Outsourcing A CFO
Sep 23, 2008
Every Company Needs a CFO
Companies without a CFO are at a competitive disadvantage. Many start-ups, small, and mid-sized firms have sophisticated operations and complex cost and financial challenges like large companies, only on a smaller scale. They need the expertise of a senior financial executive, but they either do not need a CFO on a full-time basis or they cannot afford the cost of a full-time CFO.
All highly successful businesses have one factor in common--they require timely, accurate, and useful information. Are your internal financial statements error-free? Do you receive your financials by the tenth day of the month? Are you confident that you do not have employee theft of cash, time, or inventory? If you are unsure of the answer to any of these questions, you need the assistance of a Chief Financial Officer.
Many companies get to a point in their business growth that requires the assistance of a high level financial professional, but hiring a full-time CFO may not always make economic sense. Outsourcing this function is an alternative to hiring another full-time employee with all of the costs that go along with employment, such as payroll taxes and benefits, as well as the costs for a search for a qualified person. The benefits will far exceed the cost.
Advantages of Outsourcing CFOs
More time to spend with customers. Entrepreneurs generally don't enjoy spending time with accounting and HR functions. Competitive companies must spend the vast majority of their time with current and future customers. It's one of those business facts of life--someone is spending time with your customers and prospects today; if it's not you, then it's your competition.
Better financial information for key decision-making. Most closely-held companies have erroneous financial statements. A business owner can't make key business decisions while relying on bad, inaccurate, or incomplete data. How confident are you that your bookkeeper/controller understands modern accounting standards, and how to present core profitability information to help you make the right choices?
A theft deterrent. Owners would be shocked to see how many employees steal from employers. There is theft of money, inventory, customer lists, intellectual property and other company assets. A part-time CFO will not only establish tighter controls, but the presence of the CFO can also help to discourage dishonesty by company employees.
More money from the bank and from vendors. Bankers and vendors are more sophisticated than ever. It's not long ago that many banks would make loans to small businesses without requiring that companies provide routine financial statements, but those days are gone. They are looking for financial statements that look professional, that follow accepted accounting principles, and that easily highlight the company's key ratios. A part-time CFO can improve your company's external "image" and assist the owner with opening doors to banks and obtaining better vendor terms.
Better trained accounting staff. Turnover in accounting staff is high. A part-time CFO will mentor and train your accounting staff to do a better job by acquiring more knowledge of accounting procedures.
Better documentation and controls. Does your bookkeeper/controller make tasks into a secret monthly ritual, being proud of being the only person who knows how to do something? Does that make you uncomfortable? A part-time CFO will establish proper controls and best practices, and help outsource high risk, low value tasks to protect your company.
Fewer cash flow surprises. Many smaller companies exist from month to month, paying vendors on the "squeaky wheel" principal. This is simply a symptom of a lack of planning. Difficult cash flow issues can be reduced by planning, cash flow management, and securing the financing you need to grow.
No surprises on tax payments. A part-time CFO will work directly with your regular tax CPA and provide them better financial information, so that you can better utilize your CPA's skills and advice.
Some Things to Consider
When considering out-sourcing a CFO, look for a professional with 25 or more years of experience. In finding someone with this experience level, it is highly unlikely that a problem or issue will come up that can't be resolved.
Make sure the part-time CFO is supported by a national organization that has the resources to be able to give your part-time CFO the support they need.
A CFO is a proactive professional that has a pervasive knowledge of things important for the owner to properly run the company. The CFO will have the ability to not only handle financial matters, but will also address HR, sales and marketing issues, and a host of other things needed to help the company succeed.
Avoid signing contracts. Walk away from the situation if an organization is not confident and competent enough to perform these services with a hand-shake. Also, avoid any offer that might require your company to pay a return on profits. The money the company earns belongs to the owners, not to outside consultants.
Ask for a monthly "ceiling" for the fees to be paid. The monthly fees should fit comfortably within your company's budget. There should never be any surprise on fees. Also, pay on a Form 1099 basis; that way you can avoid paying any payroll taxes, health insurance, or other benefits.
Advantages of Hiring a B2B CFO®, Who Works on a Part-Time Basis
The advantages of hiring a B2B CFO include:
- Accurate and timely in-house financial statements
- Solutions to your company's problems
- A sounding board for the owner's key decisions
- The ability for you as the owner to spend more time in entrepreneurial activities
Companies without CFO's gain significant competitive advantage and improve profitability by out-sourcing a CFO on an as-needed basis.