payroll can lead to your business running out of money and failing to reach its potential and you may need to dip into your own salary or savings. An outsourced CFO can help optimize cash flow and protect the financial stability of your small business.

OUTSOURCED CFO FOR STARTUPS

Regardless of the industry, startups operate in a fast-paced and uncertain environment. The strategic guidance of an outsourced CFO can be invaluable during this stage.

Consider an outsourced CFO for these purposes:

Financial Forecasting: Startups need to plan for rapid growth. An outsourced CFO can create robust financial models and data-backed forecasts to help you secure additional funding and make informed decisions.

Compliance and Reporting: Often, institutional investors will dictate that your business becomes GAAP-compliant. Generally Accepted Accounting Principles (GAAP) are standards that encompass all details, complexities, and legalities of corporate accounting. GAAP compliance ensures transparency and standardization across all financial reporting. An outsourced CFO can help you effectively maintain compliance, so you can focus on what’s important – growing your business. 

OUTSOURCED CFO FOR MID-SIZED BUSINESS

Mid-sized businesses face unique financial challenges as they scale. Here’s how to recognize when outsourcing a CFO is the right move:

Scaling Challenges: As you expand, your financial needs become more complex. Perhaps you’re raising debt financing to fund your expansion into a new market or to launch a new product. An outsourced CFO can help manage this growth while optimizing costs.

Risk Management: Mid-sized businesses are often more exposed to financial and other types of risk. An outsourced CFO can implement risk management strategies and help you navigate challenges to protect your business.

Strategic Expansion: If you’re considering pursuing strategic M&A activities, an outsourced CFO can provide the financial expertise required for successful execution. Outsourced CFOs can help your business identify targets, assist in bid formation, and perform due diligence, for example.

OUTSOURCED CFO SERVICES FOR YOUR BUSINESS 

Whether you’re a small business, a startup with funding, or a mid-sized company, the decision to hire an outsourced CFO will involve a variety of factors. Having a CFO who can provide strategic insight and solutions when your business is facing financial challenges or opportunities is essential to your long-term success.

By partnering with the right outsourced CFO service, you can navigate financial complexities, make decisions with higher levels of confidence, and drive your business toward success. 

Mercadien has offices in NJ and Philadelphia and offers exemplary outsourced CFO services to businesses like yours. Our services are customized to your unique needs and we will work together to select the level of CFO involvement that will benefit your business most. We take the time to fully understand your goals, operations, team structure, and challenges so we can hit the ground running and set our partnership up for success. Reach out today to learn more.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.